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The Total Factor Productivity Gap between Internationalised and Domestic Firms: Net Premium or Heterogeneity Effect?

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  • The authors thank the Editor and the anonymous referee for the helpful comments and suggestions. The usual disclaimer applies.

Abstract

The empirical literature on international trade predicts that internationally involved firms experience a productivity premium when compared to domestic firms. This finding is supported by comparing the unconditional productivity averages or distributions, or regressing the productivity on the international status dummy, controlled for the relevant covariates. In the present paper, we disentangle the distribution of the gross productivity premium from the component that is created by the different structural compositions of the two groups of firms; we can thereby measure the distribution of the net premium that is attributable to internationalisation. To this purpose, we use the quantile decomposition methodology (Melly, 2005). The main results highlight that (i) the net premium is substantially lower than the gross premium and (ii) while the difference in the gross premium is uniform along the entire distribution, the net premium is significant only for the less productive firms. These results are confirmed even if different internationalisation modes are considered (i.e. exports, agreements and commercial penetration) using the domestic firms as baseline. One exception is the net premium for firms enrolled in foreign direct investment and/or offshoring; this premium does not decrease for firms at the top of the productivity distribution.

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