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Exports versus FDI in German Manufacturing: Firm Performance and Participation in International Markets
Author(s) -
Arnold Jens M.,
Hussinger Katrin
Publication year - 2010
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2010.00888.x
Subject(s) - productivity , dominance (genetics) , economics , german , subsidiary , new trade theory , production (economics) , foreign direct investment , stochastic dominance , international trade , distribution (mathematics) , industrial organization , microeconomics , econometrics , multinational corporation , trade barrier , macroeconomics , history , archaeology , mathematical analysis , biochemistry , chemistry , mathematics , finance , gene
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.