Trade leads to development: The experiment

Is there learning by exporting? Can preferential trade agreements or aid for trade promote development?

Atkin, Khandelwal and Osman provided a random group of small rug producers the opportunity to export handmade carpets to high-income markets.

Treatment firms report 15-25 percent higher profits and exhibit large improvements in quality alongside reductions in output per hour relative to control firms.

These findings do not simply reflect firms being offered higher margins to manufacture high-quality products that take longer to produce. Instead, we find evidence of learning-by-exporting whereby exporting improves technical efficiency.

First, treatment firms have higher productivity and quality after accounting for rug specifications. Second, when asked to produce an identical  domestic rug using the same inputs, treatment firms receive higher quality assessments despite no difference in production time. Third, treatment firms exhibit learning curves over time.

Finally, we document knowledge transfers with quality increasing most along the specific dimensions that the knowledge pertained to.