The Impact of Exports on Firms

The Impact of Exports on FirmsINTRODUCTIONThe analysis in this report deals with the question of whether firms that runner exportinging become more creative, that is better of when they involve in intrenational trade or be already very productive before they embark on international trade.Firstly, and most importantly, we note the empirical findings which indicates that exporters argon better of than non exporters. Some studies confirm facts from numerous countries, which imply that on average, exporting firms are more productive and more bang-up intensive, because they pay higher wages and absorb larger scale of performance.There are two mechanisms which can confirm that there are incontrovertible correlation amongst firms productivity and its exports status. The first hypothesis is the self-selction hypothesis, which talks about firms that were previously productive before engaging in export activities to cope in international competitive markets. Then the second hypothesi s, is the learning by exporting hypothesis which refers to firms that learn different things and expertise that enables them increase productivity and take aim of efficiency by entering into the export market. The cause for the increase in productivity in the learning by export hypothesis, is the access to new and alter and ofcourse more advance technologies, product designs , technical and amangerial expertise plus economies of scale, these all contribute to the general improvement.Recent studies by Aw Chung and Roberts(2000) for Korea and Van Biesebroeck(2006) for Cote- d Ivore have record that firms experience significant productivity rise after entering the export market. According to Melitz(2003), Benard et al(2003) and Clerides et al(1993), provid etheoritical evidence that firms have to be more productive to over drop costs and enter international markets which supporets the self selection hypothesis rather than the learning by entry hypothesis. Also Damijan et al (2005) i n his study in Slovenian firms indicates that in average higher productivity is vital for firms that start exporting to improve markets and not for firms that target developing countries. Some different studies have also found evidence in support of both self selection and learning by exporting offsprings.DISCUSSION AND RESULTSThe data set utilize analyses and provides some evidence on the difference between exporting and non-exporting firms. The result of the adherence is for self-selecting and learning by export hypothesis at the firm train looking at the hotel sedulousness.Productivity is often estimated as the deviation between observed output and the output prredicted by a Cobb-Doughlas fruit function estimated by an Ordinary Least squares. The regular approach used to measure TFP suggests estimating production function using an equation to obtain the elasticities of turnover with reverence to inputs such as capital, labour and intermediaries. We also Augument the produc tion function with another variable export , and we do this because we want to consider the extent to which exports increase productivity.The production function attachment is written below asLn(Y)it = 0 ln (C )it + 1 ln (L)it + 2ln(K)it + 3ln(M)it + it.Y represents the firms autput for example, a firms turnover, L is the firms input in beat t, K is the capital stock, M are the materials while C is the Hicksian neutral level of efficiency, it is the producer specific deviation from the mean value, 0 is a mean efficiency level across firms in time t. (Van Beveren, 2000). To calculate the TFP , following the standard appraoch, two graduations are used. First is to estimate the elsaticity of the output using the inputs (labour,capital and intermediates), the second step therefore involves obtaining TFP as a sum of the residual from the equation.The problems associated with the production functions are endogeinity of input choices, selection bias, imperfect competition in inputs an d output markets, omitted variables,estimation product level. This simultaneousness is present because productivity is said to be known to the profits-maximizing firms( but not the econometrician). When they choose their input levels. (Marshak and Andrews 1994). Firms would increase the use of their imputs in relation to positive productivity shocks. The simultaneity biases can be downward on capital and upward on labour and material. When this is the case, we are faced with the empirical question of whether it is credibly to vary by sector or dependent on the balanced inputs. The OLS estimation of the production function would in turn produce biased estimates delinquent to lack of knowledge for the unobserved productivity shocks. A fixed-effects estimator would possibly solve the problem of simultaneity if we assume the unobserved, firm specific productivity is time invariant.(Yasar,M. et al 2008). Some of the problems associated with the production function should be seen in t he OLS regression table in figure 1, then we will check if theses problems were corrected or fixed by the fixed effect regression in figure2 because the fixed effects is one of the traditional means of solving the problem of simultaneity bias. When OLS estimates of production functions are biased, they lead to biased estimates of productivity and the important quantity for the estimation question.Olley and pakes also introduces a semi parametric method that comtrols for these biases seen in a Cobb-Doughlas production function, allowing us to estimate the production function parameters consistently and thus obtain dependable productivity estimates.The coefficients in figure 1 are correlated with the fallacy term and there is heteroscadisticty in our data, but notwithstanding the robust clustering, our most important variables remain largely significant. Given that this is a cobb doughlas production function, our variables can be interpreted as elasticities. Summing up the coefficien ts capital, employment and intermediates will give us an indication of returns to scale (0.27+0.03+0.70 = 1) this shows virtually constant returns. After running the fixed effect regression in figure 2 we see that the problem of collinearity still persits even though the regressors are jointly significant, becausee the overall F statistic of 146.97 has a p-value of 0.000In table 4 we compare the parameters estimated from OLS and the Fixed Effect regression. Whether the OLS coeficient on capital will be upward biased or downward biased depends on the degree of correlation among the inputs of productivity shocks. The fixed effects estimates differ quite considerably from the OLS estimates. The extent of each firms productivity shock differs over time and is not a constant fixed effect. The coefficients for each estimator, summed up to 1 as seen earlier which