Firm heterogeneity and exporting behavior: Evidence from China’s manufacturing firms

A unanimous finding in the literature on firm heterogeneity and exporting behavior is that exporters are more productive than non-exporters. Subsequent empirical studies reveal that more productive firms self-select their status as exporters in the presence of fixed costs for exporting, thereby explaining the positive correlation between firm productivity and exporting behavior. Using data from China’s Annual Survey of Industrial firms from 1998 to 2005, however, we find strikingly different patterns of firm productivity and exporting behavior between China’s indigenous firms and foreign multinationals operating in China. Among China’s indigenous firms, exporters are indeed more productive than non-exporters, and the more productive firms self-select their status as exporters. But the results for foreign multinationals are just the opposite: exporters are less productive than non-exporters, and the less productive firms self-select their status as exporters. We then propose an explanation to the contrasting findings between China’s indigenous firms and foreign multinationals by expanding the scope of firm heterogeneity from mere firm productivity differences to include differences in the fixed costs of exporting relative to local sales across firms of different national origins