Why Exporting Matters

Jaap BosMaastricht University

Claire EconomidouUnivesrity of Pireaus

Mark SandersUtrecht School of Economics

m.w.j.l.sanders@uu.nl

31 October 2013Utrecht

Motivation It is relatively well established in the literature

that export orientation leads to better economic performance.

At the aggregate country level: e.g. Edwards, 1998; Bhagwati, 1998; Frankel and Romer, 1999

At the firm level: e.g. Chen and Tang, 1987;Aw and Hwang 1995, Bernard and Jensen, 1995, 2004; Girma et al., 2004; De Loecker, 2007.

For elaborate overviews: e.g. Greenaway and Kneller, 2007; Wagner, 2007, 2012.

Motivation While productivity differences between exporters

and non-exporters are well-documented in the literature:

less is known about the roots of these differences, and

the direction of causality is not settled yet: whether it is exports that cause better performance ("learning") or the other way around ("market selection").

MotivationOn Learning vs. Selection

Study: Country/Region: Confirms:Clerides et al. (1998) Mexico, Morrocco, Columbia Self-selectionBernard and Jensen (1999) USA Self-selection Castellani (2002) Italy LearningDelgado et al. (2002) Spain Self-selection Girma et al. (2004) U.K. Self-selection Van Biesebroeck (2005) Sub-Saharan Learning countriesDe Loecker (2007) Slovenia Learning. .Manjon (2013) Spain LearningLove and Ganotakis (2013) UK SMEs LearningGupta et al. (2013) India Learning.

Etc.

Contributions Discussion seems to focus on estimation

techniques and developing countries:

Few have investigated an advanced small open economy. We analyze a large Dutch panel of firms Including both manufacturing and services firms

Few (Girma et al 2004) apply matching techniques to account for selection. We find selection effects are big for entrants and quitters

Key FindingsNobody has questioned the “measurement” of productivity:

We estimate a stochastic production frontierWe decompose productivity growth in its componentsWe find that exporters realize more efficiency gains and benefit from scale (vs. non-exporters)We find non-exporters are more innovative (vs. exporters)We find that entrants do not gain efficiency (vs. non-exporters)We find that quitters indeed lag in efficiency (vs. exporters)

Few (post Clerides et al. 1998) theorized about underlying mechanisms:

We (will) develop new testable hypotheses on learning by exporting for future research, based on our results

The StorylineAXf(k)

ANf(k)

Y/L

K/L

AX>AN

gAX=gA

N

gAE>gA

N,X

gAQ<gA

N,XResults

are mixed at

best

Results

are mixed at

best

Our StorylineY/L

K/L

Y*ijt=Tjtf(kijt)

Y=ENijt*Tjt*f(kijt)

Y=EXijt*Tjt*f(kijt)

EX>EN

gEX>gE

N

gTX<gT

N

gTE>gT

N

gEQ<gE

X

MethodologyFirms all produce under same frontier given by:

Then a given firm produces at any given time:

Where υijt measures inefficiency. Differentiating(2) w.r.t. time gives:

(1)

(2)

(3)

MethodologyEstimate (2) in translog:

Decompose following Kumbahkar and Lovell 2004:

(4)

Methodology

Methodology

yijt =bj + balwaysDalways + bstarterDstarter+ bquitterDquitter + bswitcherDswitcher + εijt yijt is the productivity growth component (gTFP, TC, EC and ES) of firm i in industry j at time t. We include industry-specific fixed effects.

Note: A straightforward interpretation of the results from equation above requires the assumption that firms are randomly selected to either export or not, otherwise the results may confound learning and selection. Therefore, we subsequently estimate the propensity to export.

Methodology

Dalways =b0 + bw wijt + bsize sizeijt+ bcommunicationcommunicationijt + bj Dj + εijt

if Dalways = 1|Dnever = 1

where w is the price of labor; size is total assets; communication measures the amount of advertising and public relations expenditures of firms; and Dj is a dummy for industry j, and is included for every industry except for the base industry.

Note: For each type of exporter, we find the appropriate control group: starters are matched with firms that never export, quitters are matched with firms that always export, and switchers are matched with both firms that never export and firms that always export, respectively.

Exporting {1,0}

As a next step, we repeat the estimation of equation above, but now estimate this equation for each group of exporters, respectively, for both TFP growth and its components. For example, for firms that always export, we estimate: gTFPijt = bj + balwaysDalways

ijt + εijt if psalways > 0 (6)

where psalways is the export propensity score from estimating equation (5).

Hence, in estimating the equation above, we only include firms that always export and firms that never do, but have a similar propensity to export. We subsequently do the same for other groups of exporters (and their respective control groups).

