Learning-by-Exporting? Firm-Level Evidence for UK Manufacturing and Services Sectors

way around or in both directions (i.e. a feedback relationship). These issues are often
examined empirically by testing two competing hypotheses, viz. self-selection and
learning-by-exporting.

The self-selection hypothesis assumes that firms that enter export markets do so
because they have higher productivity prior to entry, relative to non-entrants.
Underlying this selection effect is substantial evidence of differences between those
that participate in export markets and those that do not. The general consensus based
on evidence from a number of countries is that exporters are, on average, bigger, more
productive, more capital intensive and pay higher wages vis-à-vis non-exporters
(Baldwin and Gu, 2004; Girma et. al., 2004; Greenaway and Kneller, 2004). The
reasons for export-oriented firms to exhibit better performance are intuitively
appealing: since increasing international exposure brings about more intensive
competition, firms that internationalise are forced to become more efficient so as to
enhance their survival characteristics; meanwhile, the existence of sunk entry costs
means exporters have to be more productive to overcome such fixed costs before they
can realise expected profits.

The literature on whether firms that export ‘self-select’ into overseas markets provides
strong evidence that this is indeed the case. Theoretical models developed by Clerides
et. al. (1998), Bernard et. al. (2003) and Melitz (2003) consider exporting firms
needing to be more productive prior to overseas entry in order to overcome the fixed
(sunk) costs of entering export markets. Lopez (2004) also develops a simple model in
which forward-looking firms need to invest in new technology in order to become
exporters, with the adoption of this technology requiring them to be more productive
to begin with (so as to have the resources - or absorptive capacity - that allow them to
learn and internalise the new knowledge). The empirical literature on self-selection of

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