Export Premia and Subcontracting Discount. Passive Strategies and Performance in Domestic and Foreign Markets

This paper contributes to the literature on firms’ productivity and exporting decisions by analysing the role played by organizational choice aspects. Rather than setting up a vertically integrated structure, manufacturers may act as sub-contractors in both domestic and foreign markets, and produce to satisfy the requirements of other firms. The predictions that the most productive firms self-select into exporting, while the least productive ones work as sub-contractors serving the domestic market only are tested on a sample of Italian firms observed during the 1998-2003 period. The results of our estimates highlight a ranking of firms consistent with a priori expectations, and provide a clear indication that passive exporters (i.e. those using sub-contracting in foreign markets) display lower TFP values as compared to direct exporters. Moreover, only the latter category exhibits higher pre-entry productivity levels and growth rates as well as higher post-entry TFP growth rates. Such findings are consistent with both the self-selection hypothesis and the learning by exporting explanation.