This paper uses new plant-level data from five East Asian countries to explore the patterns of manufacturing productivity across the region. A striking implication of our results is how the extent of openness and the competitiveness of markets affect the relative productivity of firms during early industrialization. Domestically-owned
firms that export, as well as firms with foreign ownership, are significantly more productive than those that produce solely for domestic consumption, and the productivity gaps are larger the less developed is the local market. We exploit the rich set of firm characteristics available in the database, including those pertaining to the enterprise at the time of establishment, to apply an instrumental-variables
approach to the study of the sources of the greater productivity of firms that export.
We argue that it is in aiming for export markets that firms make decisions that raise productivity. It is not simply that more-productive firms self-select into exporting;
rather, firms that explicitly target export markets make systematically different decisions regarding investment, training, technology and the selection of inputs, and thus raise their productivity.