Based on sectoral data on productivity and external trade of several EU countries (CompNet data), the study investigates the relationship between firm characteristics and export propensity within the manufacturing sector. The first half of the article provides evidence on the bidirectional link between productivity and trade; the second half analyses the relationship between exports and the real effective exchange rate (REER).
Only the most productive firms are able to bear trade costs; trade in turn increases firm productivity and leads to higher allocative efficiency of production factors within a given sector. The REER elasticity of exports varies across countries since it depends on the sectoral composition of foreign sales and on various firm characteristics, such as size, market power and participation in global value chains.
Published in 2021 in: The Journal of International Trade & Economic Development, v. 30, 1, pp. 68-103.
