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Productivity, Quality and Export Behaviour

Authors


  • Corresponding author: Paolo Epifani, Department of Economics, Università Commerciale Luigi Bocconi, Via Röntgen 1, 20136, Milano, Italy. Email: paolo.epifani@unibocconi.it.

  • The article has benefited enormously from the comments of three anonymous referees. We also thank Francisco Alcalá, Carlo Altomonte, Elisa Borghi, Bruno Cassiman, Davide Castellani, Luca De Benedictis, Anna Falzoni, Samuel Kortum, Crt Kostevc, Marco Leonardi, Marc Muendler, Marcella Nicolini, Fabrizio Onida, Gianmarco Ottaviano, Luca Sala, Daniel Trefler, Jaume Ventura, Eric Verhoogen, Frederic Warzynski and seminar participants at many venues for comments and discussions. All errors are our own. We gratefully acknowledge financial support from Unicredit Banca, Centro Studi Luca d'Agliano, Paolo Baffi Centre on Central Banking and Financial Regulation, the FIRB project ‘International Fragmentation of Italian Firms. New Organizational Models and the Role of Information Technologies’ (Italian Ministry of Education, University and Research) and the EFIGE project (European Commission FP7, N. 225551). Rosario Crinò gratefully acknowledges also the support of the Barcelona Graduate School of Economics, the Government of Catalonia, and the Spanish Ministry of Science and Innovation (Project ECO 2009-07958).

Abstract

We find a robust negative correlation between Italian firms’ productivity and their export share to low-income destinations. To account for this surprising fact, we marry Verhoogen (2008) with Eaton et al. (2011), by introducing firm heterogeneity in product quality and country heterogeneity in quality consumption in a framework featuring firm and market-specific shocks in entry costs and demand, and estimate the model's parameters structurally by the simulated method of moments. The estimated preference for quality turns out to be monotonically increasing in foreign destinations’ income. The model also predicts a negative correlation between firms’ R&D intensity and their export share to low-income destinations, a finding supported by our data. Overall, our results strongly suggest high-quality firms should concentrate their sales in high-income markets.

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