The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors

Despite a large literature investigating the impacts of trade on firm productivity, there is almost no evidence on how small firms react to trade liberalization. Using a unique dataset of firm-level surveys that are representative of the entire Indian manufacturing industry, I show that India's unilateral reduction in final goods tariffs increased the average productivity of small, informal firms, which account for 80% of Indian manufacturing employment but have been excluded from previous studies. In contrast, the increase in productivity among larger, formal firms was driven primarily by the concurrent reduction in input tariffs. By examining the effect of the tariff liberalization on the distributions of productivity and firm size, I find evidence consistent with the exit of the smallest, least productive firms from the informal sector. In addition, I find that although the decline in final goods tariffs did not significantly impact average formal sector productivity, it did increase productivity among the top quantiles of the distribution.     

The impact of trade liberalization on productivity: Evidence from India's formal and informal manufacturing sectors

Despite a large literature investigating the impacts of trade on firm productivity, there is almost no evidence on how small firms react to trade liberalization. Using a unique dataset of firm-level surveys that are representative of the entire Indian manufacturing industry, I show that India's unilateral reduction in final goods tariffs increased the average productivity of small, informal firms, which account for 80% of Indian manufacturing employment but have been excluded from previous studies. In contrast, the increase in productivity among larger, formal firms was driven primarily by the concurrent reduction in input tariffs. By examining the effect of the tariff liberalization on the distributions of productivity and firm size, I find evidence consistent with the exit of the smallest, least productive firms from the informal sector. In addition, I find that although the decline in final goods tariffs did not significantly impact average formal sector productivity, it did increase productivity among the top quantiles of the distribution.     

An Investigation of Entrepreneurial Orientation,Perceived Environmental Hostility,and Strategy Application among Chinese SMEs

Little is known about how Chinese small and medium‐sized enterprises (SMEs) respond to their competitive environment. We predict that when industry competition is intense, entrepreneurial Chinese SMEs tend to perceive more environmental hostility than do their nonentrepreneurial peers. The perceived environmental hostility further drives these firms to choose marketing strategies but not cost control or innovation strategies. Data from 170 Chinese SMEs confirm our hypotheses, indicating that though some entrepreneurial orientation (EO) effects transcend different economy types, other EO effects differ significantly as the environment changes.     

Small businesses and liquidity constraints in financing business investment: Evidence from shanghai's manufacturing sector

When firms experience financial hierarchy, external finance, if at all available, is substantially more expensive than internal finance. Factors such as transaction costs, agency problem, and asymmetric information have created such a hierarchy. Stiglitz and Weiss (1981) argue that asymmetric information between firms and potential suppliers of external finance creates adverse selection and moral hazard problems in the credit market in developed market economies. This problem of a higher cost of external finance is commonly thought to be more serious for small firms because they are more disadvantaged than their larger counterparts in accessing external finance due to several factors: (1) Public information on small firms is generally not available and leads to the even greater problem of asymmetric information, i.e., more severe adverse selection and moral hazard problems. These information problems have excluded small firms from bond and share markets. (2) Due to the lack of available means of external finance, small firms rely more heavily on bank loans than their larger counterparts. In addition, as small firms are more interested in cultivating stable relationships with a few banks in order to secure a stable supply of credit, these banks become virtual monopolies by lending to small businesses and exercise their market power in lending to small firms.Most of existing research considers only small firms in market economies; little research has been done to understand the relationship between firm size and investment financing in any economy in transition. This paper makes a contribution to the literature by studying the relationship between firm size and liquidity constraints by using a firm level data of manufacturing enterprises in Shanghai during the period of 1989–1992. We consider whether small manufacturing firms in Shanghai are constrained by the availability of liquidity compared with their larger counterparts when they are financing their fixed investment. In a transforming economy such as China (or other similar transition economies), external finance relies heavily on loans from banks that are fully owned by the state. Due to historical reasons, allocations of credit are always biased in favor of state-owned enterprises. Such a `lending bias' imposes an extra cost on small Chinese enterprises in financing investment as the majority of them are not state-owned.In such an environment, our empirical results show that small manufacturing firms in Shanghai are actually less liquidity-constrained than their larger counterparts in financing their fixed investment. This surprising result is rather different from what people normally predict based on the experience in market economies. We suggest three possible explanations for this peculiar finding: (1) The composition of various firm size classes plays an important role in explaining the result: Non-state enterprises which are fast growing and efficient dominate the small firm classes. Their successes in the markets helps them to generate enough internal funds to smooth their investment over time. (2) The presence of heavy indebtedness of large state-owned enterprises may deprive them of sufficient cash available for investment decision. Given that state-owned enterprises have been making heavy losses, the central and regional governments have a liquidity problem in satisfying their huge liquidity demands. (3) Small enterprises in non-state sectors can rely on the informal credit market to obtain funds for investment although they are excluded from the state banking system.However, the further trade liberalization in terms of eliminating tariffs and quotas caused by China's bid of joining the WTO will erode the profits of these small enterprises as imported goods will be supplied at lower prices. In addition, further reforms in financial sectors may also affect the supply of external finance to small enterprises in nonstate sectors. The consequence may lead to a tight liquidity constraint for small enterprises in China.     

