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Self-selection, Export Market Heterogeneity and Productivity Improvements: Firm Level Evidence from Slovenia

  • Joze P. Damijan
  • Saso Polanec
  • Janez Prasnikar

This paper adds a new dimension to the recent literature on relationship beween firm's heterogeneity in terms of productivity and its decision to exports and/or invest in foreign affiliate, namely the heterogeneity of foreign markets. Exploiting a rich and complete dataset for Slovenian exporting firms in the period 1994 - 2002, we gain several interesting insights. First, we demonstrate the importance of fixed entry costs in foreign markets causing that the number of foreign markets served by individual firm increases with firm's productivity level. We show that firms enter additional export markets only gradually - on average one market in two years. Second, we demonstrate that, on average, exporting firms are not always more productive than firms supplying only domestic market. Also, we confirm a conjecture that higher productivity level is required for firms starting to export to advanced countries as opposed to starting to export to developing countries. Finally, we observe that firms can gain significant productivity improvements when serving foreign markets. Significant productivity improvements occur only when serving advanced, high-wage foreign markets. In a small open country, exporting per se does not warranty such effects.

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File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp148.pdf
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Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 14804.

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Length: 34 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:lic:licosd:14804
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  1. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
  2. Aitken, Brian & Hanson, Gordon H. & Harrison, Ann E., 1997. "Spillovers, foreign investment, and export behavior," Journal of International Economics, Elsevier, vol. 43(1-2), pages 103-132, August.
  3. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  4. Sofronis Clerides & Saul Lach & James Tybout, 1996. "Is "learning-by-exporting" important? Micro-dynamic evidence from Colombia, Mexico and Morocco," Finance and Economics Discussion Series 96-30, Board of Governors of the Federal Reserve System (U.S.).
  5. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  6. Keith Head & John Ries, 2003. "Heterogeneity and the FDI versus Export Decision of Japanese Manufacturers," NBER Working Papers 10052, National Bureau of Economic Research, Inc.
  7. Jose P. Damijan & Boris Majcen, 2003. "Trade Policy in a Small Advanced Transition Economy: Trade Policy Review of Slovenia, 2002," The World Economy, Wiley Blackwell, vol. 26(9), pages 1369-1394, 09.
  8. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  9. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  10. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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