Trade and technology: new evidence on the productivity sorting of firms

Using a unique German firm-level data set, we provide empirical evidence for a productivity sorting along two dimensions: international activity and technology choice. We consider domestic and exporting firms and measure technology choice by firms’ actual use of advanced information technology (IT). For manufacturing firms, the observed sorting pattern is consistent with recent theories of heterogeneous firms and technology choice: Only the relatively more productive ones among internationally active firms are also highly technology intensive. For service sector firms we find similar evidence, yet the results seem to depend on the trade cost of certain services. In general, recent theoretical advances regarding trade and technology adoption thus seem to better fit the manufacturing sector