Transcript No Slide Title

The performance of NZ exporters:
Some firm-level evidence
Richard Fabling
Motu Public Policy Seminar, December 2007
Outline
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Motivation
Theory
NZ data & results
Future work
Motivation
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Concerns about NZ export performance:
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“Exports have grown little in volume or value over the last 30
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years, and our performance is well behind that of similar OECD
countries”
“Export Year 2007 is part of the Government’s wider Economic
Transformation Agenda to forge an export-led, high wage
economy”
“Exporting helps businesses:
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Expand their customer base, potentially boosting sales,
productivity and profits
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Achieve the scale needed to attract investment and reach their
full potential
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Pick up new skills and expertise, and stay ahead of market
trends
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Become internationally competitive, helping to protect their
domestic business from imported competitors
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Create a long-term plan for their future.”
www.exportyear.govt.nz
Theory
Figure 2 - Greenaway & Kneller (2007)
Implications of model
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Wide variety of firm performance (assumed)
Self-selection into exporting
Persistence in exporting
Exporters achieve greater scale
Resource reallocation towards exporters raises
aggregate productivity
Explains relationship between trade & growth
Other effects on firms from exporting?
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EG, higher productivity growth through learning-fromexporting – not assumed in model
Empirical literature strong on self-selection hypothesis,
mixed (weak) evidence on learning
Focus of export policy
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Reduce threshold for entry into exporting
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Cover sunk costs (eg, NZTE Market Development
Grants, 541 recipients, $36.3m)
Reduce trade barriers (eg, MFAT Policy Advice &
Representation: International + Other Countries
$220.2m)
Help firms raise productivity => selfselect into exporting
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Eg, NZTE Capability Building Grants (366
recipients, $3.2m)
R&D tax credit ($158m)
Many economies do these things – which
of them work?
How NZ research helps
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Ex-ante
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How does the economy work?
Is there a problem that policy could solve?
Ex-post
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Did this policy work?
How could it be improved?
This work in the nature of the former
approach, but evaluations are underway!
First, to be useful, researchers need data…
The Longitudinal Business Database
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Longitudinal Business Frame (LBF)
GST/Business Activity Indicator (BAI)
Financial accounts (IR10)
Company tax returns (IR4)
Linked Employer-Employee Dataset
(LEED) aggregates
Customs merchandise trade
Government programme lists
Sample surveys (AES, BOS, Innovation,
R&D, BPS, BFS)
Benefits of the LBD
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Coverage
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Panel dimension
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Includes roughly all “economically significant”
firms in NZ (~700K private-for-profit firms)
7yrs (2000-6), ~450K active firms in any year, ~50K
entrants/exits
More performance metrics
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Exporting by good-destination; profitability;
productivity
Huge potential for firm-level research
Some industry restrictions in work
presented today
Papers this presentation draws on
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Fabling & Grimes (2007a) “Do exporters cut the hedge?
Who hedges, when & why”, NZAE’07
Fabling & Grimes (2007b) “Over the hedge or under it?
Exporters’ Optimal and Selective Hedging Choices”,
NZESG presentation/paper in prep.
Fabling et al. (2007) “Some rise by sin, & some by virtue
fall: Firm dynamics, market structure & performance”,
NZAE’07
Fabling & Sanderson (2007) “Peter Piper picked a peck of
pickled peppers & packed them off to Portugal: Firm-level
patterns in merchandise trade”, NZAE’07
Greenaway & Kneller (2007) “Firm heterogeneity, exporting
and foreign direct investment”, Econ J, v117, pp134-161
International Study Group on Exports & Productivity
(2007) “Exports & productivity: Comparable evidence for
14 countries”, in prep.
Manufacturing value-added (2005)
0.80
0.75
All manufacturers
0.70
Exporters
0.65
Proportion of manufacturers exporting
0.60
Density/proportion
0.55
0.50
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
6.5
7.5
8.5
9.5
10.5
11.5
Log value-added
12.5
13.5
14.5
15.5
Where does expansion come from?
