Productivity and Trade Orientation in UK Manufacturing

32 Pages Posted: 25 Jun 2007

See all articles by Marian Rizov

Marian Rizov

University of Lincoln (UK) - Lincoln International Business School; Lincoln Economics and Finance (LEAF) Research Group

Patrick Paul Walsh

UCD; Institute for the Study of Labor (IZA)

Date Written: May 2007

Abstract

Within a structural model we explicitly allow for the trade orientation of companies to estimate productivity dynamics within 4-digit UK manufacturing industries. We use the FAME data on UK companies over the period 1994-2003. Following Ackerberg et al. (2005) we adjust the algorithm in Olley and Pakes (1996) by augmenting investment and exit decisions to allow for exogenous demand shocks by trade orientation, assuming that labour and capital are state variables, and productivity follows a first-order Markov process. We extend the framework further by allowing exporting to be an additional control variable that is driven by lagged productivity as in Melitz (2003), leading productivity to follow a second-order Markov process. We find that over the period of introduction of the Euro improvements in aggregate productivity were driven by exporters - mainly by market share reallocations away from inefficient and towards efficient export companies. Aggregate productivity also benefited from improvements in productivity of non-exporters but was driven by improvements within companies rather than by market share reallocations. In a period of sustained real exchange rate appreciation both export cleansing and competitive pressure on non-exporters seem to have contributed to improvements of productivity in the UK manufacturing.

Keywords: productivity dynamics, structural model, trade orientation, manufacturing companies, UK

JEL Classification: F14, D24

Suggested Citation

Rizov, Marian and Walsh, Patrick Paul, Productivity and Trade Orientation in UK Manufacturing (May 2007). IZA Discussion Paper No. 2808, Available at SSRN: https://ssrn.com/abstract=994915 or http://dx.doi.org/10.2139/ssrn.994915

Marian Rizov

University of Lincoln (UK) - Lincoln International Business School ( email )

Brayford Pool
Lincoln, LN6 7TS
United Kingdom

Lincoln Economics and Finance (LEAF) Research Group ( email )

United Kingdom

Patrick Paul Walsh (Contact Author)

UCD ( email )

University College Dublin
Belfield, Dublin Dublin 4
Ireland

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
136
Abstract Views
1,096
Rank
381,436
PlumX Metrics