Living with Lower Productivity Growth: Impact on Exports

Abstract

Productivity growth has slowed in most Western countries, a reality well known in the economic literature, and the slowdown is likely to persist for some time. This paper investigates the impact of this phenomenon on export performance, with a particular focus on its heterogeneity across countries. To explain such heterogeneity, we pay particular attention to the role of productivity distribution and allocative efficiency. We rely on data from the Competitiveness Research Network (CompNet), a unique micro-aggregated database that provides a rich set of information on the variables' distribution at the granular level, together with micro-founded indicators such as the level of allocative efficiency. We argue that increases in both productivity dispersion and allocative efficiency, measured with the Olley and Pakes (1996) methodology, are associated with higher export competitiveness for the set of countries in our analysis. Furthermore, we try to evaluate four separate scenarios according to different levels of productivity growth and different degrees of allocative efficiency and conclude that, while a reduction in productivity growth is always associated with a decrease in export competitiveness, for those countries placed in the top 10 percent of the distribution of the Olley and Pakes gap, this negative effect can be offset for as long as eight years.