Small Business Borrowing and the Bifurcated Economy: Why Quantitative Easing Has Been Ineffective for Small Business

In the early years following the financial collapse, federal officials and others believed that banks were not making loans to creditworthy small firms, who have accounted for most of the job creation in the United States in recent decades. Acting on this belief, a number of programs were created to increase bank lending to small firms. Overall, however, the data collected since the 2007/8 financial crisis suggest that the explanation for slow loan growth in the small business sector is not a result of supply constraints but rather a result of anemic loan demand among small firms. Thus, recent programs intended to increase small business borrowing through easing credit supply were doomed to fail. The weak demand for credit among small firms is representative of the sluggish performance of the small business economy postrecession, a marked contrast to the robust performance of larger firms and a reflection of a bifurcated economy.     

The Role of Small Firms in the Technology Development of China

Science & Technology (S&T) is high on the Chinese policy agenda and the country aims at becoming an innovation‐driven economy. Small firms have been important in technology development in other East Asian countries but the situation in Chinese small firms has been far less explored. We examine how much S&T has been accounted for by small firms and how their S&T intensity differs across industries and ownership groups. We also analyse how various firm characteristics differ over size categories and S&T status. This study is based on newly processed micro‐level data provided by the National Bureau of Statistics with information on a large number of S&T indicators for manufacturing firms in China in 2000 and 2004. Our results suggest that the role of small firms in Chinese S&T is similar to that in many other countries. They account for a comparably small share of total S&T and most small firms are not engaged in any S&T. However, those small firms that do engage in S&T tend to be more S&T intensive and have a higher output in terms of patents than larger Chinese S&T firms.     

Entry liberalization and export performance: a theoretical analysis in a multi-market oligopoly model

This paper is an attempt to demonstrate how the entry (costless) of firms in an industry may have a dramatic effect on exports from an industry in a country. The results have tremendous implications for LDCs suffering from resource and BOP constraints but having reservoirs of cheap labor. The welfare effects of such entry liberalization policy (or subsidy) can be stated from the Bhagwati theorem that a reduction in an only (single) distortion is necessarily welfare improving by reducing monopoly or oligopoly distortions. However, we have shown that the entry liberalization policy is welfare superior to an equivalent subsidy policy where equivalent is defined in terms of the impact on exports. As a by product, we have also shown how one can integrate the oligopoly models of trade with the general oligopoly literature. The results on the limiting behaviour of an open economy oligopoly model extend the standard results in the oligopoly theory in a closed economy.     

Bracing for MNC competition through innovative HRM practices: The way ahead for Indian firms

With increasing globalization, firms are entering a dynamic world of international business that is marked by liberalization of economic policies in a large number of emerging economies like India. To face the challenge of increasing competition that has resulted from liberalization, Indian organizations have initiated adoption of innovative human resource management practices both critically and constructively to foster creativity and innovation among employees. With the help of 11 in‐depth case studies, this article tries to understand how innovative HRM practices are being adopted by Indian firms to brace for competition in the postliberalization scenario. © 2006 Wiley Periodicals, Inc.     

Internationalization, Strategic Behavior, and the Small Firm: A Comparative Investigation

Previous research on the internationalization of the small firm explored the relationship between the adoption of a global orientation and strategic thinking. However, there was difference in opinion between those arguing that there is a positive relationship between the two variables and others who contended that small firms may internationalize by adopting a passive or reactive approach to the external environment. Within this context, this study sets out to further the discussion by comparing the experience of small enterprises with their medium and large-scale counterparts. In doing so, it draws upon the findings of survey of 1,000 internationalized enterprises located in the main urban conurbations of England. The results suggest that overall there is little disparity in strategy development among internationalized enterprises of different sizes. However, whereas the incidence of strategic behavior among medium and large businesses increases with the complexity of international operations, this is not the case for small firms.     

