Home market economic development as a moderator of the self-selection and learning-by-exporting effects

Prior research suggests that firm productivity and export activity are mutually reinforcing. Highly productive firms are more likely to enter the export market (i.e., self-selection), and upon doing so, achieve greater productivity levels over time (i.e., learning-by-exporting). We consider how a critical yet unexamined, factor impacts this relationship: the economic development of a firm’s home market. Drawing on institution-based theories, we hypothesize that self-selection effects will be strongest among firms in more developed economies. Drawing on knowledge-based theories, we hypothesize that learning-by-exporting effects will be strongest among firms in less developed economies. Taken together, we posit that firm productivity and export activity indeed reinforce one another; however, the strength of each direction of the relationship will be amplified, at least in part, by the presence of the opposite home-market economic conditions. Analysis of longitudinal data from the World Bank Enterprise Surveys composed of responses from 3431 manufacturing firms across 63 countries from 2006 to 2017 supports the proposed hypotheses.