Two researchers from Aarhus University, Business and Social Sciences have solved a puzzle for international economics research. Why do some figures show that export increases productivity when others suggest the opposite?

2011.11.10 | Daniel Jørgensen

There is consensus among world economists that export leads to increased productivity for companies. But figures show that in some cases there is no increase. So far, science has failed to explain why, but now researchers from Aarhus University, Business and Social Sciences have solved the mystery.

The findings indicate, among other things, that there has been a possible misinterpretation when media headlines repeatedly have stated that the crisis has resulted in a drop in productivity among Danish export companies.

- When productivity decreases during the crisis, the reason may just as well be that companies cannot demand the same prices for their products on the export market. But that does not mean they have become less able to produce, says Professor Philipp Schröder, whose research, together with Associate Professor Allan Sørensen, has been published in the renowned Canadian Journal of Economics.

Here they have established why it is not always possible to observe higher productivity among export companies.

Engineers and economists talk at cross-purposes
The misunderstanding is due to two different views on productivity, which, according to the researchers, can be characterized as "the economist's view" and "the engineer's view". The economist defines the productivity of a company as the profit gained from its export efforts, whereas the engineer defines productivity as the quantity produced per employee.

During the financial crisis, these differences have resulted in situations where export companies, according to the economist, have experienced a decrease in productivity, while the same companies, from the engineer's perspective, have not recorded any significant changes.

- An export company always has more fixed expenses than a company whose products are only sold on the domestic market, and when it becomes too difficult for a company to get the normal price for its products, the economic productivity tumbles, explains Allan Sørensen.

Previous economic theories have not taken these differences into account, but now the researchers have combined the views of the economist and the engineer in their calculations, and this has made it possible to explain some export companies' failure to achieve a productivity gain.

New research opportunities
- It is actually quite simple - we have just combined different scientific methods, says Philipp Schröder.

Nevertheless, the research method and findings pave the way for new opportunities in future research projects. Since the 60s, it has been claimed that companies that export their products generally acquire new skills in many areas. It has always been incredibly difficult to study the effects empirically, but the new findings make the researchers able to explain why it is difficult.

- It is a matter of entirely different scientific traditions. Now we have shown that it is possible to combine them. This could mean that in future, we can design research models that make it possible to study and perhaps identify the effects, says Philipp Schröder.

Contact:

Professor Philipp Schröder

Aarhus University, Business and Social Sciences
Department of Economics and Business
Tel.: +45 8948 6392
Mobile: +45 3022 9123
E-mail: psc@asb.dk
Web: http://www.asb.dk/staff/nat/psc.aspx

Associate Professor Allan Sørensen

Aarhus University, Business and Social Sciences
Department of Economics and Business
Tel.: +45 8948 6415
Mobile: +45 2674 6843
E-Mail: allans@asb.dk
Web: http://www.asb.dk/staff/AllanS