March 2002 DOES EXPORTING LEAD TO BETTER PERFORMANCE? A MICROECONOMETRIC ANALYSIS OF MATCHED FIRMS Sourafel Girma, David Greenaway, Richard Kneller Leverhulme Centre for Research on Globalisation and Economic Policy School of Economics University of Nottingham University Park Nottingham NG7 2RD Abstract Exporting involves sunk costs, so some firms export whilst others do not. This proposition derives from a number of models of firm behaviour and has been exposed to microeconometric analysis. Evidence from the latter suggests that exporting firms are generally more productive than non-exporters; they self-select in that they are more productive before they enter export markets; but entry does not make them any more productive. This paper investigates exporting and firm performance for a large panel of UK manufacturing firms applying, for the first time, matching techniques. We find that exporters are more productive and they do self-select. In contrast to other evidence, however, we also find that exporting further increases firm productivity. JEL Nos.: F14, D2 The authors are grateful to The Leverhulme Trust for financial support under Programme Grant F114/BF. The research reported in this paper was initially stimulated by Trade Partners UK. The results and interpretation are the responsibility of the authors. Corresponding author: david.greenaway@nottingham.ac.uk