Explaining Export Performance through Inputs: Evidence from Aggregated Cross‐country Firm‐level Data

• DOI: http://doi.org/10.1111/rode.12309
• Published date: 01 August 2017
• Author: Erik Marel
• Date: 01 August 2017

Explaining Export Performance through Inputs:

Evidence from Aggregated Cross-country

Firm-level Data

Erik van der Marel

Abstract

Which trade barrier related to intermediate inputs forms a greater burden on the export performance of

firms in developing countries? Using aggregated cross-country firm-level data covering 43 mostly

developing economies, this paper estimates the marginal importance of the impact of various

intermediate input trade cost barriers, namely tariffs, non-tariff barriers (NTBs) and services barriers, on

firms’ export behavior. In a cross-sectoral setting, this paper takes the firm’s export performance in goods

as a central focus to study the effects of these different trade barriers through the exporting firm’s choice

of use of intermediate inputs. The results show that the most significant trade barriers on inputs that

impede export performance in developing countries are mainly NTBs and restrictions of services.

1. Introduction

Which trade policy impediment on imported intermediate inputs constitutes a

relatively greater burden on the export performance of developing countries? The

contribution of both non-tariff and service barriers to the overall level of protection

seems to become more important with increasing levels of development [World

Trade Organization (WTO), 2012]. This suggests that tariffs would still persist to be

a relatively more important obstacle for exporting firms in developing countries.

Figure 1 indeed shows that developing countries often impose higher tariffs than

richer countries. In today’s world where also developing countries are becoming

more and more struck by intermediate input trade because of their increased

participation in global supply chains, a focus on tariffs is justifiable. Yet, it remains

unclear what actually is the relative importance of intermediate input tariffs next to

other forms of input trade obstacles such as non-tariff barriers (NTBs) or even

trade restrictions in services—all of which are likely to affect a firm’s exporting

performance.

In this paper I therefore address this question by estimating which trade

restrictive measure on inputs forms a marginally greater weight on the performance

of exporting firms in developing countries. Generally, the importance of

intermediate inputs for the domestic economy for developing countries has been

confirmed in the empirical trade literature. Amiti and Konings (2007) for instance

show that in Indonesia reducing intermediate input tariffs brings along significant

positive productivity outcomes that stem from learning, variety and quality effects,

which together are twice as large as reducing tariffs on mere output goods. This

should ultimately also have an effect on the performance of those firms engaging in

*van der Marel: European Centre for International Political Economy (ECIPE), Avenue des Arts 40,

1040, Brussels, Belgium. E-mail: erik.vandermarel@ecipe.org

Review of Development Economics, 21(3), 731–755, 2017

DOI:10.1111/rode.12309

©2017 John Wiley & Sons Ltd

exports, particularly because the recent trade literature on firms shows that more

productive firms engage in exports. Moreover, abolishing or decreasing policy

barriers on inputs reinforces simultaneously the performance of domestic firms

stemming from external competition, which could further enhance the performance

of firms, including those engaged in exports. In developing countries, however, not

only tariffs but also non-tariff measures such as quotas, domestic support measures

or regulatory barriers related to services are still very much prevalent, which have

shown to distort trade for poor countries to a considerable extent. Yet, the

empirical trade literature has paid relatively little attention to the actual marginal

importance of each of these policy barriers regarding inputs across developing

countries.

Prior work related to non-tariff measures is wide-ranging and mostly investigates

each of these barriers independently. Hoekman et al. (2004) is an exception and

researches the role of both tariffs, domestic support and export subsidies as a type

of NTB for the agricultural sector only in developing countries. Specifically, they

assess the relative impact of these barriers on exports, imports and welfare using a

large sample of developing and various developed countries. They conclude that

tariff reduction matters significantly more in terms of welfare gains.

1

More recent

papers have tried to analyze the impact of NTB measures on trade in distinct ways.

Using firm-level data, Chen et al.(2006) examine the role of standards on the firm’s

export performance in terms of export propensity and diversification and found that

these are detrimental to exports in developing countries.

2

A paper by Arnold et al.

(2016) shows the importance of liberalization of services as inputs that increase the

performance of manufacturing firms in India. In this paper I collect data on all

these types of barriers together and calculate the marginal extent to which they

form an input obstacle for the performance of exporting firms in developing

countries in terms of total trade values, the average export of a firm (i.e. intensive

margin) as well as the number of firms exporting (i.e. extensive margin) for 2009.

ALB

BEL

BFA

BWA

CHL

CMR COL

CRI

ECU

EST

GTM

JOR

KEN

MAR

MEX

MKD

MUS

NER

NIC

PAK

PER

SEN

SLV

TZA

UGA

YEM ZAF

0 5 10 15

Tariffs

5 6 7 8 9 10

GDP per capita (ln)

Figure 1. Tariffs in Developing Countries [Colour figure can be viewed at

wileyonlinelibrary.com]

Note: Tariffs are the tariff-only OTRI from Kee et al. (2009) as used in regressions.

732 Erik van der Marel

©2017 John Wiley & Sons Ltd