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Estimating productivity with multi-product firms, pricing heterogeneity and the role of international trade

In this paper, we analyze the relationship between exports, imports and firm productivity. We use a rich product-firm-level dataset providing both revenue and quantities of all products for a large panel of Danish manufacturing firms over the period 1998-2008 and link it to firms’ international trade transactions by product. We use our detailed product level information to compute a firm level deflator and avoid the criticism of biased estimates due to the use of industry level deflator. We find that both importing and exporting behaviours are strongly associated with productivity, but firms involved in both importing and exporting are the most productive. We also find evidence of a self-selection into importing and exporting but no learning effect. Finally, we try to distinguish between cost effect and product quality effect by analyzing the importance of the origin of imports and the destination of exports. We find that both imports from countries with abundant and cheap labor like China and from countries with similar level of development matter, although the mechanism through which productivity is affected is likely to be different. In addition, exporting to more distant OECD economies is more strongly associated to productivity than exporting to neighboring or other EU countries, especially when controlling for the price specific effect.

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Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 11-13.

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Length: 31 pages
Date of creation: 01 Jun 2011
Date of revision:
Handle: RePEc:hhs:aareco:2011_013
Contact details of provider: Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Phone: +45 89 486396
Fax: +45 8615 5175
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