Exports and Heterogeneity of Technology: A Latent Class Frontier Stochastic Approach

This paper explores the technology-discriminating role of export market participation. Exports are found to enhance firm's productivity, mainly due to the self-selection of more productive firms into export markets and/or the role of learning-by-exporting, suggesting that the underlying production technology is the same for all the firms. However, even after taking into account the firm-level unobserved heterogeneity, there might be unobserved cross-firm differences in technologies that may be inappropriately considered as inefficiency if this technological heterogeneity is not controlled for. Using data from Egypt and a latent class model, allowing the possibility of more than one technology, we find that export market participation importantly determines technological choices throughout two significant segments, even after controlling for the endogeneity of exports. Exporters tend choose the relatively more capital intensive technology, while non-exporting firms tend to specialize in the relatively labor intensive technology. This suggests another hypothesis in explaining the relationship between ex-ports and productivity performance: the technological segmentation between exporting and non-exporting firms.