The Effect of Exporting on Product Compositional Changes and a Manufacturing Plant's Average Product Characteristics in Japan

This paper examines whether exporting activity contributes to promoting product compositional changes and/or upgrading a plant's product portfolio. We first present evidence that exporters tend to produce, on average, products with higher product attributes than non-exporters do. Next, we find evidence that exporting improves a plant's average product attributes, utilizing propensity score difference-in-difference matching technique. Further examination of the mechanism reveals that the positive effect of exporting on a plant's average product attributes is realized through its effect of adding higher-attribute products and dropping lower-attribute products. Although exporting also promotes share changes among continuously produced products, the effects on product adding/dropping seem to be stronger. The results suggest that exporting might have contributed to the sustained economic growth of Japan by promoting creative destruction.