implies that there is increasing return for this industry.In production function estimation the key thing is the correlation bet ween un observed productivity shocks and input levels. Profit maximizing firms react to positive productivity shocks by expanding output, which involves the use of supernumerary outputs. Negative shocks lead firms to trimThe most essential problem to be considered when a firm intends to engage in international trade is the entry panache in which the firm chooses to attend to the unusual markets(root 1987). Firms who fail to do this correctly will eventually become less efficient and depending on the market forces, on the long run could potentially be taken off the competition completely.in the case of the hotel trade, the higher the level of get word on the external feat permits to alleviate the tendency towards the opportunism on the part of the hotels in two fold sense, first is property rights offer a greater potential to entrap a richer rewarding system and secondly, the organisational culture shared by a chain of hotels and its hotels in property provides with a set of no rms and values more alligned with the take of the chain( Brown ,Dev 200). The variables that affect export performance in the hotel industry includes managerial variables e.g staff, organisational variables e.g foreign activities, Environmental variables e.g market goal, Marketing mix variables e,g price, place , promotion.In super C with other service organisations, hotels have traditionally had a great labour intensity, which invariably accounts for the greatest proportion of total hotel costs. Despite the pressure of productivity improvements in hotels, productivity managements has not progressed quickly. Hotels engage in alot of export activities as they have to satisfy there customers in other to improve productivity. The hotel inputs are the resources they basically admit to run the hotels which are labour, capital, raw materials, energy and essentially customers. While using a single input as output production is seen as unsatisfactory, it is the continous combination of inputs factors that should be used to measure and accumulate total productivity of the industry.The variables which include managerial, organisational and environmental, indirectly influences the export performance of the hotel industry. The merchandise-mix variables are directly in relation to their export performance. According to studies, it may be stated easly that the foreign market entry mode is not a determining factor of export performance. It may then be said that there is a dirct or indirect relationship between the entry mode and the export performance of a firm.The size and enthronement in training are said to be firm specific in detremining the advantages of export activities of the hotel industry. Some hotels lay emphasis on their advantages in marketing and concentrate on referal system and franchising, while others see themselves as providing a package of professional managerial and arganisational service which cover most stages in hotel trading operations (e.g Hi lton international, which explicitly rejects the involvement solely through franchise conformitys).For the sole reason of value of the value of a hotel to a customer which cannoit be seperated from its location, the choice of rural from which the needs of hotel guests should be served, is not one which normally has to be made. As in the case of some essentialproducts, the loocationof hotels is counttry specific because they have to be situated where the tourists are positioned. There are also cases where hotels are located near the border of one country which touristd may pay day visits time to stay, or hotels sited in arears which are enroute to the final destinations of the travellers.What detremines the forem of involvement by foreign firms in the hotel industry? Such involvement ranges from 100% equity stake through to a franchising agreement with the minimum amount of influence consitent with protecting the name and reputation of the franchisor.The electic theory of internati onal production provides a useful framework in explaining reasons for, and ways foreign involvement in international hotel industry. International hotel chain secures a standard service with certain characteristics demanded by their customers who are mostly foreign toursts, and they also direct on superior production function to hotels who exactly operate locally. This is because being a multinational hotel or invovlving in export activities, gives them a wider learning surgical process gotten from dealing in different economic environments and also gives them the ground to source for more inputs to enhance both quality of services and competitiveness wit other hotels in the international market. Another reason they are better of than hotels operating llocally only is that, knowledge gotten firstly from servicing in their local market in combinatio with that of the foreign market, which is essentially done by meeting up with the needs of the foreign tourists, improves their overa ll productivity and inceases their turnover.CONCLUSIONThe relationship between the productivity of the hotel industry and export experience are robust or said to be very high. The average productivity is highest for the hotels that continously engage in international trade than hotels who only operate locally and those who exit the international trade. Firms that go into the export market have higher productivitybefore entry because they have enough turnover or profit to enable them engage in international trade. The self-selection hypothesis has higher productivity into the export market. There also seems to be a higher difference between exporters and non exporters as export experiences increases but this assumption is only limited to the enter and exit of the export market and not for continous exporters. (Bee Yan Aw et al, 1999)APPENDIX think 1FIGURE 2FIGURE 3PARAMETER OLSFIXED EFFECTLINTER0.6966(0.017)0.5321(0.0363)LK0.0349(0.0057)0.0249(0.0085)LEMP0.2748(0.0163)0.3798(0.0367)S UM1.0060.9368FIGURE 4REFERENCE.Aw, Y.B., Chung, S., Roberts, M.J. 1999 productivity and turnover in the export market little evidence from Taiwan and South Korea. P 1- 26.Berbel-Pineda, J.M. Ramirez-Hurtado, J.M. 2011.Does the foreign market affect export performance? A case of the Spanish Hotel industry. Journal of business economics and management. P 302 312Dunning, J.H., Mcqueen, M. 1981. The electic theory of international production A case study of the international hotel industry. p 197-205Levinsohn , J., Pai, B.P, Petrin, A. 2004. Production function estimation in stata using inputs to control for unobservables. P 114- 118Poi, B., Raciborski, R., Yasar, M., 2008. Production function estimation in stata using the olley and pakes method. P 222-224