How does stock market liberalization influence corporate innovation? Evidence from Stock Connect scheme in China

Using China's Stock Connect program as a quasi-natural experiment, we assess the impact of stock market liberalization on corporate innovation. The baseline result based on a difference-in-differences (DID) estimation suggests that allowing foreign investors to buy domestic stocks has a beneficial effect on Chinese firms' innovative outputs. Specifically, eligible firms affected by the Stock Connect scheme generate more and higher quality patents than other unaffected firms subsequently. Furthermore, we explore potential channels that may explain this beneficial effect in terms of improving corporate governance, reducing information asymmetry, and mitigating financial constraints. In addition, the effect is more pronounced for firms in high-tech industries. However, we find that the influence of stock market liberalization is insignificant in state-owned firms. Besides, the findings are generally robust to different measures of innovation and different methods of estimation. Overall, this paper provides new insights into understanding the positive effect of stock market liberalization in emerging market economies.     

Goods and factors liberalization under increasing returns to scale

This paper develops a general equilibrium model with alternative forms of import restrictions, international capital mobility, and taxes on the rate of return on foreign capital in the context of a small open economy using an external increasing returns technology. Within this framework, this paper analyses the price and welfare effects of import liberalization in the presence of tax on foreign capital and of factor flows liberalization in the presence of alternative forms of import restrictions. It is shown, among other things, that, in contrast to the existing literature on constant returns to scale economy, the optimal policy towards foreign factors is possibly tax under each form of import restrictions.     

Does the implementation of a combination competitive strategy yield incremental performance benefits? A new perspective from a transition economy in Sub-Saharan Africa

This study examines the performance implications of implementing generic competitive strategies, and whether the implementation of a combination competitive strategy yields an incremental performance benefit over a single generic competitive strategy using data from Ghana, a Sub-Saharan African economy implementing economic liberalization policies. Two types of singular generic competitive strategies are analyzed: cost-leadership and differentiation. Our findings from the overall sample provide support for the viability and profitability of implementing coherent generic competitive strategies — cost-leadership, differentiation, and the combination of the singular strategies. The results further indicate that firms implementing a combination strategy tend to experience substantial incremental performance benefits over those implementing only the cost-leadership strategy. However, the incremental performance benefits to firms implementing a combination strategy do not significantly differ from the performance of firms implementing only the differentiation strategy. Furthermore, firms that implement a coherent competitive strategy (combination, cost-leadership, or differentiation) tend to gain considerable incremental performance benefits over firms that are stuck-in-the-middle. Implications are discussed.     

黑龙江省中小企业金融支持体系最优模式研究

改革开放以来,我国的中小企业迅速发展,在促进经济增长、增加就业机会、推动技术创新等方面发挥着不可替代的作用。黑龙江省中小企业为全省的经济发展做出了突出贡献,但仍存在一些制约因素阻碍其进一步发展。其中,融资难是最大的障碍。     

The role of small firms in Indonesia

During the last two decades small firms in developing countries have received more and more attention from researchers and policy makers. For this, several reasons have been brought forward. The decline in labour absorption in agriculture and the slow growth of employment opportunities in the other sectors of the economy, combined with the fact that the growth of the labour force has accelerated, have led to un- and under-employment problems in many of these countries.Small firms are generally viewed as a useful means of alleviating these problems, because medium and large firms only would not help to solve the problems. However, from this study it can be concluded that the medium and large firms in the manufacturing sector in Indonesia are doing better in employment and income than generally anticipated.The purpose of this study is to examine the relative pattern of change and development of small firms in the manufacturing sector in Indonesia in the last two decades and possible factors affecting their growth. Also the relative importance of small firms in terms of income generation will be assessed.The study will use national data collected from the Department of Industry and Central Bureau of Statistic in Indonesia. Further, the study will be based, for its theoretical analysis, on relevant literature on the subject and on some empirical studies in Indonesia as well as in other developing countries.     

Marketing in Chinese Small and Medium Enterprises (SMEs): The State of the Art in a Chinese Socialist Economy

This paper adopts the context-embedded approach to examine the marketing practices of 307 small and medium enterprises (SMEs) in the People’’s Republic of China by comparing the survey findings with that of Hong Kong and Guangdong SMEs. Chinese SMEs focus on regional markets to avoid direct competition with Hong Kong SMEs in the international markets and also their Guangdong counterparts in the turbulent nationwide market. To market their own brands, Chinese SMEs have to analyze the market and use superior marketing strategies in the competitive markets. Chinese SMEs do not attain the superior competitive positions as that of their Guangdong counterparts, but they use customer satisfaction surveys and claims investigation to help develop excellence in product performance. Also, Chinese SMEs have to provide value-added products and services and also a well-rounded marketing competitive strategy to gain market shares. The traditional state-owned enterprise structure in China facilitates the development of hierarchical organizational structure and joint decision making process. Thus, care should be taken in assuming that marketing tools and techniques are equally applicable across all places, even in similar cultural contexts. Socio-cultural influences and mediating environmental factors should be considered when attempting to understand the marketing practices of Chinese small firms, specifically when China is in transition to a socialist market economy.     