Manufacturing labour productivity (2005)
0.60
All manufacturers
0.55
Exporters
0.50
Proportion of manufacturers exporting
0.45
Density/proportion
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
6.5
7.5
8.5
9.5
Log labour productivity
10.5
11.5
12.5
Cross-country comparison
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Proportion exporting (20+ employment)
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14 country average 64%; NZ 56/65%
Sales per employee level differences (controlling
for firm effects, industry, size, average wage)
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14 country average 7%; NZ 1.4/2.8%
Longitudinal results point towards self-selection
Hard to identify effect of entry on growth, though
often a small number of observations
Level difference less with proper measure of
value-added & control for capital inputs
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7 country average 3.4%; NZ ?%
Manufacturing multifactor prod. (2005)
0.60
All manufacturers
0.55
Exporters
0.50
Proportion of manufacturers exporting
0.45
Density/proportion
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
4.5
5.5
6.5
7.5
Log multifactor productivity
8.5
9.5
10.5
Manufacturer LP by export & FDI status
0.8
Domestic-owned non-exporting manufacturing companies
0.7
Domestic-owned exporting manufacturing companies
Foreign-owned non-exporting manufacturing companies
0.6
Foreign-owned exporting manufacturing companies
Density
0.5
0.4
0.3
0.2
0.1
0.0
7.4
7.6
7.8
8.0
8.2
8.4
8.6
8.8
9.0
9.2
9.4
9.6
9.8
10.0 10.2 10.4 10.6 10.8 11.0 11.2 11.4 11.6 11.8 12.0 12.2 12.4 12.6
Labour productivity
It’s a tough world out there
Survival function for firm export spells
Currency risk a cause of attrition?
Destination - US (2nd by value)
Destination - Australia (1st by value)
Destination - Japan (3rd by value)
AUD
OTH
OTH
NZD
NZD
OTH
NZD
AUD
AUD
USD
USD
USD
Destination - China (4th by value)
OTH
Destination - UK (5th by value)
NZD
AUD
NZD
USD
OTH
AUD
USD
Theory
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Optimal hedging (imperfect markets)
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Eg, financial distress costs, underinvestment
costs, scale, managerial risk aversion/
governance, convex tax schedules
Selective hedging
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Sensible if exporter has information comparative
advantage
Estimation
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Exporters to Australia
Monthly Jun 2000-Mar 2006
Test both theories simultaneously
Two stage selection model – only observe hedging
behaviour for firms with foreign currency exports
Share of AUD exporters hedging
Number of AUD exporters by month
850
1.16
800
Number of AUD exporters that don't hedge
ie, N(H1=0)
1.14
750
Number of AUD exporters that hedge
ie, N(H1>0)
1.12
700
Deviation of AUD from 3yr moving average (RHS)
(ie, AUD3)
1.10
650
1.08
600
1.06
550
1.04
500
1.02
450
1.00
400
0.98
350
0.96
300
0.94
250
0.92
200
0.90
150
0.88
100
0.86
50
0.84
0
06/00
0.82
09/00 12/00
03/01 06/01
09/01 12/01
03/02
06/02 09/02
12/02 03/03
06/03 09/03
12/03 03/04
06/04
09/04 12/04
03/05 06/05
09/05 12/05
03/06
Preliminary results
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Hedging experience, diversification, scale
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+ Firm hedged previously, 1/(time since last hedge)
- NZD exports/sales, (non-AUD fx exports)/sales
+ No. of markets exported to
+ No. of countries imported from
+ Member of multi-enterprise group
Financial distress; under-investment risk:
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- Quick ratio
+ Interest expenses/EBIT
+ Intangible assets/total assets
Ownership (- Foreign-owned or SOE)
Exchange rate (expected negative effect)
Future work - international
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LBD has huge potential. Planned work…
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Determinants of export entry & exit at both
the firm and the relationship level
Impacts on firm performance
Extension to other forms of international
engagement (eg, foreign ownership)
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Identification of service exporters
BOS’07 – currently in the field (April 08)
Trade & local labour market characteristics
Evaluation (first study next week)
Other differences in export business
practices (BOS)