I.
Introduction
The micro literature on globalisation suggests a number of ways whereby business
internationalisation (i.e. successful exploitation of overseas markets) can contribute to
growth and development for the firm and to productivity growth at the aggregate level.
For instance, firms that internationalise have to overcome barriers to exporting (sunk
costs), and therefore invest in resources and capabilities (i.e. absorptive capacity) that
provide them with the ability to compete effectively in overseas markets. Thus they
achieve higher productivity levels as a prelude to exporting (or other means of their
international expansion). Consequently, there is a self-selection process whereby
firms that enter export markets do so because they have higher productivity prior to
entry4. This then raises the issue of whether exporting itself leads to further benefits
through “learning” in global markets. The empirical evidence found for many
countries provides significant support for the ‘self-selection’ hypothesis but much less
support for the ‘learning-by exporting’ hypothesis (see Greenaway and Kneller, 2005,
Table 1, for a summary of the evidence).
The contribution of exporting to productivity growth is important for policy. For
instance, substantial evidence of the benefits from international trade provides the UK
government with a rationale for intervention to help firms develop their exporting
activities when there are market failures (DTI, 2006). These benefits are largely
linked to the higher productivity of exporters, which then contribute to overall UK
productivity growth through various channels, such as the entry of higher productivity
exporters (e.g. the so-called ‘born global’ companies; see Oviatt and McDougal,
1995); existing exporters becoming more productive over time and/or leading intra-
4 See Section II for a review of this hypothesis of self-selection.