Exports and Profitability: first evidence for German manufacturing firms

This paper contributes to the literature by using unique recently released nationally representative high-quality longitudinal data for German enterprises to conduct the first comprehensive empirical study on the relationship between exports and profitability. We document a positive profitability differential of exporters compared to non-exporters that is statistically significant, though rather small, when observed firm characteristics and unobserved firm-specific effects are controlled for. In contrast to nearly all empirical studies on the relationship between productivity and exports we do not find any evidence for selfselection of more profitable firms into export markets. Due to the sampling frame of the data used we cannot test the hypothesis that firms which start exporting perform better in the years after the start than their counterparts which do not start. Instead, we use a newly developed continuous treatment approach and show that exporting improves the profitability almost over the whole range of the export–sales ratio. This means that the usually observed higher productivity of exporters is not completely absorbed by the extra costs of exporting or by higher wages paid by internationally active firms. This evidence presented here for Germany, a leading actor on the world market for manufactured goods, is interesting on its own, and it can serve as a benchmark for future studies using comparable data from other countries.