Abstract

We show that improvements in aggregate productivity in UK manufacturing during
the first years after the implementation of the Euro, by the UK’s main trading partners
in Europe, are determined by both market share reallocation and within-company productivity
growth. Furthermore, we outline a structural methodology for estimating
parameters of a production function linking the unobservable productivity to endogenous
company-level trade orientation, investment and exit decisions. This allows
us to back out consistent and unbiased estimates of productivity dynamics by trade
orientation of companies within four-digit UK manufacturing industries using FAME
data over the period 1994–2001. Our estimates of productivity dynamics indicate that
improvements in aggregate productivity were mainly driven by market share reallocations
away from inefficient and towards efficient exporting companies alongside
productivity improvements within non-exporting companies.