Exporting and plant-level efficiency gains: It’s in the measure

Abstract

While there is strong evidence for productivity-driven selection into exporting, the empirical literature has struggled to identify export-related efficiency gains within plants. Previous research typically derived revenue productivity (TFPR), which is downward biased if more efficient producers charge lower prices. Using a census panel of Chilean manufacturing plants, we compute plant-product level marginal cost as an efficiency measure that is not affected by output prices. For export entrants, we find within-plant efficiency gains of 15-25%. Because markups remain relatively stable after export entry, most of these gains are passed on to customers in the form of lower prices, and are thus not reflected by TFPR. These results are confirmed when we use tariffs to predict the timing of export entry. We also find sizeable efficiency gains for tariff-induced export expansions of existing exporters. Only half of these gains are reflected by TFPR, due to a partial rise in markups. Our results thus suggest that gains from trade are substantially larger than previously documented. Evidence suggests that a complementarity between exporting and investment in technology is an important driver behind these gains.