Productivity and trade orientation in UK manufacturing

We show that improvements in aggregate productivity in UK manufacturing duringthe first years after the implementation of the Euro, by the UK’s main trading partnersin Europe, are determined by both market share reallocation and within-company productivitygrowth. Furthermore, we outline a structural methodology for estimatingparameters of a production function linking the unobservable productivity to endogenouscompany-level trade orientation, investment and exit decisions. This allowsus to back out consistent and unbiased estimates of productivity dynamics by tradeorientation of companies within four-digit UK manufacturing industries using FAMEdata over the period 1994–2001. Our estimates of productivity dynamics indicate thatimprovements in aggregate productivity were mainly driven by market share reallocationsaway from inefficient and towards efficient exporting companies alongsideproductivity improvements within non-exporting companies.