Exporter Dynamics and Productivity: Editor’s Overview

Abstract

In recent years, understanding of the role of trade and investment in economic growth has been significantly advanced by new theoretical and empirical analysis based on explicit recognition of the heterogeneous nature of firms. In this literature (“new new trade theory”), firms with varying levels of productivity co-exist in the same industry, firms face sunk costs of introducing their products into foreign markets, uncertainty about success in these markets and information asymmetries concerning local conditions in the foreign markets. Their profitability in foreign markets is affected by international macroeconomic conditions, including by volatility and protracted disequilibrium conditions in real exchange rates. Accordingly, only relatively highly productive firms can absorb the costs of entering export markets and only the most productive of these can absorb the still higher costs of investing abroad. The flux of entry into, and exit out of, various foreign markets — or change at the “extensive margin” — constitutes an important factor in determining a country’s overall trade growth, alongside changes in sales by existing exporters of established products in established markets (which represents change at the “intensive margin”). To explore these research developments, the Department of Foreign Affairs and International Trade organized a conference on Exporter Dynamics and Productivity, 27 March 2009, the proceedings of which are compiled in Trade Policy Research 2010: Exporter Dynamics and Productivity.

This chapter provides a thematic overview of the findings of these papers. Following the structure of the book, it addresses in turn: exporter dynamics and productivity; the effectiveness of trade promotion programs; and Canadian trade and investment dynamics.

Keywords: Heterogeneous firms, trade, FDI, productivity, innovation, export promotion, Canada

JEL Classification: F1, F23