Does the pursuit of more complex products contribute to the productivity of exporting firms?

Abstract

Purpose The purpose of this paper is to contribute to the literature on learning by exporting by investigating whether an increase in the complexity of exported products contributes to higher productivity at the firm level. Design/methodology/approach The study implements an empirical analysis for Estonian manufacturing firms involved in exporting for the period 2008–2014, adding product complexity as an explanatory variable in the production function estimation. An increase in product complexity is interpreted as an indirect proxy for an increase in firm capabilities, capturing both tangible and intangible elements of competitiveness and reflecting the learning effects. Findings A relatively weak correlation between product complexity and productivity was found using a simple OLS estimation – exporters with higher product complexity have generally higher productivity levels. Somewhat surprisingly, no evidence for the learning by exporting was found among exporters, meaning that the increased complexity does not seem to be a channel for productivity upgrading. This result seems to be robust, irrespective of estimation methods and sampling preferences. Research limitations/implications The sample is representative of exporting firms. Practical implications The results show that the pursuit to more complex product does not necessarily contribute to productivity for exporting firms. The findings suggest that the firm-level upgrading due to increased export orientation is likely to take place through the other channels like moving up in global value chains and differentiating by product quality. Originality/value This is one of the first papers to investigate the effect of product complexity on productivity at a firm level. The results provide new insights into the learning-by-exporting hypothesis, with focus on potential learning among the existing exporters.