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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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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. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  3. Joze P. Damijan & Mark Knell & Boris Majcen & Matija Rojec, 2003. "Technology Transfer through FDI in Top-10 Transition Countries: How Important are Direct Effects, Horizontal and Vertical Spillovers?," William Davidson Institute Working Papers Series 549, William Davidson Institute at the University of Michigan.
  4. Aitken, B. & Hanson, G.H. & Harrison, A.E., 1994. "Spillovers, Foreign Investment and Export Behavior," Papers 95-06, Columbia - Graduate School of Business.
  5. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  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. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  8. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 903-947.
  9. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  10. 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.
  11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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