Revisiting the causal effects of exporting on productivity: Does price heterogeneity matter?

In most empirical studies that establish the export-productivity relationships, output is measured in values rather than in quantities. This makes it difficult to distinguish between productivity and within-firm changes in price that could occur following exposure to international markets. Using detailed data on quantity and prices from Ethiopian manufacturing firms in the period 1996-2005, this paper distinguishes efficiency from revenue based productivity and examines what this means for the estimated relationship between exporting and productivity. The main results show that exporters are more productive than non-exporters in terms of revenue based productivity and this is explained by both self-selection and learning effects. However, when correcting for price heterogeneity, exporters appear to be similar to non-exporters both before and after export entry. Overall, the results suggest that the increase in firm-level productivity following entry into foreign markets is associated with changes in prices as opposed to productive efficiency.