October 2008

IZA DP No. 3807: Adding Rungs to the Exporting Ladder: Plant-Level Exporting Dynamics and Total Factor Productivity Growth

We use panel data on Mexican manufacturing plants to study the dynamics of plant-level exporting activity at both the extensive and the intensive margins and the connection between exporting dynamics and plant-level total factor productivity growth. We find that exporting activity has a ladder structure. Most entries and exits take place at the bottom of the ladder and account for a small share of gross, industry-level changes in exports, employment, output, and productivity. The dynamics at the intensive margin is intense and heterogeneous. Plant mobility across deciles of export distribution has an inverted J-shape, top exporters being least likely to experience significant changes in their relative position. Simultaneously, similar shares of plants gradually move up and down the export ladder and changes in plants' relative position in the distribution of exports are positively correlated with changes in total factor productivity. Our results suggest that plants face not only fixed costs of entry, but also pre-entry uncertainty about conditions in the foreign markets and post-entry convex costs of adjusting their exporting activity and, as a result, a significant share of the productivity gains from trade accrues long after entry, when plants become large exporters.