Export Activity and Productivity: New Evidence from the Egyptian Manufacturing Industry

This study explores the relationship between exports and productivity using a panel dataset of Egyptian manufacturing firms. Most previous studies using data from more developed countries suggest that exporters are more productive than non-exporters because the more productive firms self-select into export markets, while exporting does not necessarily improve productivity. We investigate if exporting firms are more productive than non-exporting firms and, if so, whether the productivity differential is due to a self-selection process or to the role of learning from exporting. We also ask if the extent of export activities matters for productivity. We find that both labor productivity and total factor productivity are significantly higher for exporters than for non-exporters. On average, labor productivity and total factor productivity are, respectively, 46% and 63% higher for exporting firms than for domestically-oriented firms. When we differentiate between pre-entry and post-entry differences in productivity, it appears that this export premium is driven by a learning-by-exporting process rather than just a self-selection of more productive firms into exporting. This weak evidence for the selection hypothesis is a reflection of the importance of the level of development of destination countries. In contrast to exporters to OECD countries, exporters to Non-OECD countries self-select into export markets, signaling the importance of the technical assistance from foreign buyers benefiting the former exporters. We also find an inverted U-shaped relationship between export intensity and productivity, suggesting the existence of a “threshold of exporting”. These results are robust to controlling for additional firm characteristics and potential outliers.