Improved access to foreign markets raises plant-level productivity...for some plants
By: Alla Lileeva, Daniel Trefler.
Contributors: Trefler, Daniel.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13297.; Working paper series (National Bureau of Economic Research) -- working paper no. 13297.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 44
Subjects: Tariff -- United States; Exports -- Canada; Labor productivity -- Canada -- Econometric models; United States -- Commercial policy; Canada -- Commerce -- United States; United States -- Commerce -- Canada
Description: We weigh into the debate about whether rising productivity is ever a consequence rather than a cause of exporting. Exporting and investing to raise productivity are complimentary activities. For lower-productivity firms, incurring the fixed costs of such investments is justifiable only if accompanied by the larger sales volumes that come with exporting. Lower foreign tariffs will induce these firms to simultaneously export and invest in productivity. In contrast, lower foreign tariffs will induce higher-productivity firms to export without investing, as in Melitz (2003). We model this econometrically using a heterogeneous response model. Unique 'plant-specific' tariff cuts serve as our instrument for the decision of Canadian plants to start exporting to the United States. We find that those lower-productivity Canadian plants that were induced by the tariff cuts to start exporting (a) increased their labor productivity, (b) engaged in more product innovation, and (c) had high adoption rates of advanced manufacturing technologies. These new exporters also increased their domestic (Canadian) market share at the expense of non-exporters, which suggests that the labor productivity gains reflect underlying gains in TFP. In contrast, we find no effects for higher-productivity plants, just as predicted by our complementarity theory.
Notes: "August 2007."

Includes bibliographical references (p. 42-44).

Also available in PDF from the NBER world wide web site (www.nber.org).