UK trade in goods and productivity: New findings

Despite a large international literature on the relationship between firm-level trading behaviour and productivity, evidence on this link for the UK has been hampered by long-standing data issues. This paper addresses this data gap, introducing a new dataset which combines information from the ONS’ Annual Business Survey (ABS) and HM Revenue & Customs’ (HMRC) trade in goods declarations. We apply this new dataset to examine the prevalence of trading behaviour among businesses of different sizes, ownership types and in different industries; and to analyse the link between productivity and trader status for British businesses in the non-financial business economy. The results of this analysis show that large businesses and those which are foreign-owned are most likely to declare international trade in goods. Among businesses with more than 10 employees, only around one-in-five firms report trade in goods to HMRC, but businesses which declare trade in goods accounted for around 40% of all employment in 2016. Most direct trade in goods is undertaken by the Manufacturing and Wholesale & Retail industries. Our analysis also suggests that trade in goods is strikingly concentrated: 38% of the value of UK goods exports was accounted for by the top 50 exporters in 2016, while the top 50 importers accounted for 34% of the value of imports over the same period. Our productivity analysis suggests that the productivity of British businesses which declare international trade in goods was around 70% higher on average than for businesses which did not in 2016. After controlling for their size, industry and foreign ownership status, businesses which declare goods exports or imports have labour productivity premia relative to non-traders of around 21% and 20% respectively. These premia are notably lower for trade with the EU: consistent with lower barriers to EU goods trade enabling relatively less productive businesses to access these markets. Analysis of the link between labour productivity and the intensive margin of trade suggests businesses which source a large proportion of their inputs abroad, which export more products (particularly to non-EU nations), or which export to more countries (particularly within the EU) tend to be more productive than businesses which have less internationalised supply chains, which import a wider variety of products and which have a more limited geographical reach within the EU. Although these results are not necessarily causal, they provide a detailed overview of the link between productivity and trade in goods in the UK context.