Exports Versus FDI in German Manufacturing: Firm Performance and Participation in International Markets

12 Pages Posted: 10 Aug 2010

See all articles by Jens Matthias Arnold

Jens Matthias Arnold

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Katrin Hussinger

Universite du Luxembourg; Catholic University of Leuven (KUL); Centre for European Economic Research (ZEW)

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Abstract

Recent theoretical work has been able to explain how even within narrowly defined industries, firms can exhibit heterogeneous degrees of participation in international commerce. Differences in productivity between firms are the principal explanation offered by theory to explain heterogeneity with respect to international commerce. In particular, theory predicts that the least productive firms will produce for the domestic market only, while better performers engage in export activities, and the top firms establish foreign subsidiaries. This paper presents an empirical test of the relationship between productivity and patterns of international trade and production. Using German firm-level data from 1996 to 2002, we test the predicted rank ordering of productivity according to firms’ trade pattern by examining the distribution functions of the three subsets of firms for stochastic dominance. Our results are generally consistent with the predictions from theory, and document significant productivity differences according to trade patterns.

Suggested Citation

Arnold, Jens Matthias and Hussinger, Katrin, Exports Versus FDI in German Manufacturing: Firm Performance and Participation in International Markets. Review of International Economics, Vol. 18, No. 4, pp. 595-606, September 2010, Available at SSRN: https://ssrn.com/abstract=1654656 or http://dx.doi.org/10.1111/j.1467-9396.2010.00888.x

Jens Matthias Arnold

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Katrin Hussinger

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg

Catholic University of Leuven (KUL) ( email )

Steunpunt O&O Statistieken
Dekenstraat 2
B-3000 Leuven
Belgium

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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