Foreign Market Competition as a Determinant of Exporter Performance: Evidence from Slovenian Manufacturing Firms

摘要

This paper contributes to the recent theoretical and empirical literature on firm heterogeneity, foreign trade and firm performance. Taking advantage of a very complete dataset for Slovenia in the period between 1994 and 2002, I test for the effects of foreign market competition on the performance of exporting firms. By presenting a very basic general equilibrium model I show that, employing fairly general specifications of the demand elasticity function, the model could be used to demonstrate that firms facing intense competition in their export markets have an incentive to improve their efficiency. Testing for the proposed effects, I present several alternative empirical specifications that confirm the positive effect of initial levels of market competition on productivity growth. This reaffirms the existence of a secondary form of self-selection. Not only do more productive firms choose to become exporters, but more efficient exporters also choose to serve more demanding markets. If self-selection is indeed a consequence of the existence of market-entry costs, then these results indicate that entry costs are very heterogeneous across markets.