Link between Exporting and Productivity

Abstract

The theory that links exporting behaviour and productivity consists broadly of two hypotheses—the ‘self-selection hypothesis’—more productive firms venturing for exports and the ‘learning by exporting hypothesis’—exporting leads to increased productivity. This study measures the productivity differentials between exporters and non-exporters for 120 firms belonging to the Indian chemical industry to investigate if the self-selection hypothesis holds. The productivity differential comparison between exporters and non-exporters show that non-exporters have higher total factor productivity than exporters. Though labour productivity is higher in exporters than non-exporters, the yearly averages show that the labour productivity of exporters is converging to that on the non-exporters. In terms of capital productivity, overall averages show that exporters are more productive, but yearly trend shows that capital productivity of non-exporters has overtaken that of exporters over the years. With respect to self-selection hypothesis, the study does not find any evidence for it for the chemical industry. Prior exporting status, size, being part of a group and age are the only factors that induce a firm to go for exporting.