Learning to export: Export growth and the destination decision of firms

I find evidence that the geographic expansion of firm exports occurs slowly over time and that a large share of export growth is due to incumbent exporters entering new destinations. New exporters enter large countries and destinations with characteristics similar to their domestic market. Less similar, distant or less developed countries are entered by firms already exporting to other destinations. I formulate a dynamic general equilibrium model to test if these patterns are due to firms learning how to export (as other recent empirical findings have suggested) or other factors considered in the literature. In this model, heterogeneous firms experience learning in the form of market entry costs that depend on export history. Using Russian firm level data, I find that learning plays a significant role in explaining the observed entry patterns, which standard trade models cannot account for.     

Domestic and export performances of French firms

The French trade balance deteriorated almost continuously from the late 1990s to the early 2010s. At the macroeconomic level, French export market share deteriorated while domestic sales kept pace with domestic demand. Does this assessment apply to individual firms? Using microlevel data for French industrial firms over the period 2002–12, we explore the link between domestic and export sales. We show that export and domestic sales have a tendency, albeit slight, to move in opposite directions. This may be due to factors such as deliberate strategies to target a specific market or the presence of production constraints. Addressing the resulting endogeneity issue, our analysis shows that a positive demand shock in the domestic market also leads to an increase in exports. In particular, a 10% increase in domestic demand leads to a 4% increase in exports. This complementarity between markets seems to be driven by small firms and could reflect the existence of liquidity constraints. Increased sales in one market could lessen these constraints by facilitating funding for company development in the export market.     

Barriers to Exporting: What are They and Who do They Matter to?

The international trade literatures on gravity modelling and firm‐level export behaviour have established that nontariff barriers are important impediments to international trade flows. In this paper, we provide fresh evidence on the actual barriers to exports firms face and how they vary with firm‐level characteristics. Our results indicate that the higher the export experience of firms the lower are the trade costs they face. These barriers are not related to other firm‐level characteristics, such as productivity and size, found by the literature to be associated with export market entry. Overall, these results suggest the existence of a process of learning to export whereby firms learn how to cope with export barriers through direct experience in export markets.     

Market access,supplier access,and Africa's manufactured exports: A firm level analysis

Abstract

In a large cross-country sample of manufacturing establishments drawn from 188 cities, average exports per establishments are smaller for African firms than for businesses in other regions. Based on the estimation of firm level exporting equations, we show that this is mainly because, on average, African firms face more adverse economic geography and operate in poorer institutional settings. One part of the effect of geography operates through Africa's lower ‘foreign market access’: African firms are located further away from wealthier or denser potential export markets. A second occurs through the region's lower ‘supplier access’: African firms face steeper input prices, partly because of their physical distance from cheaper foreign suppliers, and partly because domestic substitutes for importable inputs are more expensive. Africa's poorer institutions reduce its manufactured exports directly, as well as indirectly, by lowering foreign market access and supplier access. Both geography and institutions influence average firm level exports significantly more through their effect on the number of exporters than through their impact on how much each exporter sells onto foreign markets.     

Market knowledge: Evidence from importers

Previous firm‐level literature established that there are substantial costs of entry into new export markets. Chaney (The American Economic Review, 104, 2014, 3600) opens the black‐box of entry costs by building a dynamic network model of international trade where firms acquire customers in new destinations through their existing customers in other destinations. Following his conjecture, this paper examines whether firms use their existing suppliers in a destination to find their first clients in those markets. I use a disaggregated data set on Turkish firms' exports and imports for the 2003–08 period, and investigate the effect of import experience on export entry. By identifying import experience using instrumental variables, and shutting down productivity channels with firm‐year fixed effects, I find that having a supplier in the destination country raises the probability of starting to export to that country by 5.5 percentage points on average, revealing a “market knowledge” phenomenon. The paper's main contribution to the literature is finding that firms' country‐specific import experience increases the likelihood of export‐market entry. Digging further to explore heterogeneous effects, I find that this effect does not exist when trading with low‐income countries, but it increases with the destination country's size, proximity, language similarity and the size of its Turkish immigrant community. Moreover, the strength of the firm's relationship with its supplier as proxied by several variables such as the share of imported products that are differentiated increases the probability of export‐market entry.     

