what do we know about south african exporters from micro-data? neil rankin july 2009 african...
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What do we know about South African exporters from micro-data?
Neil Rankin
July 2009
African Micro-Economic Research UmbrellaSchool of Economic and Business Science
University of the WitwatersrandJohannesburgSouth Africa
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Outline - Why exports?
- Three generations of trade models
- Some stylised facts about firm-level exports
- What do we know about South African exporting?
- Some policy thoughts
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Why exports?
- Increases the potential market for local products, increasing revenues and potentially employment
- Diversifies away from the domestic market
- Potentially a channel for technological transfer and thus lower domestic prices and/or better quality goods
- Specialisation and increased productivity
- Source of foreign exchange
- Pays for imports
- May reduce macro-economic instability
- Historically, rapid economic growth associated with rapid growth of manufactured exports
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Three generations of trade models
1) Classical models of trade
- Heckscher-Ohlin- Endowments
- Ricardian- Technology
- These explain trade at the country level
2) New trade theories
- Market structure (monopolistic competition)- Taste for variety- Transport costs- Increasing returns to scale
- Explains trade at the industry level
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Three generations of trade models
3) Firm-level or new, new trade theory
- Actually data show a large degree of heterogeneity in export behaviour at the firm-level
- New trade theory does not fully explain this
- Models of Melitz and others- Firm heterogeneity (often in productivity)- Monopolistic competition- Transport costs
- More productive firms are able to overcome transport costs to compete in export market
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Some stylised facts about firm level exports
- Wide degree of heterogeneity
- Exporting is a minority activity
- The typical exporter exports very little
- The bulk of exports is actually accounted for by a small number of firms
- Exporting is state-dependent
- Exporting is highly correlated with size
- Exporters pay more
- Exporting is related to importing
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What do we know about exporting in a South African context?
- Lack of data, particularly panel data, means that we do not know as much as we know for other countries.
- Export participation and propensity
- Export destination
- Exporting and productivity (the determinants of exporting)
- Exporting and market structure
- Exporting and importing
- Exporting and employment
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Export participation and the amount exported
- Aggregate export performance is merely the sum of the export levels across South African firms.
- The same aggregate amount of exports can be achieved by a small number of firms exporting a large amount of output or a large amount of firms exporting a very small amount.
- What is the case in South Africa and how does it compare to other countries?
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0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
Small Medium Large Total
Ghana Kenya Tanzania Nigeria South Africa Total
Figure 1: Export propensity: by country and size
Source: Rankin (2005)Notes: Export propensity is defined as the percentage of observations in that size category that are of exporting firms.Small < 20 employees; medium 20–74; large >75. There are no small South African firms in the sample. These observations are for firms over time thus a firm will be represented by each year it is in the sample.
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0% 20% 40% 60% 80%
South Africa
Senegal
Kenya
China
Hangzhou
Shenzen
Poland
Brazil
Lithuania
Malaysia
% of firms exporting
0 20 40 60
South Africa
Kenya
Senegal
China
Hangzhou
Shenzen
Brazil
Poland
Lithuania
Malaysia
Exports as % of sales
Figure 2: Comparative export participation rates and amounts exported.
Source: World Bank (2005)
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Figure 3: Percentage of output exported: by country and size
01020304050607080
Gha
na
Ke
nya
Ta
nza
nia
Nig
eri
a
So
uth
Afr
ica
To
tal
Small
Medium
Large
Total
Notes: Small < 20 employees; medium 20–74; large >75.There are no small South African firms in the sample.Source: Rankin (2005)
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Figure 4: Distribution of the percentage of output exported if a firm exports – African firms
0
10
20
30
40
50
60
<=
10
11-2
0
21-3
0
31-4
0
41-5
0
51-6
0
61-7
0
71-8
0
81-9
0
91-1
00
% of output exported
% o
f sa
mp
le (
gro
up)
All except South Africa(n=357)South Africa (n=104)
Total (n=461)
Source: Rankin (2005)
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Destination of exports
- International markets often mentioned as important – UK (24%), US (20%), Namibia (19%)
- But data suggests that participation in regional markets is more common
- ‘Vent-for-surplus’ argument – regional market is an extension of the local market.
- Firms unlikely to participate in both markets – only 13% of firms include both International and African markets in their top three destinations
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Destination of exportsFigure 3. Kernel density function of the proportion of output exported by export destination (SADC)
0.0
1.0
2.0
3
0 20 40 60 80 100% exported
Neighbours only International onlyBoth
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The determinants of export participation
- Focus has been on the exporting-efficiency link.- Are firms more productive prior to exporting, or do they become more productive once exporting?
