Export and Productivity Under Different Market Condition: Evidence from Japan

We use a large dataset of Japanese manufacturing firms to compare the effects of export entry on productivity under different export market conditions. Using the established econometric procedures of Propensity Score Matching and Difference-in-Differences, we explicitly estimate the effects of export entry during two periods with fairly different export market conditions: from 2002 to 2005, corresponding to the earlier period of global economic expansion that ended in 2007, and from 1998 to 2001, the period which witnessed the aftermath of the Asian financial crisis. We find that export entry is associated with significantly higher ex-post productivity growth vis-à-vis non-entrants only during the period with favourable export market conditions. We also find that such advantage in productivity growth is long lasting and is found only for entrants exporting to high-income markets. Furthermore, export entry is associated with higher growth in R&D expenditure only during this period. These findings suggest that the effect of export entry in enhancing productivity growth, sometimes referred to as "learning-by-exporting," depends on good market conditions.