Is the productivity premium of internationalized firms technology-driven?

Abstract

We ask whether the productivity advantage of internationalized firms documented by the international trade literature can be interpreted most accurately in terms of proximity to the “technological frontier”. We answer in the affirmative using a methodology (based on mixture models) of unbundling technology and total factor productivity (TFP) by estimating “technology-specific” production function parameters. Exploiting detailed data provided by the EFIGE database (a sample of firms distributed across Austria, France, Germany, Hungary, Italy, Spain, and the UK), we find technology gaps (with respect to the frontier) more than three times larger than the TFP gaps on average. We also find sizable technology advantages for firms undertaking foreign direct investment and/or exporting to other European Union countries or to China, for importers of materials, and for firms with competitors in China and the USA. Medium and large firms feature a higher technology premium, which is even higher for firms operating in country-sectors that are more exposed to import competition from China. Younger firms use better technologies but less effectively.