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Revisiting the causal effects of exporting on productivity: Does price heterogeneity matter?

Wassie, Tewodros Ayenew (2017): Revisiting the causal effects of exporting on productivity: Does price heterogeneity matter?

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Abstract

This paper examines the causal effect of exporting on firms' productivity controlling for price heterogeneity. In most empirical studies that establish the export-productivity relationships, output is measured in values rather than in quantities. This makes it difficult to distinguish between productivity and within-firm changes in price that may occur following exposure to international markets. Using a detail data on quantity and prices from Ethiopian manufacturing firms in the period 1996-2005, this paper distinguishes efficiency from revenue based productivity and examines what this means for the estimated relationship between exporting and productivity. The empirical strategy implemented in the paper allows for potential endogeneity for exporting and controls for self-selection into export. The main results show that exporters are more productive than non-exporters in terms of revenue based productivity and this is explained by both self-selection and learning effects. However, when correcting for price heterogeneity using quantity-based measures of productivity, exporters appear to be similar to non-exporters either before or after export entry. Overall, the results suggest that the observed relationship between exporting and productivity mainly occurs through price mechanism.

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