Abstract

This chapter examines the channels by which international trade improves firms’ performance. There is a large amount of empirical research documenting the characteristics of firms that participate in international markets either as exporters, importers of intermediate inputs or buyers of foreign technology. These firms tend to be more productive, larger, more capital and skill intensive and pay higher wages compared to firms that participate solely in the domestic market. Because of data availability, most of the empirical studies focus on exporting. The main purpose of many of these studies is to determine the direction of the causality between exporting and measures of performance such as productivity, size and survival. There is also a growing body of literature studying the effect of importing intermediate inputs and foreign technology acquisition through licences on firms’ performance. The chapter describes the current state of the academic research, discusses the policy implications and how policy makers in developing countries can use international trade as a way to increase productivity and economic growth.