Productivity and Export Intensity to High-Income and Low-Income Countries∗

We use a sample of Italian manufacturing firms to study the relationship between productivity (proxied by Total Factor Productivity) and the intensity of firm participation in heterogeneous foreign markets (proxied by the ratio of exports to total sales, i.e., export intensity). We find that firm productivity is strongly negatively correlated with export intensity to low-income countries and unrelated to export intensity to high-income countries. To account for these facts, we formulate a simple model that builds on two plausible assumptions: first, the preference for high-quality goods is higher in high-income countries and, second, high-productivity firms produce higher-quality goods. The two assumptions jointly imply that export intensity is higher the higher is foreign income (relative to domestic income) and the higher is firm productivity. We test this implication using a panel of export intensities to different geographic areas. Our data strongly supports this prediction. JEL Numbers: F1.