Department of Economics

Managers' mobility, trade performance, and wages

How does the management of a firm affect its performance?

Working man wearing a suit

The tremendous growth of international trade over the past several decades has been both a primary cause and an effect of globalisation. Consumers are offered an increasing array of products, and businesses are able to source materials, manufacture products and recruit staff across the globe. Whilst globalisation has increased opportunities for businesses, competition has also increased. As a result, companies have become very focused on the different factors through which they can gain competitive advantage – including the recruitment of appropriate managers. We show that gaining export experience in different products and markets via the recruitment of managers is key to the success of internationally oriented firms.


Summary

Authors: Giordano Mion, Luca David Opromolla

Knowledge is key to the competitiveness and success of an organisation and in particular of a firm. Firms and their managers acquire knowledge via a variety of different channels that are often difficult to track down and quantify. By matching employer–employee data with trade data at the firm level the authors of this paper show that the export experience acquired by managers in previous firms leads their current firm toward higher export performance, and commands a sizeable wage premium for the manager. Moreover, export knowledge is decisive when it is market-specific: managers with experience related to markets served by their current firm receive an even higher wage premium; firms are more likely to enter markets where their managers have experience; exporters are more likely to stay in those markets, and their sales are on average higher.

Methodology

The analysis relies on information resulting from the merger of two major datasets: a panel dataset on international trade at the firm/country level and a matched employer–employee panel dataset. Trade data come from Statistics Portugal and, besides small adjustments, aggregate to the official total exports and imports of Portugal. The studies uses data from 1995 to 2005.

The authors perform two complementary analyses. First, they estimate a wage equation to identify the existence of a premium for export experience, then, they assess whether export experience brought by managers affects a firm's export performance. More specifically, they evaluate a firm's likelihood to enter (or to stay) in a new (current) market as well as a firm's exports conditional on entry (continuation). 

Key findings

This paper shows that the export experience gained by managers in previous firms leads their current firm toward higher export performance, and commands a sizeable wage premium for the manager. Moreover, export knowledge is decisive when it is market-specific: managers with experience related to markets served by their current firm receive an even higher wage premium; firms are more likely to enter markets where their managers have experience; exporters are more likely to stay in those markets, and their sales are on average higher.

While it is reasonable to expect managers to learn valuable skills or information from their previous jobs, it is surprising that managers' export experience is a first-order feature in the data, and that its effect on a firm export performance is at least as strong as that of firm productivity. These results call for further theoretical work on the connections between trade and the labour market. 

Manager Mobility


Access the paper

Giordano Mion; Luca David Opromolla Managers' mobility, trade performance, and wages Journal of International Economics, 2014, Vol. 94, Issue 1. pp. 85-101