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Total factor productivity and the decision to serve foreign markets: Firm level evidence from France

This paper examines productivity differences between firms doing foreign direct investment (FDI) and domestic firms on a sample of 28,133 continuing French firms over the period 1996-2002. The main contribution of this paper is to scrutinize the links between the different modes of globalization (exporting vs. setting up an affiliate overseas) and address the question of causality between productivity and global expansion. Comparing domestic firms and extra-firm exporters of goods, we find that pre-entry selection is more important than post-market-entry effects. Pre-entry boosts to productiVity are interpreted as a reflection of sunk cost to exporting in our framework while the absence of post-entry productivity effects is interpreted as an absence of learning effects associated with exporting. This result does not seem to fully hold for exports of services, which we consider as a partial evidence of foreign knowledge spillovers at work in the exports of services; more in-depth investigation would be probably fruitful to identify the dynamics of the diffusion process.

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Paper provided by Banque de France in its series Working papers with number 205.

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Length: 29 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:bfr:banfra:205
Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
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  1. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  2. Head, Keith & Ries, John, 2003. "Heterogeneity and the FDI versus export decision of Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 448-467, December.
  3. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  4. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
  5. Aitken, B. & Hanson, G.H. & Harrison, A.E., 1994. "Spillovers, Foreign Investment and Export Behavior," Papers 95-06, Columbia - Graduate School of Business.
  6. Guido Fioretti, 2005. "The Production Function," Papers physics/0511191,
  7. Jacques Mairesse & Jordi Jaumandreu, 2005. "Panel-data Estimates of the Production Function and the Revenue Function: What Difference Does It Make?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 651-672, December.
  8. Delgado, Miguel A. & Farinas, Jose C. & Ruano, Sonia, 2002. "Firm productivity and export markets: a non-parametric approach," Journal of International Economics, Elsevier, vol. 57(2), pages 397-422, August.
  9. Aw, B. -Y. & Hwang, A. R., 1995. "Productivity and the export market: A firm-level analysis," Journal of Development Economics, Elsevier, vol. 47(2), pages 313-332, August.
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