This paper investigates the impact of sustained lower productivity growth on exports, by looking at the role of the productivity distribution and allocative efficiency as drivers of export performance. It follows and goes beyond the work of Barba Navaretti et al. (2017), analyzing the
effects of productivity on exports depending on the dynamics of allocative efficiency.
Low productivity growth is a well-documented stylized fact in Western countries and possibly a reality likely to persist for some time. What could be the impact of persistent sluggish growth of productivity on exports? To shed light on this question, this paper examines the relationship between the productivity distribution of firms and sectoral export performance.
The structure of firms within countries or even sectors matters tremendously for the nexus between productivity and exports at the macroeconomic level, as the theoretical and empirical literature documents. For instance, whether too few firms at the top (lack of innovation) or too many firms at the bottom (weak market selection) drives slow average productivity at the macro level has very different implications and therefore demands different policy responses.
The findings in this paper relate to the literature that uses firm-level data to explore the relation between export and productivity, starting with Melitz (2003). In particular, the paper elaborates on the results of Mayer and Ottaviano (2011) and Gabaix (2011), who show
that aggregate economic outcomes are related mostly to the behavi or of a small set of large and highly
productive firms (the right tail of the productivity distribution).
The paper is organized as follows. The first section presents econometric attempts to quantify the productivity-export nexus
for a sample of countries in the European Union, taking into consideration higher moments of the productivity distribution. The second section introduces the role of allocative efficiency and provides some initial results on its possible drivers. The third section pulls the results together and provides initial estimates of a novel specification of export performance that accounts for different moments of the productive distribution as well as allocative efficiency. The fourth section uses the results to construct alternative export scenarios, based on alternative hypotheses about future productivity. The last section provides concluding remarks.
This article was originally posted on PIIE.com and can be viewed entirely here
Copyright © Peterson Institute for International Economics. All rights reserved