Entry to export markets and firm-level productivity in developing countries (Chile)

There has been a long debate in economics about the effects of openness to trade on productivity. In the traditional view, with intellectual roots tracing back to Adam Smith, trade increases productivity. Nevertheless, this view has recently come under challenge. Skeptics have argued that the positive correlation between exports and productivity may be explained by the fact that only the more productive firms can export. Thus, export orientation does not increase productivity. This conclusion, however, presumes that productivity is completely independent of the decision to export. Contrary to this idea, we argue in this dissertation that productivity is directly determined by the export orientation of the firms.; In Chapter 1 we review the literature on trade, productivity, and economic growth. We show that there are several mechanisms by which exports and, more generally, export orientation increase productivity in developing countries. We conclude that there is enough evidence to support the idea that trade improves productivity.; In Chapter 2 we develop a theoretical model in which productivity depends on the decision to export. In this framework, profit maximizing firms invest in a modern technology with the purpose of exporting. The purchase of the technology raises productivity by increasing the quality of the good that is produced for the world markets. With this model we analyze the effects of trade barriers of industrial countries and export subsidies of developing countries on the level of productivity in less developed economies.; In Chapter 3 we use plant-level data from the manufacturing sector of Chile to show that the evidence strongly supports the idea that exports increase productivity. We find that firms that make the transition from the domestic to the foreign market are more productive than non-exporters before they begin to export, and that prior to entry to export markets these firms increase investment.; Finally, in Chapter 4 we propose and discuss next stages of research. Issues such as, the relationship between export orientation and technology transfer; the process of becoming an exporter; and the phenomenon of technology diffusion in developing countries, are briefly analyzed.