The Impacts of Alignment with Global Product Standards on Exports of Firms in Developing Countries

Complying with global standards and technical norms can be costly, making them potential impediments to trade, but it can also expand export opportunities. Two policies available to governments are alignment of domestic technical regulations with international standards and entry into mutual recognition agreements (MRAs). We study the effects of such decisions on the volume of exports to developed markets by firms in developing countries, using data from a World Bank firm‐level survey of awareness of global product norms. Both standards alignment and MRAs are associated with more exports to developed countries, but only MRAs significantly promote exports. This finding is consistent with theoretical predictions that MRAs should reduce the fixed costs of exporting more than standards alignment, permitting more firms to enter export markets in higher volumes. Governments in developing countries hoping to encourage exports may wish to favour the negotiation of mutual recognition of testing and certification procedures with major trading partners as a more affirmative avenue to expanding international sales.     

Exports,firm size,and firm dynamics

This paper explores the relationships between exports, firm size, and firm dynamics. It is based on a unique longitudinal data set collected at the establishment level, covering some 7000 manufacturing German firms. We present stylized facts on exports and firm size, showing that the probability that a firm is an exporter increases with firm size; however, there are many successful exporters among small firms, and non-exporters among larger firms, too, while most of the exports are from the top size groups of firms. An econometric study shows a picture that is consistent with theoretical considerations: The impact of firm size on exports is positive but decreasing, while human capital intensity, domestic market share, and advanced technology all have a positive influence on the export performance of a firm. Firm growth and export performance are positively related, as is expected from a model of a price-discriminating monopolist.     

Exports versus multinational production under nominal uncertainty

This paper examines how nominal uncertainty affects the choice that firms face to serve a foreign market through exports or to produce abroad as a multinational. I develop a two-country, stochastic general equilibrium model in which firms make production and pricing decisions in advance, and I consider its implications for the relative attractiveness of exporting and multinational production. I find that when multinational sales are priced in the local currency while exports are priced in the producer currency, destination volatility benefits exporters: during a foreign nominal contraction, the foreign exchange rate appreciates, causing exports to be relatively cheaper. Exporters gain non-linearly through demand, making profit convex in prices. As foreign volatility rises, the model implies that the home country should serve the foreign country relatively more through exports. I take this implication to bilateral U.S. data, using inflation volatility as a proxy for nominal volatility. Using sectoral data on sales by majority-owned foreign affiliates matched with U.S. exports, I find that higher inflation volatility is associated with a significantly lower ratio of multinational sales to total foreign sales.     

Exports versus multinational production under nominal uncertainty

This paper examines how nominal uncertainty affects the choice that firms face to serve a foreign market through exports or to produce abroad as a multinational. I develop a two-country, stochastic general equilibrium model in which firms make production and pricing decisions in advance, and I consider its implications for the relative attractiveness of exporting and multinational production. I find that when multinational sales are priced in the local currency while exports are priced in the producer currency, destination volatility benefits exporters: during a foreign nominal contraction, the foreign exchange rate appreciates, causing exports to be relatively cheaper. Exporters gain non-linearly through demand, making profit convex in prices. As foreign volatility rises, the model implies that the home country should serve the foreign country relatively more through exports. I take this implication to bilateral U.S. data, using inflation volatility as a proxy for nominal volatility. Using sectoral data on sales by majority-owned foreign affiliates matched with U.S. exports, I find that higher inflation volatility is associated with a significantly lower ratio of multinational sales to total foreign sales.     

The moderating role of local embeddedness on the performance of foreign and domestic firms in emerging markets

This paper examines the impact of the firm’s degree of local embeddedness on its performance in emerging markets using the World Bank’s Enterprise Survey Manufacturing Sector Module data on 15,715 firms covering 78 emerging markets. We use the degree of localization of sourcing and sales to measure the degree of embeddedness in the host country market. We argue that since embeddedness brings the firm into closer interaction with local firms and institutions, the costs of embeddedness should be lower for local firms than for MNE subsidiaries, since local firms can be assumed to be better able to decipher local institutions. We find that both dimensions are subject to a reversed U-shaped function. That is, by extending the degree of local sales and local sourcing up to a certain percentage, a firm can realize positive performance growth by becoming more embedded into the emerging market, but beyond this point, the performance impact is negative. We also find that foreign firms involved in local sales seem to lose part of their ability to exploit their ownership advantages as compared to foreign firms that export their production.     

