Trade shocks, product mix adjustment and productivity growth in Italian manufacturing

In this paper we use firm-level data on the universe of Italian manufacturing multi-product exporters to test whether demand shocks in export markets lead multi-product exporters to increase their productivity. The main mechanism behind the documented productivity gains is the reallocation of resources across products within firms (Mayer et al., 2014 and 2016). Intuitively, the increased demand stemming from foreign markets will induce firms to adjust their product-mix by moving inputs from low to high productive/profitable uses. We find that these productivity gains are significant and account for about 30 per cent of aggregate productivity growth in the manufacturing sector.