Exporting, Productivity and Government Interventions: Is There a Link?

Recent theoretical models postulate that only the most productive firms become exporters due to the existence of costs of exporting. Empirical evidence does suggest that exporters are on average more productive than their domestic counterparts. However, contrary to the theory the productivity distribution for exporters and non-exporters overlaps. Motivated by this empirical finding, I extend an existing model of heterogeneous firms by adding endogenous trade policy based on a political economy argument. Using Ukrainian data I identify firms that receive explicit government support in the form of preferential tax policy, subsidies and other exclusive benefits. I find that explicit political support is positively associated with firms’ size, voter turnout and state ownership but not efficiency.