Export dynamics and sales at home

How do firms' sales interact across markets? Are foreign and domestic sales complements or substitutes? Using a French firm-level database combining balance-sheet and product-destination-specific export information over the period 1995–2001, we study how demand conditions in foreign markets affect domestic sales through variations in exports. We identify a number of exogenous shocks affecting the firms' demand on foreign markets, including product-destination specific imports or tariff changes, and large foreign shocks such as financial crises or civil wars. Our results show that exogenous variations in firm-level exports positively impact domestic sales, even after controlling for domestic demand conditions. A 10% exogenous increase in foreign sales generates a 1 to 3% increase in domestic sales in the short-run. This result is robust to various estimation techniques, instruments, controls, and sub-samples. It is also supported by the natural experiment of the Asian crisis in the late 1990's.     

The Post-entry Performance of Cohorts of Export Starters in German Manufacturing Industries☆

This paper investigates four cohorts of firms from German manufacturing industries that started to export between 1998 and 2002, and follows them for five years after the start. Export starters are a rare species and small in Germany. Around 30–40% of those starters studied became continuous exporters. The share of total exports contributed by export starters of a cohort is tiny in the start year, and it remains so over the years that follow. Contrary to the market selection hypothesis, there is no evidence that productivity in the start year is systematically related to survival in the export market. There is no evidence of a negative impact of a smaller firm size in the start year on the chance of surviving in the export market. Starting with a higher share of exports in total sales, however, tends to increase the probability of continuing to export.     

Import Churning and Export Performance of Multi‐product Firms

This paper analyses the impact of churning in the imported varieties of capital and intermediate inputs on firm export scope and productivity. Using detailed data on imports and exports at the firm‐product‐market level, we document substantial churning in both imports and exports for Slovenian manufacturing firms in the period 1994–2008. On average, a firm changes about one‐quarter of imported and exported product‐markets every year, while gross churning in terms of added and dropped product‐markets is almost three times higher. A substantial share of this product churning is due to simultaneous imports and exports of firms in identical varieties within the same CN‐8 product code (so called pass‐on‐trade). We find that churning in imported varieties is far more important than reduction in tariffs or declines in import prices for firms’ productivity growth and increased export product scope. We also find gross churning has a bigger impact on firm productivity improvements by a factor of more than 10 in comparison with net churning. Both adding and dropping of imported input varieties thus seem to be of utmost importance for firms aiming to optimise their input mix towards their most valuable inputs. These effects are further enhanced when excluding simultaneous trade in identical varieties, suggesting that pass‐on‐trade has less favourable effects on firms’ long‐run performance than regular trade.     

Australian Meat Industry

Abstract

Australian exports of meat account for about 46 per cent of the total Australian production of meat, and 19 per cent of total world exports of meat. About 52 and 33 per cent of Australian meat exports are sold on Asian and the American markets, respectively. However, Australia is highly restricted in its access to world meat markets by the impact of export subsidies and other trade barriers. The economic and political problems including rigid import controls are barriers to maintaining export sales on some of Australia's traditional Asian markets. The improvement in tariff barriers in Asia, the Americas and other emerging markets is expected to provide improved market access and opportunities for Australian meat. Higher processing and transportation costs beyond the farm gate also contribute to Australia's less competitiveness on world export markets. Australia should, therefore, implement appropriate measures to increase productivity, improve cost efficiency beyond the farm gate and undertake market research and promotion in order to be more competitive in the long run and to capture a sizeable market share from its major global competitors.     

The Trade‐Off between Foreign Direct Investments and Exports: The Role of Multiple Dimensions of Distance

To serve foreign markets, firms can either export or set up a local subsidiary through horizontal foreign direct investment (FDI). The conventional proximity–concentration theory suggests that FDI substitutes for trade if distance between countries is large, while exports become more important if scale economies in production are large. This paper investigates empirically the effect of different dimensions of distance on the choice between exports and FDI. We find that different dimensions of distance affect exports and FDI differently. There is clear evidence of a proximity–concentration trade‐off in geographical terms: the share of FDI sales in total foreign sales increases with geographical distance. The positive relation between import tariffs and FDI intensity provides further evidence for a trade‐off resulting from trade costs. On the other hand, the share of FDI decreases with language differences and cultural and institutional barriers. The latter dimensions of distance thus affect FDI more strongly than exports.     

Does Export Openness Increase Firm‐level Output Volatility?

There is a widespread concern that increased trade may lead to increased instability and thus risk at the firm level. Greater export openness can indeed affect firm‐level volatility by changing the exposure and the reaction of firms to macroeconomic developments. The net effect is ambiguous from a theoretical point of view. This paper provides firm‐level evidence on the link between openness and volatility. Using comprehensive data on more than 21,000 German manufacturing firms for the period 1980–2001, we analyse the evolution of firm‐level output volatility and the link between volatility and export openness. Our paper has three main findings. First, firm‐level output volatility is significantly higher than the level of aggregate volatility, but it displays similar patterns. Second, increased export openness lowers firm‐level output volatility. This effect is primarily driven by variations along the extensive margin, i.e. by the distinction between exporters and non‐exporters. Variations along the intensive margin, i.e. the volume of exports, tend to have a dampening impact on volatility as well. Third, small firms are more volatile than large firms.     