The link between product diversification and performance among Spanish manufacturing firms: Analyzing the role of firm size

This study sheds additional light on the product diversification‐performance relationship for firms in a country having recently attained an advanced economy status in our period of analysis. We assume there will be an inverted U‐shaped relationship and use a sample of small, medium, and large Spanish manufacturing firms between 1994 and 2008. Our findings provide solid support for this assumption, and are identical when the sample consists of small, medium, and large firms and of large firms alone. Our results also suggest that the larger the firm, the higher the optimal level of diversification. Panel data models are used to control for unobservable heterogeneity and potential endogeneity problems. Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd.     

The GATS and liberalization in a natural-resource rich country

Abstract

We highlight the role of natural resources in countries that use resource revenues to subsidize employment in state-owned services sectors by developing a model of service provision where domestic incumbents and a foreign entrant compete. We find that when natural resource prices have a higher likelihood of increasing, domestic firms control most of the market share but that industry output drops. However, the output of the services industry rises with domestic firms losing market share when natural resource prices are likely to go down. This suggests that a government focused narrowly only on the growth and development of its economy would prefer services liberalization when natural resource prices are likely to be higher.     

Change in the size distribution of UK firms

This paper examines the extent of change and stability in the population of UK firms through time in terms of its size distribution, as defined by number of employees. It was empirically found that the distribution of employment by firm size remained surprisingly constant over the 1987–1989 period. A major implication of this finding is that in times of very high net job creation (involving high gross job creation and loss), factors are at work in the economy to keep the population distribution of firms (in terms of employment concentrations) more or less stable. It is hypothesised that a natural concentration exists for each different size band, and that as change takes place, the proportion of total employment based in the size band will tend towards this natural level.The rise in the proportion of employment in small firms, and the comparatively high job creation ability of small firms in recent times has come about in part because of negative rather than positive macro-economic influences. In recession, small firms in aggregate in spite of their individual volatility, are the most resilient. In prosperous times they do not increase their proportion of employment share, while in times of recession they do. Our results imply that large firms have a very significant, if not the most significant, bearing upon aggregate employment trends. On the other hand, small firms inherently have more potential to create jobs than large firms.The majority of public expenditure and legislative support for UK business is directed at large firms, as a result of culture and tradition. Even with the benefit of this support, large firms in recent decades have still performed badly, in job generation terms. In contrast, small firms have shown an inherent advantage in their ability to create jobs. A shift of government expenditure and legislative support from large to small firms would further enhance and realise the potential of small firms to benefit the economy and create jobs.     

Small and Medium Enterprises in Thailand: Recent Trends

This paper reviews the evolution of small and medium firms in Thailand in recent years. It shows that such firms did not preserve their share of total employment during the period 1987–96; indeed, their share fell from 60% to 52% over this period. Much of this decline was felt in the category of very small firms (with less than 10 workers). This aspect is explored further by looking at small firm employment shares in three sub-periods of varying overall economic growth rates. It is found that when overall economic growth is high, the share of small firms tends to contract possibly because many small firms become medium in size and others disband because their owners can find more remunerative employment in larger firms. In slower growth periods, the employment share of small firms appears to rise probably because larger firms may be taking in less new workers or even laying off workers. The paper also calculates productivity measures (technical efficiency and total factor productivity) and shows that different measures give different rankings by size of firm.     

Responsible family ownership in small‐ and medium‐sized family enterprises: an exploratory study

The concept of responsible ownership was originally developed with reference to large, publicly held firms. However, the relevance of small‐ and medium‐sized closely held firms, such as family firms, in all economies and the specific governance and organisational characteristics of these firms require further examination of the responsible ownership concept and its operationalisation. Based on the existing literature, we define the construct of responsible family ownership to fill this gap in responsible ownership theory. We propose a scale that can be used to assess the responsible family ownership construct in small‐ and medium‐sized family enterprises. The data used in this exploratory study were collected in an ad hoc survey answered by a representative sample of 84 small‐ and medium‐sized family enterprises. The study contributes to the responsible ownership literature by presenting the responsible family ownership construct, a key driver of balance in family and firm systems that is therefore critical to the health of small‐ and medium‐sized family enterprises. In addition, a scale is proposed as a means to operationalise the construct and to derive practical implications for the governance of this kind of firms.