Exports and productivity : does destination matter?

Abstract

In this work we analyse the effect of export destinations on Total Factor Productivity (TFP) of manufacturing Uruguayan firms for the period 1997-2006. We study two effects: self-selection and learning by exporting. To this end, we work with a panel of firms \2013provided by the Instituto Nacional de Estadisticas- and the destiny of exports - provided by the Dirección Nacional de Aduanas-. We estimate TFP using the Levinsohn &Petrin (2003) methodology. Results for Pooled Ordinary Least Squares estimations show the association between firms with higher share of their total exports to developed countries and higher TFP than firms exporting to less developed countries. Nevertheless, applying the transition group methodology (Alvarez &López 2005) in order to mitigate endogeneity issues, there is no evidence that exporting to developed countries enhances productivity through learning by exporting. However, evidence of learning by exporting is found for those firms starting to export to less developed countries. These findings suggest an international strategy through which firms reach gains in productivity exporting to markets with lower entry cost, and once they have learnt and improved their productivity, are in a better position to enter into more developed countries.