Productivity Performance of Export Market Entry and Exit: Evidence from Indian Firms

This paper contributes to the literature on exporting and firm productivity, focusing on export entry (efficiency), learning (post‐entry growth) and exit (inefficiency) by Indian firms. Drawing on 7000 firms during 1989–2009, our main objective is to examine the effect of exporting on firm productivity, correcting for selection bias using propensity‐score matching, which allows a “like‐for‐like” comparison between new exporters and nonexporters. Robust to different matching estimators, we find evidence of learning‐by‐exporting that new exporters acquire rapid productivity growth after entry, relative to nonexporters. We also find that (1) exporters are more productive than nonexporters; (2) productive firms tend to self‐select in entering the exporting market, and (3) least productive exporters are found to exit the export market as they experience adverse productivity effect prior to the year of exit. Our robust result on learning‐by‐exporting suggests that entering export market does appear to be a channel explaining the Indian recent growth miracle.     

PRICE,PRODUCT QUALITY,AND EXPORTER DYNAMICS: EVIDENCE FROM CHINA

This article develops a model of heterogeneous firms that endogenously choose prices and product quality to build demand in export markets. New exporters optimally charge relatively low prices and produce low‐quality goods upon entry. Product quality, prices, and sales increase as demand grows. We structurally estimate model parameters using Chinese customs data. The estimated incentive to build future demand reduces average export prices by 0.7% and increases export sales by 4% upon entry. Endogenous demand accumulation causes estimated export prices, product quality, and sales to grow by 2.2%, 12%, and 79%, respectively, over the following five years.     

Export Market Dynamics and Plant‐Level Productivity: Impact of Tariff Reductions and Exchange‐Rate Cycles*

In this paper, we examine how changes in tariff rates and industry‐specific real exchange rates affect the entry/exit process to export markets and productivity growth. Using the experience of the Canadian manufacturing sector over three decades, we find that firms in export markets enjoy faster productivity growth than non‐participants. The size of the growth advantage depends on whether real exchange rates are increasing or decreasing. The increase in the value of the Canadian dollar during the post‐2000 period almost completely offset the productivity growth advantages enjoyed by new exporters during this period.     

Learning‐by‐Exporting Revisited: The Role of Intensity and Persistence*

Two non‐mutually exclusive hypotheses can explain the empirically established export premium: self‐selection of more productive firms into export markets and learning‐by‐exporting. This paper focuses on how the temporal dimension of firms' exporting activities and the intensity of exports influence the scope of learning effects. Using a panel of Swedish firms and dynamic generalized method of moments estimation, we find a learning effect among persistent exporters with high export intensity, but not among temporary exporters or persistent exporters with low export intensity. For small firms, exports boost productivity among persistent exporters with both high and low export intensity, but the effect is stronger for persistent export‐intensive small firms.     

EXPORT‐MARKET DYNAMICS AND THE PROBABILITY OF FIRM CLOSURE: EVIDENCE FOR THE UNITED KINGDOM

This study presents the first empirical analysis of the determinants of firm closure in the United Kingdom with an emphasis on the role of export‐market dynamics, using panel data for a nationally representative group of firms operating in all‐market‐based sectors during 1997–2003. Our findings show that the probability of closure is (cet. par.) significantly lower for exporters, particularly those experiencing export‐market entry and exit. Having controlled for other attributes associated with productivity (such as size and export status), the following factors are found to increase the firm's survival prospects: higher capital intensity and TFP, foreign ownership, young age, displacement effects (through relatively high rates of entry of firms in each industry), and belonging to certain industries. Interestingly, increased import penetration (a proxy for lower trade costs) leads to a lower hazard rate for exporting entrants and continuous exporters, while inducing a higher hazard rate for domestic producers or those that quit exporting.     

Export Destination,Product Quality and Wages in a Middle‐Income Country. The Case of South Africa

A robust finding in the firm‐level literature is that exporting firms pay higher wages. Using South African data this paper investigates the relationship between export destination and wages at a worker level. South Africa, a middle‐income country, has two distinct main export markets—a regional market where per capita incomes are lower than at home, and an international market with higher per capita incomes. Our estimates show that workers in firms that export to the region earn less than those that produce for the domestic market. Those in firms that export outside the region earn more than either domestic producers or region‐only exporters. Much of this difference in wages can be explained by the premium the different types of exporters pay for skills. These results support previous studies which suggest that export destination is related to product quality which in turn is related to worker quality and therefore wages.     

