Study: Export market dynamics and plant-level productivity
Ottawa, ON -- The more productive a plant is, the more likely it is to make a transition to export markets, an...
Ottawa, ON — The more productive a plant is, the more likely it is to make a transition to export markets, and the less likely it is to leave them, according to a new study from Statistics Canada.
The reverse also occurs; plants that enter export markets improve their productivity performance compared with similar firms that do not.
In addition, plants that stayed in export markets did better than comparable plants that exited export markets. This lends support to the thesis that plants that successfully transition to export markets boost their productivity.
The study, “Export market dynamics and plant-level productivity: Impact of tariff reductions and exchange rate cycles,” examined how the impact of entry to export markets responded to the changing ease of entry to export markets. It analyzed plant-level data from the Canadian manufacturing sector between 1984 and 2006. The ease of access to foreign markets varied over this 22-year period because of different rates of Canada/US bilateral tariff reductions and differing movements in bilateral real exchange rates.
While entering into export markets was associated with increases in productivity, the magnitude depended on the trading environment facing new exporters.
Export market participants gained more in productivity growth during periods of currency depreciation than non-participants did. The superior performance of Canadian export starters or continuing exporters was greater in the period between 1990 and 1996 when the Canadian dollar depreciated.
However, this advantage was reduced in two other periods, between 1984 and 1990 and between 2000 and 2006, when the Canadian dollar appreciated. In particular, the dramatic increase in the value of the Canadian dollar during the post-2000 period was associated with a much lower advantage enjoyed by export market participants.
The study also examined the impact of changing international conditions on the entry and exit dynamics of exporters. It found that plants “self-select” into export markets. That is, a select group of plants with superior chances of succeeding chose to experiment in these markets. More efficient plants were more likely to enter and less likely to exit export markets.
Changing international conditions relating to tariffs and exchange rate movements had an impact on the degree of experimentation. Tariff reductions and currency depreciation increased the probability that more efficient non-exporters would enter export markets. Currency depreciation also increased the likelihood that less efficient exporters would stop exporting.
The study “Export market dynamics and plant-level productivity: Impact of tariff reductions and exchange rate cycles” is now available as part of the Economic Analysis and Research Paper Series (11F0027M2010063, free). From the Key resource module at http://www.statcan.gc.ca, choose Publications.
Similar studies from the Economic Analysis division are available at http://www.statcan.gc.ca/economicanalysis.