Firm Level Productivity and Exporting in the Ugandas Manufacturing Sector

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Firm Level Productivity and Exporting in the
Ugandas Manufacturing Sector

• Edward Bbaale
• Makerere University

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Introduction

• Manufactured products tend to be of high value
  and fetch higher prices in domestic and exports
  markets.
• In Uganda, the govt has put in place a number of
  policies to promote the growth of the
  manufacturing exports.
• Inspite of these, the contribution of
  manufacured exports to total exports remains at a
  dismal 4 percent.

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Introduction

• This means that just a good macroeconomic
  environment is not enough.
• Understanding the firm-level constraints and the
  microeconomic environment may play a cardinal
  role in promoting manufacturing exports.
• We therefore analyzed firm-level productivity and
  exporting in the Ugandas manufacturing sector.

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Introduction

• A good understanding of the drivers of
  productivity of manufacturing firms is crucial
  for ensuring growth in the private sector which
  is essential for fuelling overall economic
  growth.
• We conjecture that all other efforts to promote
  and expand manufacturing activity in the economy
  will yield very little if they are not matched by
  tremendous improvements in productivity.

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Introduction

• We empirically tested two hypotheses that have
  tended to dominate the literature
• 1) Self-selection hypothesis more productive
  firms tend to self-select themselves to compete
  in the global trading arena.
• 2) Learning-by-exporting hypothesis Exporting
  firms learn from other players along the export
  chain as well as from consumers and this enhances
  their productivity.

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Basic Firm Characteristics
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Basic Firm Characteristics

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Basic Firm Characteristics
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Data Type and Source

• Panel data covering 300 exporting and
  non-exporting firms.
• Data came from a survey conducted by WBs RPED in
  collaboration with UMACIS.

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Descriptive Statistics of the variables used
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Self-selection Hypothesis

• Theoretical model behind the export decision of a
  firm draws on Bernard and Wagner (2001).
• Firms static problem of export participation
  with no sunk costs
• 
  

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Self-selection Hypothesis

• Firm will decide to export at time t
• Reduced-form approximation for the determinants
  of firm profits from exporting
• 
  

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Self-selection Hypothesis

• We adjust for sunk costs of foreign market entry
  such as
• establishment of distribution network,
• modification of products,
• advertising,
• gathering information,
• and dealing with the different legal and economic
  environment in the foreign country .
• 
  
• 
  
  
  
• 
  
• 
  

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Self-selection Hypothesis

• Assume sunk costs are common to all exporting
  firms and are time-invariant.
• The firms payoffs from exporting take the
  following form

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Self-selection Hypothesis

• with one-period discount rate, the value function
  from exporting is
• Firms will find it optimal to export when
• can be rewritten as

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Self-selection Hypothesis

• Can be rewritten as
• We translate the theoretical model into an
  empirical model

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Table 2 Probability of exporting
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Learning-by-Exporting Hypothesis

• Exporting has a positive impact on the growth
  rates of productivity at firm-level.
• From a Cobb-Douglas production function,
• In per worker terms or in the intensive form,
• Can be estimated using either the RE or the FE
  estimator.

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Learning-by-Exporting Hypothesis

• Productivity parameter is influenced by learning
  through exporting,
• This can be estimated using either FE or RE

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RE versus FE

• For RE estimator, if the composite error term is
• 
  
• Then,

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RE versus FE

• 
  
• GLS solves serial correlation problem under the
  RE estimator.
• GLS transformation that eliminates serial
  correlation

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RE versus FE

• FE transformation that eliminates the unobserved
  heterogeneity
• Choosing between FE and RE estimators we used
  the Hausman Test.

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Learning-by-Exporting Hypothesis1
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Do any learning effects dependent on previous
export experience?
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Learning-by-exporting hypothesis 2
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Plant size and Export Status

• Plant size and previous export status.

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Size and Export Status
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Conclusion

• Data supports both hypotheses.
• Therefore, self selection and learning-by-exportin
  g are not mutually exclusive possibilities, as
  high-productivity firms afford the sunk cost of
  entry to export markets and in principle continue
  to improve their productivity as a result of
  their exposure to exporting.

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END

• Thank you for your attention!.