FIRM‐LEVEL INVESTMENT AND EXPORT DYNAMICS*

This article characterizes the complementarity between exporting and investment in physical capital. We argue that new investment allows young exporters to grow faster and survive longer in export markets while reducing their vulnerability to productivity or demand shocks across markets. We structurally estimate our model using detailed firm‐level data. We find that the choice of cost structure has a large impact on model performance and the estimated costs of exporting or investment. Using detailed capital and output tariff rates, we quantify the impact of policy change on aggregate export and investment growth.     

Entry and Exit in International Markets: Evidence from Chilean Data*

Several studies examine the patterns and determinants of entry and exit in manufacturing industries. Not much work exists on entry and exit in international markets. This paper uses Chilean data to analyze the industry‐level determinants of entry and exit in export markets. First, we show as stylized facts that entry and exit rates differ across industries, vary over time, and are positively correlated. Then, we study the main determinants of these patterns. Our econometric analysis shows that within‐industry heterogeneity, measured by differences in productivity or other firm characteristics, has a significant effect on plant turnover in international markets. Our findings reveal that trade costs, factor intensities, and fluctuations in the real exchange rate play a minor role explaining entry and exit. This last result is consistent with hysteresis in international markets.     

NEW EXPORTER DYNAMICS

We document that new exporters initially export small amounts, grow gradually, and are most likely to exit the export market in their first few years. We find that the standard sunk‐cost model cannot replicate these new exporter dynamics: New exporters grow too large too quickly and live too long. In a modified sunk‐cost model that can account for these facts, the entry costs needed to match the data are three times smaller than in the sunk‐cost model. Dynamic models with richer plant‐level heterogeneity are needed.     

EXPORTING AND PRODUCTIVITY GROWTH: EVIDENCE FROM THE TAIWAN ELECTRONICS PLANTS

This paper uses propensity score matching techniques and ordinary least square regressions to examine the relationship between exporting and productivity growth in the Taiwan electronics industry. Using data from three census years, we find that plants with higher productivity growth tend to enter the export market, supporting the self‐selection mechanism. The evidence of learning‐by‐exporting is mixed, however. While the plants exporting throughout the sample period show small differences in productivity growth from non‐exporters in the downturn period, continuing exporters outperform non‐exporters in the upturn period. Thus, our results suggest that the direction of causality mainly runs from productivity to exporting rather than vice versa.     

Exchange rates and trade: How important is hysteresis in trade?

This paper looks at the responsiveness of a country's export supply to exchange rate changes and measures its quantitative importance by breaking down export adjustments between changes in output levels by existing exporters (intensive margin) and movements due to changes in the number of exporters (extensive margin). Using data on a representative sample of Spanish manufacturing firms, the paper finds sunk costs hysteresis in entry and exit to be an important factor in determining export market participation, but unrelated to exchange rate uncertainty. The sunk costs of entering the market appear to be much larger than the costs of exiting the market. Finally, although hysteresis exists, its effect on the responsiveness of aggregate trade volumes to exchange rate changes is quantitatively small. A 10% home currency depreciation results in an increases in export volume due to the increase in the number of exporting firms of only 1.4% of export volume.     

Intra‐firm trade,exporting, importing,and firm performance

Abstract This paper examines firm heterogeneity in terms of size, wages, capital intensity, and productivity between domestic and foreign‐owned firms that engage in intra‐firm trade, firms that export and import, firms that import only, and firms that export only. As previously documented, heterogeneity between different groups of trading firms is substantial. Taking into account intra‐firm trade in addition to exporting and importing yields new insights into the productivity advantage previously established for exporting firms. The results presented here show that this premium accrues only to exporters that also import and to exporters that also engage in intra‐firm trade, but not to firms that export only. Using simultaneous quantile regressions, the paper illustrates that heterogeneity within different groups of trading firm is equally large. Some of this within‐group heterogeneity can be attributed to differences in trading partners.     

Big is Beautiful when Exporting

This paper starts out from the observation that the export ratios of firms (export to sales ratios) vary greatly among firms and that they are systematically higher for larger exporters. We relate the difference in export ratios to firm‐level differences in transport costs. In accordance with the data, we assume that freight rates are a function of firm‐level export volumes. We test our model using Japanese manufacturing firm‐level data. We first estimate the elasticity of the freight rate with respect to firm‐level export volumes at the sector level. When feeding these estimates back into the model, it can explain more than 50% of the variation in firm‐level export ratios.     

