Academic journal article Baltic Journal of Economics

Firm Exporting and Productivity: What If Productivity Is No Longer a Black Box

Academic journal article Baltic Journal of Economics

Firm Exporting and Productivity: What If Productivity Is No Longer a Black Box

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Since the ground-breaking study of Bernard and Jensen (1995), which described 'exceptional export performance of firms in the United States', many empirical studies have focused on investigating the relationship between export status and productivity growth. Two hypotheses are often used to explain the superiority of the productivity of exporters compared to non-exporters in international trade. The first hypothesis is self-selection, where only the more productive firms will self-select into the export market (e.g. Bernard & Jensen, 1999). An alternative but not mutually exclusive explanation is learning by exporting, which argues that export participation can be a source of productivity growth enabling exporting firms to become more productive relative to non-exporters (e.g. Van Biesebroeck, 2005).

One of the stylized characteristics from the econometric evidence of the linkage between export and productivity is that of mixed findings. For example, while many studies affirm the existence of the self-selection hypothesis, other research indicates that participation in the export market makes firms more productive (see Wagner, 2007 for a review). In contrast to such findings, recent studies, for example, Bigsten and Gebreeyesus (2009) found support for both hypotheses in Ethiopia, while Kim, Gopinath, and Kim (2009) rejected the validity of each hypothesis for the majority of sectors in South Korea.

Mixed results concerning the export and productivity growth nexus may stem from the variance in characteristics of geographical, economic conditions and level of economic development of countries (Blalock & Gertler, 2004; Wagner, 2007). The marginal benefits from exposure to exporting can be greater for countries with poor technology and low productivity in comparison with those in developed countries. More importantly, different conclusions might come from using a wide variety of econometric methodologies for testing these two hypotheses (Sharma & Mishra, 2011).

Interestingly, when considering the relationship between export participation and productivity, there is not a consistent measurement of productivity. Some previous studies often use labour productivity. This is unsuitable in the Vietnamese context because this index just represents only part of the productivity picture and should be considered as one of the characteristics of exporting manufacturing firms (Hiep & Ohta, 2009). Other studies often use a methodology developed by Levinsohn and Petrin to measure total factor productivity (TFP) in investigating the relationship. Although the method can control for the endogeneity of input factors by using the intermediate input demand function under certain assumptions, it does not allow for the decomposition of TFP growth. Productivity theory shows that the change in TFP includes various components such as technological progress (TP), changes in technical change, and scale efficiency (SE) change (Kumbhakar & Lovell, 2003). As a consequence, when productivity is considered as an aggregated index, this will limit further investigation into the relationship between export participation and its decompositions.

In order to examine the relationship between exporting and productivity, several studies employ a conventional approach such as the Solow residual method. This approach is based on a classical assumption that all firms are operating efficiently and have constant returns to scale. This means that when TFP growth occurs, it is equal to TP (Kumbhakar & Lovell, 2003). The present study revisits hypotheses of self-selection and learning by exporting in order to examine their validity within the context of Vietnamese private domestic manufacturing firms for the period 2005-2009. During this time, Vietnam became a member of the World Trade Organization, and affirmed the private sector's increasing ability to freely participate in export activities. …

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