†Federal Reserve Board of Governors.

High productivity promotes exports at both the sector and firm level. This is the primary prediction of models of Ricardian comparative advantage and firm heterogeneity, respectively. We integrate these two models to investigate how sector-level productivity affects firms ’ export performance. Using data for Chilean and Colombian plants, we find that, conditioning on own-plant productivity, sector-level productivity reduces the propensity to export and the volume of exports. This contradicts the canonical model of firm heterogeneity. We rationalize the evidence through a model with sector-specific factors of production. Productive sectors bid up the return to their specific factor making firms less likely to cover the fixed costs of exporting. We find evidence of this mechanism looking at sector-level relative wages and relative productivity