Entry, Expansion, and Intensity in the US Export Boom, 1987–1992

US exports grew at 10.3% per year from 1987 to 1992, far faster than the economy as a whole. This paper examines sources of the manufacturing export boom, including entry, firm expansion, and export intensity. Most of the increase in exports came from increasing export intensity at existing exporters rather than from new entry into exporting. The small role of entry relative to export intensity offers support for the importance of sunk costs in the export market. Changes in exchange rates and rises in foreign income drove most of the export increase, while plant productivity increases played a smaller role.     

Trade and productivity: Self-selection or learning-by-exporting in India

Recent literature tried to explain the Indian growth miracle in different ways, ranging from trade liberalization to industrial reforms. Using data on Indian manufacturing firms, this paper analyzes the relationship between firm's productivity and export market participation during 1991–2004. While it provides evidence of the self-selection hypothesis by showing that more productive firms become exporters, the results do not show that entry into export markets enhances productivity. The paper examines the explanation of self selection hypothesis for total factor productivity differences across 33,510 exporting and non-exporting firms. It uses propensity score matching to test the learning-by-exporting hypothesis. In line with the prediction of recent heterogeneous firm models of international trade, the main finding of the paper is: more productive firms become exporters but it is not the case that learning by exporting is a channel fuelling growth in Indian manufacturing.     

Export tightening,competition, and firm innovation: Evidence from the renminbi appreciation

This paper investigates how firm innovation reacts to changes in competitive pressure in the export market. We use the exchange rate appreciation of the renminbi during 2005–2007 as a natural experiment and exploit its differential impact on Chinese manufacturing firms with different export exposure. The appreciation reduced exports and imposed greater competitive pressure on exporters relative to non‐exporters. In response, exporters increased innovation activities more than non‐exporters. Using a difference‐in‐difference approach, we find that the research and development expenditure of exporters increased by 11% more than that of non‐exporters during the appreciation period, and the new product development of exporters increased by nearly 1.5 times more than that of non‐exporters. These results highlight the important role of competition in providing incentives for firm innovation.     

Does Exporting Increase Productivity? A Microeconometric Analysis of Matched Firms

Exporting involves sunk costs, so some firms export whilst others do not. This proposition derives from a number of models of firm behavior and has been exposed to microeconometric analysis. Evidence from the latter suggests that exporting firms are generally more productive than nonexporters. They self‐select, in that they are more productive before they enter export markets, but the evidence suggests that entry does not make them any more productive. This paper investigates exporting and firm performance for a large panel of UK manufacturing firms, applying matching techniques. The authors find that exporters are more productive and they do self‐select. In contrast to other evidence, however, exporting further increases firm productivity.     

Beyond technical skills training: The impact of credit counseling on the entrepreneurial behavior of Ugandan youth

There is low take‐up of financial credit among youth in Uganda because potential beneficiaries perceive associated risks as high. This study assesses the determinants of entrepreneurial risk tolerance among Ugandan youth using experimental data from a randomized control trial and a real‐life investment‐risk experiment. Credit counseling was provided to young men and women aged 18–35 who owned a business to educate them about the obligations and commitments associated with financial credit. The intervention had a significant impact on demand for credit and related intermediate outcomes such as ownership of a bank account and investment in assets. The study finds that youth exhibited lower demand for credit after business training because of increased awareness regarding the actual risks associated with receiving credit. Our findings reinforce national strategies to promote soft skills for business entrepreneurship that extend beyond standard business training.     

Exporting and Productivity: The Effects of Multi‐Product and Multi‐Market Export Entry

Empirical studies on the micro‐level effects of exporting on productivity pay usually little attention to the potentially heterogeneous effects of the different modes of export market entry. We show that multi‐product export entry is associated with higher post‐entry productivity compared to other firms. This can imply significant benefits from experimentation with different products. Our analysis is based on detailed export data from full population of firms in Estonia, disaggregated for each firm by export markets and individual products.     

Exporting firms and the demand for skilled tasks

This paper explores the link between exports and the demand for skilled tasks. Using the Chilean Encuesta Nacional Industrial Anual (ENIA), an annual census of manufacturing firms, we first show that Chilean exporters utilize more skills than Chilean non‐exporters. More importantly, we establish a distinct pattern of task differentiation among exporters both within skilled and unskilled tasks. Exporting firms demand the services of skilled specialized workers (engineers) as opposed to skilled administrative workers and managers. In addition, exporters demand less unskilled labour, especially blue‐collar operatives. This suggests that exporters substitute skilled engineers for unskilled blue‐collar workers to perform export‐related tasks.