Export participation and productivity performance of firms in the Indian transport manufacturing

Abstract

PurposeThe purpose of this paper is to investigate the nexus between export participation and productivity performance of transport manufacturing firms in India, for the period 1994‐2006.Design/methodology/approachThe relative performance of exporting vis‐à‐vis non‐exporting firms in the industry is examined by utilizing a semi‐parametric test based on the principle of first order stochastic dominance. Subsequently, the causal relation between export and productivity is tested by mainly focusing on learning‐by‐exporting and self‐selection hypotheses.FindingsThe authors' results suggest that productivity performance of firms does not directly affect the probability of exporting. However, the results do provide some evidence which indicates that good firms self‐select into the export market. Furthermore, it was also found that sunk costs of exporting are the key determinants of probability of exporting in the industry. Finally, the authors tested the effect of exporting on productivity and found that past exporting experience or history has a significant and positive impact on firms' productivity.Practical implicationsIn the light of the findings of this study, it can be suggested that the trade policy in India should focus on encouraging firms to increase export participation. At the same time, the authors' evidence also advocates that the economic policies should also aim on technology enhancement (i.e. more incentive for R&D activities and training) of firms, to help them achieve higher levels of productivity and efficiency, which in turn will increase the probability of their survival in the highly‐competitive international export market.Originality/valueThe paper provides new evidence on the export‐productivity nexus from the Indian manufacturing industry by testing the empirical validity of the learning‐by‐exporting and self‐selection hypotheses, along with the role of sunk costs in export decisions of firms.