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Export and productivity in global value chains: comparative evidence from Latvia and Estonia

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Abstract

This paper investigates the effect of exporting on productivity, often referred to as “learning by exporting”, in the context of global value chains (GVCs). Although the rise of GVCs raised hopes that it would facilitate knowledge transfer from technologically advanced foreign buyers, empirical evidence on its role in learning by exporting is scant. We use data of Latvian and Estonian firms to observe how learning by exporting differs across types of exports associated with different kinds of participation in GVCs. We find that productivity gains resulting from export entry are significantly larger for specific types of exports, such as exports of knowledge-intensive services, intermediate goods and re-exports. These exports correspond to activities that generate high value added within GVCs. Our findings indicate that the intensity of interactions with global buyers alongside exporters’ room for technology catch-up define the extent of learning by exporting in GVCs.

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Notes

  1. To the best of our knowledge, De Loecker (2013) and Manjon et al. (2013) are the only other studies employing a similar approach to infer LBE.

  2. We follow Antràs et al. (2012) and Fally (2011) to measure upstreamness as \( U = \left[ {I - \Delta } \right]^{ - 1} 1 \), where U is the vector of upstreamness measures by industry (U ≥ 1, larger values correspond to higher levels of upstreamness), ∆ denotes the square matrix containing the shares of sector i’s total output that is purchased by industry j, and 1 is a column vector of ones. The upstreamness of Latvian and Estonian industries between 2000 and 2014 was calculated using data from the World Input–Output dataset (WIOD, www.wiod.org) and is available upon request.

  3. Past studies have shown that the share of intermittent export entrants is high. For instance, only 66% of Estonia’s new exporters survive to the second year of exporting (Masso and Vahter 2014; ECB CompNet 2014).

  4. As robustness analysis, we employ TFP estimated from a simpler, more parsimonious model, where an endogenous Markov process only accounts for export status and does not include terms related to export strategies.

  5. One limitation of this standard analysis is that the timing of the decision of entry is unobservable and can in fact occur before the actual year of entry. Another limitation is that this framework cannot capture the export entry by firms that start exporting in the year of their creation. In Latvia, such firms comprise about 15%, and in Estonia, about 23% of new exporters.

  6. We ensure that matching occurs within the same year and the same two-digit sector. The standard condition of common support is used when choosing two nearest neighbours.

  7. For example, for Latvia it is calculated as exp(0.325) − 1, where 0.325 is the parameter estimate from the DiD regression model.

  8. One possible explanation for large productivity gains in the short run is that learning by exporting occurs quickly because export entrants have a very low initial knowledge base. An alternative interpretation is that the productivity gains in the period of export entry are driven partly by an increase in capacity utilisation, as firms take advantage of higher demand, which dissipates in the medium term as firms adjust their production capacity to larger demand.

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Acknowledgements

The authors are grateful for valuable comments by Jaanika Meriküll, Sonia Araujo, Elena Rustichelli, Asa Johansson, Daniela Glocker, Andrés Fuentes Hutfilter, Robert Ford, Sebastian Benz and the participants at the OECD Economics Department Brown Bag Seminar as well as anonymous referees from the Review of World Economics. Jaan Masso and Priit Vahter acknowledge financial support from the Estonian Research Council’s project No. IUT20-49 “Structural Change as the Factor of Productivity Growth in the Case of Catching up Economies”. Priit Vahter acknowledges past financial support from Östersjostiftelsen in Sweden (project “The Baltic economies: Catalysts for the internationalization of Swedish SMEs?”). Jaan Masso and Priit Vahter also acknowledge support for the compilation of the Estonia’s datasets used in the paper from the Estonian Research Infrastructure’s Roadmap project “Infotechnological Mobility Observatory (IMO)”.

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Authors and Affiliations

  1. Monetary Policy Department, Bank of Latvia, K. Valdemara 2a, Riga, 1050, Latvia

    Konstantins Benkovskis & Olegs Tkacevs

  2. Department of Economics, Stockholm School of Economics in Riga, Strelnieku iela 4a, Riga, 1010, Latvia

    Konstantins Benkovskis

  3. School of Economics and Business Administration, University of Tartu, J. Liivi 4, 50409, Tartu, Estonia

    Jaan Masso & Priit Vahter

  4. Economics Department, OECD, 2 rue Andre Pascal, 75775, Paris Cedex 16, France

    Naomitsu Yashiro

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  1. Konstantins Benkovskis
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Correspondence to Olegs Tkacevs.

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Benkovskis, K., Masso, J., Tkacevs, O. et al. Export and productivity in global value chains: comparative evidence from Latvia and Estonia. Rev World Econ 156, 557–577 (2020). https://doi.org/10.1007/s10290-019-00371-0

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