Learning by exporting effect in China revisited: An instrumental Approach

•Does exporting increase the firm's productivity causally?•This paper uses the China's firm level data for investigation.•We construct a new measure of firm-specific trade cost.•The instrument is based on the daily Baltic Dry Index (BDI) information.•We find a significant learning effect

Does exporting increase the firm's productivity causally? Focusing on Chinese exporters over the period 1998-2007, we construct a new measure of firm-specific trade cost, based on the daily Baltic Dry Index (BDI), as an instrument of exports. The BDI is termed a leading trade cost indicator, reflecting the cost of utilizing dry bulk carriers which primarily consists of materials that function as raw material inputs to the production of finished goods. We find that a one percentage point expansion in exports raises firm total factor productivity by approximately 0.04 percentage point on average, which accounts for nearly 60 percent growth of the exporter's productivity over the period 1999-2007.