- On balance the self-selection argument seems to be more common.
- South Africa- Exporters out of SADC more productive (Rankin, 2002)- 2008 dataset suggests that regional exporters are more productive, but may be related to market power (Rankin and Schöer, 2009a)- Do South African exporters learn by exporting? (Coming soon)
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The determinants of export participation
- However, exporting-size link is more robust.
- Why?- Not disguised efficiency effect
- Not sunk costs – size remains important even when lagged exporting (a proxy for sunk costs) is included.
- Not time-invariant firm-specific effects (Rankin, Söderbom and Teal, 2006)
- Rather something else.- market size?
- recurring costs that only large firms can overcome?
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The determinants of export participation
Exporting and Size
0100200300400500600700800A
ngol
a
Bot
swan
a
DR
C
Nam
ibia
Sou
thA
fric
a
Sw
azila
nd
Tan
zani
a
Zam
bia
Non-Exporter Region International Both
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The amount exported (exporting and market structure)
- No robust results from the data. It is all firm specific.- A simple model (Blattner (1973))
Figure 2: Exporting firm with market power in the domestic market
Source: Adapted from Blattner, 1973
DForeign
DDomestic
MC
MRDom
AC
Quantity
Price
Pm
Pf
Qtotal QDom
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Exporting and market structure(Rankin and Schöer, 2009a)
- Number of competitors is linked to export destination
- International-only exporters more likely to be monopolists
- Regional-only exporters more likely to have 1 to 5 competitors
- Regional-only exporters are more capital intensive
- Lumpy capital investment
- Allocative vs economic efficiency
- Tension between size required to be successful in the export market and market structure
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Exporting and importing
- Related- Currently, Lawrence Edwards (UCT) working in this area
Export Export region
only
Export international
only Export both Non-importers 21% 12% 5% 5% Importers 51% 21% 7% 23% Total 39% 17% 6% 15%
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Exporting and employment
- Rankin and Schöer (2009b)
- Work on other countries indicates that exporters pay more, but this may be because they employ different people.
- South African data suggests that the types of people employed differs by export destination – SADC-only specialists are more likely to employ younger males
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Exporting and employmentFigure 2. Kernel density functions of ln(monthly wages) by export destination
0.1
.2.3
.4.5
kden
sity
lmea
rn
0 5 10 15x
All SADC-onlyInt-only Both
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Exporting and employment
- After controlling for firm and worker characteristics, these differences in wages persist
- Workers in firms that export only to SADC earn significantly less than non-exporters
- This is also related to specialisation (10-32% earn 20% less; 33%+ earn 35% less)
- Workers in firms that export to the international market earn significantly more (at least 15%)
- What explains this?
- Product quality which is correlated with underlying skills/productivity of worker
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Some policy thoughts
1. More firms exporting or existing exporters exporting more?
- In comparison to other African countries more South African firms export but in general export a smaller amount
- In comparison to the ‘peer group’ (Malaysia, China), fewer firms export and export less
- Seems better to concentrate on increasing volume rather than participation
- Related issue is that one needs to think about the underlying population of firms. Seems like there are relatively few firms in the ‘middle’. These are the potential exporters
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Some policy thoughts
2. Regional markets as stepping-stones to international markets?
- Seems unlikely
- Markets seem distinct (product quality issues)
- Other African data suggests little transition from African-only exporters into International exporters
- Defensive exporting?
- Exporting when they outgrow local market or to retain domestic market power
- Not to say regional market unimportant
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Some policy thoughts
3. Macro-economic and policy stability and exporting
- Key
- Models with sunk costs (Dixit, 1989, Baldwin and Krugman, 1989) suggest that uncertainty matters
- Firms only enter if discounted stream of future profits outweighs the stream of domestic profits by the amount of the sunk costs
- Need a ‘premium’ for this
- Large shock may encourage firms to enter exporting
- However, response to shocks depends on group of firms ‘almost’ exporting
- Exchange rate devaluation
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Some policy thoughts
4. Productivity and exporting
- Data does not really allow us to get at productivity issue – with no price data mark-ups and productivity are confused
- Existing research does seem to suggest that the most efficient firms do not have as large market share as they should
- Potential factors limiting this:- Competition- Bargaining structure- Crime- Transport costs and infrastructure limit competition- Regulations- Imports
- Policies need to focus on improving business environment and allowing productivity to be key determinant of firm survival, growth and thus exporting