Export Market Exit and Performance Dynamics : A Causality Analysis of Matched Firms

As a result of the rapid growth of microeconometric studies of exporting firms, we now know quite a lot about the performance dynamics of firms that enter export markets. We know much less about what happens to performance when firms exit. We apply a difference-in-differences methodology based on matched firms to analyse the performance dynamics firms in UK manufacturing that exited export markets during the period 1991-1997. We find that, on average, exit from foreign markets has a negative albeit weak effect on total factor productivity. But this is confined to the year of exit as we fail to detect any discernible productivity effect due to exit in subsequent years. By contrast exit is found to have a deleterious effect on both employment and output dynamics. The effect on output is sizeable and quite persistent, suggesting that domestic demand was not able to make up for the loss in foreign market shares