Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 11-13: Estimating productivity with multi-product firms, pricing heterogeneity and the role of international trade

Valérie Smeets () and Frédèric Warzynski ()
Additional contact information
Valérie Smeets: Department of Economics, Aarhus School of Business, Postal: Institut for Økonomi - Nationaløkonomi, Hermodsvej 22, lokale FH329, 8230 Åbyhøj, Danmark
Frédèric Warzynski: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: In this paper, we analyze the relationship between exports, imports and firm productivity. We use a rich product-firm-level dataset providing both revenue and quantities of all products for a large panel of Danish manufacturing firms over the period 1998-2008 and link it to firms’ international trade transactions by product. We use our detailed product level information to compute a firm level deflator and avoid the criticism of biased estimates due to the use of industry level deflator. We find that both importing and exporting behaviours are strongly associated with productivity, but firms involved in both importing and exporting are the most productive. We also find evidence of a self-selection into importing and exporting but no learning effect. Finally, we try to distinguish between cost effect and product quality effect by analyzing the importance of the origin of imports and the destination of exports. We find that both imports from countries with abundant and cheap labor like China and from countries with similar level of development matter, although the mechanism through which productivity is affected is likely to be different. In addition, exporting to more distant OECD economies is more strongly associated to productivity than exporting to neighboring or other EU countries, especially when controlling for the price specific effect.

Keywords: No; keywords

JEL-codes: A10

31 pages, June 1, 2011

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11-13_vasfwa.pdf PDF-file 

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