Export Intensity

To assess the marginal effect of exporting we estimate:

gTFPijt = bj + bexpintexpintijt + bexpint2 expint2

ijt + εijt if expintijt > 0 (7)

where expintijt is the export intensity of firm i in industry j at time t, defined as exports over value added. As before, this equation has been estimated for both TFP growth and its components.

To assess whether learning takes place, we consider

δgTFPijt /δexpintijt, or bexpint + 2 ∗ bexpint2 expintijt,

the marginal effect of export intensity on TFP growth. Depending on the sign for bexpint

2 , this effect is either in- or decreasing in export intensity.

Export Duration

ΔgTFPijt = bj + balwaysDalways + εijt if psalways > 0, ∀t = 1, ..., 11 (8)

where as before, psalways > 0 ensures that we estimate the export premium, balways, comparing firms that always export with those that never export, but have a similar propensity to export.

We estimate equation above for each time period t, where - in this case only - t reflects the time that has passed since a firm started to export. We focus on starters and switchers, and report the development of balways over time. If exporters learn from exporting, we expect a positive premium that increases over time.

Data 76,898 Dutch firms in manufacturing (15,287) and services (61,611). 27 manufacturing and 10 services industries, at the NACE2 level (SBI in

Dutch). Period 1994-2004. Output (Y), Capital (K) and Labor (L) to construct the production frontier

production set as well as export share, wages, total assets and communication for the matching analysis (to calculate the propensity to export) are retrieved from the Netherlands Central Bureau of Statistics (CBS) Production Statistics (CBSPS) database.

Y, K and L are constructed following the EU KLEMS methodology, at the firm-level.

Datamanufacturing

services

ResultsDoes it Matter if you Export?

Manufacturing, matched samples

gTFP ES TC EC alwaysnever-0.005* 0.001*** -0.011*** 0.005***

starternever -0.006 -0.000 -0.001 -0.005**

quitteralways -0.007** 0.001 -0.004 -0.003**

switcheralways 0.005*** 0.000 0.007*** -0.002*

switchernever 0.004 0.001*** -0.001 0.004***

Manufacturing, without matching (relative to never)

gTFP ES TC EC always -0.008*** 0.001*** -0.011*** 0.002

starter 0.005 0.001* 0.001 0.003* quitter -0.011*** 0.002*** -0.013*** 0.000 switcher 0.001 0.001*** -0.003 0.003*

Selection Effects

Confirmed

Selection Effects

Confirmed

Exporters

premium in

EC

Exporters

premium in

EC

Entrants

penalty in

EC

Entrants

penalty in

EC

Exporters

penalty in

TC

Exporters

penalty in

TC

ResultsDoes it Matter if you Export?

Services, matched samples

gTFP ES TC EC alwaysnever-0.025*** 0.001** -0.030*** 0.006***

starternever -0.024*** 0.000 -0.021*** -0.003***

quitteralways -0.038*** 0.001** -0.031*** -0.009***

switcheralways 0.034*** 0.001 0.038*** -0.005***

switchernever 0.001** -0.001** 0.000 0.002**

Services, without matching (relative to never)

gTFP ES TC EC always -0.025*** -0.000 -0.027*** 0.003*

starter 0.028*** 0.001 0.026*** 0.002** quitter -0.023*** 0.002*** -0.020*** -0.004*** switcher -0.002 -0.001** -0.002 0.001

Same pattern

Same pattern

Entrants

and quitters

penalty in

TC

Entrants

and quitters

penalty in

TC

ResultsDoes it Matter How Much you Export?

Manufacturing gTFP TC EC

always -0.003 (−) -0.001** (+) -0.002 (−) starter -0.015 (+) -0.016 (+) 0.001** (−)quitter 0.018 (−) 0.017 (−) 0.001** (−) switcher 0.001** (−) 0.001** (−) -0.001** (−)

Services gTFP TC EC

always 0.001 (−) 0.002** (−) -0.002** (−) starter 0.006 (−) 0.005 (−) -0.000** (−)quitter 0.025 (+) 0.021 (+) 0.004** (+) switcher 0.036 (−) 0.032 (−) 0.002** (−)

Intensity helps s

tarters

and quitters

Intensity helps s

tarters

and quitters

Exporters

switc

h sign

TC manuf.-S

erv.

Exporters

switc

h sign

TC manuf.-S

erv.

Results starternever

ManufacturingServices

Effects fa

de quickly

Effects fa

de quickly

Conclusions1. Does it Matter if you Export?Yes it does, for scale economies and efficiency change: but growth premia are not positive for technical change!

2. Does it Matter How Much you Export?Yes it does, for efficiency change, for always (0,-), for starters (+/-), for quitters (+/+) and for switchers (-/+).

3. Does it Matter How Long you Export? Not really: any effects tend to fade quickly, except for starters in services sectors...

Questions/Comments

Are highly appreciated…