Effect of international activity on firm performance Updated

Trade liberalization benefits better performing firms and contributes to economic growth

Leuphana University, Lüneburg, and IZA, Germany

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Elevator pitch

There is evidence that better performing firms tend to enter international markets. Internationally active firms are larger, more productive, and pay higher wages than other firms in the same industry. Positive performance effects of engaging in international activity are found especially in firms from less advanced economies that interact with partners from more advanced economies. Lowering barriers to the international division of labor should therefore be part of any pro-growth policy.

Exporting does not make firms pay

Key findings


Better performing firms engage in foreign trade and offshoring activities.

Positive effects of exporting are often found in younger firms that export from less advanced economies to more advanced economies.

Exporters pay higher wages to comparable workers.

International trade and firm survival are positively linked.

The overall negative effects of offshoring on labor markets are modest.


Low-skilled workers feel pressure from international outsourcing.

The empirical picture is still incomplete due to a lack of strictly comparable international studies.

Author's main message

Trade liberalization tends to benefit better performing firms and, therefore, to contribute to economic growth. Positive effects tend to be especially pronounced in firms in less advanced economies that are actively engaged with international partners in more advanced countries. Pro-growth policy should thus aim to reduce barriers to the international division of labor. This is particularly relevant for policies in less advanced economies.

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