International trade in services: A portrait of importers and exporters

We provide a novel set of stylized facts on firms engaging in international trade in services, using unique data on firm-level exports and imports from the world's second largest services exporter, the United Kingdom (UK). We show that only a fraction of UK firms engage in international trade in services, that trade participation varies widely across industries and that service traders are different from non-traders in terms of size, productivity and other firm characteristics. We also provide detailed evidence on the trading patterns of service exporters and importers, such as the number of markets served, the value of exports and imports per market and the share of individual markets in overall sales. We interpret these facts in the light of existing theories of international trade in services and goods. Our results demonstrate that firm-level heterogeneity is a key feature of services trade. Also, we find many similarities between services and goods trade at the firm level and conclude that existing heterogeneous firm models for goods trade will be a good starting point for explaining trade in services as well.     

Australian Exports of Dairy Products

Abstract

Exports of dairy products are becoming increasingly important in terms of export earnings for Australia. The industry is the fourth highest foreign exchange earner compared to all Australia's food exports. However, Australian exports of dairy products account for about 67 per cent of the total Australian production of dairy products, and about 13 per cent of total world exports of dairy products. About 68 per cent of Australian dairy products exports are sold on Asian markets. The purpose of this paper is to examine the challenging issues and opportunities for Australian exports of dairy products on world markets and to identify potential and emerging export markets for Australian dairy products. Australia is highly restricted on its access to world dairy product markets by the impact of export subsidies and other trade barriers of overseas markets. The current economic and political crises in Asia are also not favourable to maintain export sales on some of the Asian markets. The export support scheme in Australia has made exporting attractive relative to domestic sales. But it is anticipated that the termination of the scheme after June 2000, will reduce production and exports by 6 and 20 per cent, respectively in the short run. However, in the long run, resources will be efficiently used without government intervention and Australian dairy products will also be competitive on the domestic market. There is scope for greater market opportunities in the emerging markets in Asia and other parts of the world for Australian dairy products. Australia will also benefit from the agreement on international trade that directs exporting countries to reduce export subsidy and remove nontariff trade barriers on exports of dairy products. Australia should implement appropriate measures to inaease the milk yield per cow, to improve the quality of dairy products and to identify the need for market promotion and research in order to increase the volume of dairy product exports on world markets, especially in Asia and other potential markets such as Middle East, Africa, Europe and the Americas.     

Do Financial Constraints Matter for Foreign Market Entry? A Firm‐level Examination

Recent theoretical and empirical contributions stress the importance of financial development for international trade. This paper investigates whether financial constraints matter for foreign market entry at the firm level using dynamic panel data techniques. Dynamic Probit and Tobit models that account for state dependence and unobserved heterogeneity are used to analyse the effect of financial indicators on export activities. The empirical framework tests for heterogeneous effects among different quartiles of the size and productivity distribution, across previous exporters and potential starters, and across different types of industries as those are predicted by theoretical models. The empirical analysis is applied to a large panel dataset of French manufacturing firms over the years 1998–2005. The data contain a high share of small firms that are usually the most likely to be financially constrained. Although financial indicators are significantly correlated with export status and export share, there is no evidence that financial constraints have a direct impact on foreign market participation or sales in foreign markets once observed and unobserved firm heterogeneity is controlled for. This result is robust to using alternative estimation techniques and also holds for subgroups of firms that are more likely to face financial constraints and industries that are more dependent on financial factors.     

Financial vulnerability and export dynamics

This paper examines the implication of financial shocks on firms’ export dynamics in developing economies. To address this question, we use the Exporter Dynamics Dataset, which contains new data on the microstructure of exports for 34 developing countries between 1997 and 2011, and investigate how exporter behaviour is affected by financial crises. We find that financial crises in both the origin and destination countries have a large negative effect on firm, product and destination dynamics, particularly in industries dependent on external finance. Financial crises make the costs of exporting more difficult to meet and in turn reduce firms’ ability to start exporting, introduce new products and sell to new destinations. We also find that the impact of financial crises is less pronounced in exporting countries with relatively more open capital accounts, suggesting that portfolio inflows may be a good substitute for underdeveloped domestic financial markets.