This paper estimates a dynamic general equilibrium model of entry, exit, and endogenous productivity growth. Productivity is endogenous both at the industry level (firms enter and exit) and at the firm level (firms invest in productivity-enhancing activities). The focus of the paper is on two activities that make productivity-enhancing investments more attractive, namely, exporting and product-mix choices. A firm that increases its exports and/or its number of products will have higher sales -- and this makes investing in productivity more attractive because there are more units (sales) across which the productivity gains can be applied. These insights are taken to firm-level Spanish data. We compute the Markov Perfect Equilibrium using a nested pseudo maximum likelihood estimator (NPL) with dynamic programming algorithms. Three key findings emerge. First, there is no evidence of learning by exporting: the observed positive correlation between exporting and productivity operates entirely via the impact of exporting on productivity-enhancing investments. Restated, exporting decision raises productivity, but only indirectly by making investing in productivity more attractive. Second, there is evidence of learning by producing multiple products: product-mix raises productivity directly in addition to the investment channel. Third, there are strong complementarities among the product-mix, exporting and investment decisions. Finally, we simulate the effects of reductions in foreign tariffs. Productivity rises at the economy-wide level both because of the between firm reallocation effect and because of within firm increases in productivity.
This paper incorporates credit constraints into amodel of global sourcing and heterogeneous firms. Following Antras and Helpman (2004), heterogeneous firms decide whether to source inputs at arms length or within the boundary of the firm. Financing of fixed organizational costs requires borrowing with credit constraints and collateral based on tangible assets. The party that controls intermediate inputs is responsible for these financing costs. Sectors differ in their reliance on external finance and countries vary in their financial development. The model predicts that increased financial development increases the share of arms length transactions relative to integration in a country. The effect is most pronounced in sectors with a high reliance on external finance. Empirical examination of country-industry interaction effects confirms the predictions of the model.