Paula Bustos (2011), Trade Liberalization, Exports, and Technology

Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms

Trade liberalization can increase productivity by inducing a better allocation of production
factors or the adoption of more advanced technologies. In this paper they have shown that the
increase in revenues from the better allocation can induce exporters to invest in new
technologies.
This paper studies the impact of a regional free trade agreement, MERCOSUR, on
technology upgrading by Argentinean firms.
Empirical work- Introduce technology choice in model of trade with heterogeneous firms.
The joint treatment of the technology and exporting choices shows that the increase in
revenues produced by trade integration can induce exporters to upgrade technology. An
empirical test of the model reveals that firms in industries facing higher reductions in Brazils
tariffs increase investment in technology faster.
In a first analysis of the data- check whether the sorting pattern predicted by the model is
consistent with the observed differences between exporters and nonexporters operating in the
same industry. In the model, underlying productivity differences produce a sorting of firms in
three groups: the most productive firms both export and use the advanced technology, the
intermediate group exports but still uses the old technology and the least productive firms use
the old technology and serve only the domestic market.
In 1992 exporters had, on average, a higher level of spending on technology per worker than
nonexporters in the same industry. The model also predicts that during the liberalization
period both old and new exporters upgrade technology faster than nonexporters, which is
confirmed by the data.
The patterns in the data described above show that there is a coincidence between entry in the
export market and technology upgrading but do not provide any surety.
A second step in the empirical analysis attempts to establish causality by linking exporting
and technology adoption directly to the reduction in Brazils tariffs for imports from
Argentina where the decisions to enter the export market and to adopt a new technology are
endogenous, and thus a function of tariffs.
The model predicts that in industries where tariffs fall more, the productivity cutoffs to enter
the export market and to adopt the new technology fall more.
To assess the impact of falling tariffs on the export decision, estimate the change in the
probability that a firm enters the export market as a function of the change in Brazils tariffs
at the industry level.
Obs- Firms in sectors with a higher reduction in tariffs are more likely to enter the export
market.
To assess the impact of falling tariffs on the technology adoption decision, estimate the
change in spending on technology as a function of the change in tariffs.

Obs- Firms increase their spending on technology faster in industries where tariffs fall more.
Finally, tested the models prediction that the reduction in tariffs induces firms in the middle
range of the productivity distribution to enter the export market and upgrade technology but
should not affect firms in the lower and upper ranges of the distribution.
Obs- Reduction in Brazils tariffs had a stronger effect on both entry in the export market and
technology upgrading in the third quartile of the firm size distribution.
The model developed in this paper builds on an extensive theoretical literature analysing the
effects of trade on technological change. This paper is the first to show that when firms are
heterogeneous the presence of fixed technology adoption costs implies that the trade-induced
reallocations of market shares towards exporters can induce them to upgrade technology.
The empirical methodology implemented in this paper follows the literature measuring the
effects of trade liberalization on economic outcomes through changes in Tariffs.
The focus of analysis is on regional and bilateral trade which is different from previous
studies and also this is the first one on developing country.

Joachim Wagner (2012), Exports, R&D and Productivity: A test of the

Bustos-model with German enterprise data
This paper presents the first empirical test with German firm level data of a hypothesis
derived by Bustos in a model that explains the decision of heterogeneous firms to export and
to engage in R&D.
Using a non-parametric test for first order stochastic dominance it is shown that, in line with
this hypothesis, the productivity distribution of firms with exports and R&D dominates that
of exporters without R&D, which in turn dominates that of firms that neither export nor
engage in R&D.
Empirical strategy uses a familiar t-test for differences in the means of productivity between
the three groups of firms.
The data used in this study are merged from two surveys conducted by the German statistical
offices. One source is the monthly report for establishments in manufacturing industries. The
second source of data is the cost structure survey for enterprises in the manufacturing sector.
The hypotheses from the Bustos (2011) model were tested with data for each year from 2003
to 2009. In West Germany the ranking of the mean values for value added per employee is in
line with the Bustos hypothesis: Type 3 firms have the highest average productivity, followed
by Type 2 firms, and Type 1 firms come last. A t-test for differences in the means (based on
productivity values measured as percentages of the 4-digit industry mean) reveals that this
ranking is statistically significant at any conventional error level. Results of the two-sample
Kolmogorov Smirnov tests show that not only the means of the productivity distributions are
ranked in this way. Results for East Germany were fully in line with the results reported for
West Germany.

Mogens Dilling-Hansen & Valdemar Smith (2014), R&D, export and

productivity: testing the Bustos model on Danish data
In this article, a unique data set for Danish manufacturing rms has been used to analyse the
interplay between export, R&D investments and productivity. In addition to traditional tests,
a nonparametric test for differences in stochastic distributions gives evidence that the
productivity distribution of rms that export and engage in R&D dominates the productivity
distribution of rms that are exporters without engaging in R&D.
Furthermore, the productivity distribution of the latter group of rms dominates that of rms
who are neither R&D-active nor exporters. This conclusion applies to the years before, under
and after the economic downward spiral in the world economy, i.e.2007 to 2010. Overall this
result conrms the hypothesis of Bustos (2011) for Argentina. However, for 2009 the
ndings are less clear, the t-tests support the hypotheses, but the results of the Kolmogorov
Smirnov tests are less clear. Still the productivity distribution of Type 3 rms clearly
dominates the productivity distribution in 2007, 2008 as well as in 2010. Accordingly, R&D
active rms seem to have been more robust on the export markets than non-R&D rms. This
could be mainly due to the relative productivity cutback, which some exporting rms faced at
the beginning of the downturn in the world economy.