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Using unique new data and a recently introduced non-linear decomposition technique this paper shows that the huge difference in the propensity to export between West and East German plants is to a large part due to differences in firm size and human capital intensity.
Using unique recently released nationally representative high-quality data at the plant level, this paper presents the first comprehensive evidence on the relationship between productivity and size of the export market for Germany, a leading actor on the world market for manufactured goods. It documents that firms that export to countries inside the euro-zone are more productive than firms that sell their products in Germany only, but less productive than firms that export to countries outside the euro-zone, too. This is in line with the hypothesis that export markets outside the euro-zone have higher entry costs that can only by paid by more productive firms.