The rest of the paper is organized as follows Section 2 presents the theoretical
background on the relationship between import, export and performance. Section 3 then
contains the description of the dataset. In section 4 we present the simultaneity bias
consistent production function estimates obtained with the Levinsohn and Petrin (2003)
methodology. Then, such firm level productivity measures are related to foreign
network indexes so to identify systematic component after controlling for observed and
unobserved plant characteristics and for industry heterogeneity. From this we report the
first results. Section 5 develops the analysis on the direction of trade. Finally, the last
two sections contain the causality and robustness checks and the conclusions.
2. Imports, exports and performance
In the most recent years, trade literature enriching the “new trade theory” models
à la Helpman-Krugman (1985) with firm heterogeneity has focused on the relationship
between international activities and firm performance. These previous representative-
firm models while taking into account imperfect competition, product differentiation and
increasing returns to scale, did not allow for the co-existence in the same sector of firms
that serve just the domestic market, firms that serve both the domestic and the foreign
markets and firms that are one hundred percent exporters. In fact, in such frameworks,
the exogenous industry characteristics induce all firms in the same sector to have the
same behavior regardless their specific performances. The heterogeneous firm model, on
the contrary, relates the firm’s decision to its productivity level (e.g. Melitz 2003).
The development of this recent literature was inspired by many empirical studies on
micro data at the firm level4. In particular one consistent result of this empirical
literature is that, for all industrial sectors, exporting firms are more efficient than non-
exporting firms. This is combined with the proven existence of sunk entry costs into
foreign markets. Such costs, in addition to the per-unit trade costs, are mainly related to
information issues5. These stylized facts have been reconciled theoretically by Melitz
4 For example Roberts and Tybout (1997), Clerides, Lach and Tybout (1998), Bernard & Jensen (1999)
and (2004), Kraay (1999), Aw, Chung and Roberts (2000), Van Biesenbroek, (2003) and De Loecker
(2004).
5 A firm must find and inform foreign buyers about its products and learn about the foreign market.
Furthermore it must adapt its product to ensure that it conforms to foreign standards (which include
testing, packaging, and labeling requirements). An exporting firm must also set up new distribution