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Linking Productivity to Trade in the Structural Estimation of Production within UK Manufacturing Industries

  • Marian Rizov
  • Patrick Paul Walsh

We estimate productivity dynamics within 4-digit manufacturing industries, using FAME data on UK Companies, from 1994 to 2003. We extend the algorithm in Olley and Pakes (1996) to allow for a selection bias driven by the Melitz (2003) effect (high productivity types selecting to exporting) to get more consistent and unbiased estimates of the parameters of the production function. We demonstrate a link between trade orientation and productivity within industries that is driven by selection, not by learning. Hence aggregate productivity is driven by market share reallocations amongst companies rather than from improvements in company level productivity.

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Paper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp98.

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Date of creation: 15 Dec 2005
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Handle: RePEc:iis:dispap:iiisdp98
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