The geographic scope of trade: firm-level evidence on similarities between goods and services

Transcription

1 The geographic scope of trade: firm-level evidence on similarities between goods and services Fergal McCann a, Farid Toubal b a: Central Bank of Ireland; b: Paris School of Economics, CEPII Kiel Institute - World Bank Workshop on Services May 23rd 2012

2 Overview Sunk costs of entry - explored in detail empirically and theoretically. Nothing done for services so far. Simple version of Roberts and Tybout (1997) estimation for manufacturing firms trading goods and services in France. New line of research - market-specific fixed entry costs? Today we will provide stylized facts on the geographic scope of trade for services relative to goods trade for french exporters. Then go on to estimate a Roberts/Tybout model for services at the firm-country-year level. Combines sunk cost model and gravity model of trade. Emphasize importance of previous geographic scope for subsequent entry; control for goods trade status when estimating services trade sunk costs.

3 Results Preview Export history matters significantly for exporting services to individual markets. Similar coefficients to Roberts and Tybout, AER The firm s export scope positively predicts entry to individual service export markets the more markets previously served, the higher (lower) likelihood of entering (leaving) additional markets. Including geographic scope removes the impact of TFP on services export entry Export experience has huge impact on market-specific sunk costs??? These results are robust to including lagged goods export status and goods export scope Bundling is not the full story.

4 Sunk cost of exporting Related Literature Roberts and Tybout (AER 1997) - hysteresis in export status due to sunk costs. Das, Roberts and Tybout (Econometrica 2007) - sunk costs estimated at $350k-$450k. Uncertainty around future export revenue streams leads to Band of Inaction à la Dixit (1989), where firms continue exporting with net negative profits and other firms do not enter. Do entry costs change with export experience? Entry to individual markets is much more dynamic than entry to export status (Lawless JIE 2009). Lawless (CB WP, 2011). Defever et al. (CEP WP, 2011). Schmeiser (JIE forthcoming) - learning among already exporters allows entry to subsequent markets.

5 Related Literature (Cont.) Just how important are these sunk costs? Many trade relationships break down quickly after beginning (Besedes and Prusa (CJE 2006), Murakozy and Bekes (WP, 2009) Many firms enter small, and many exit subsequently. Some expand rapidly subsequently. Ruhl and Willis (WP 2008) Eaton et al. (NBER WP, 2007), Arkolakis (JPE 2010) There is a firm-specific demand uncertainty which means that entry to one market, if successful, can be hugely lucrative. Leads to large incentive to enter despite high hazard rate. Albornoz et al. (WP, 2010). Firms search and learn about foreign market demand for their product, receive noisy signals which can lower entry costs (Eaton et al., mimeo 2011). Good institutions and firm TFP enhance this process - Aeberhardt et al. (2009) Large sunk entry costs may exist in tandem with above patterns, if the firm can access a testing technology which avoids incurring the full sunk costs initially (Akhmetova, 2010).

6 Related Literature - what about services? Breinlich and Criscuolo, JIE 2011, Kelle and Kleinert, 2010, Ariu Services trade is very similar to goods trade at the firm level in that: Traders are more productive. Trade is very concentrated across firms. Most firms only sell to one market, or sell majority to one market. Better performing firms sell to more markets, and sell higher volume. Many manufacturing NACE firms sell services. Some differences: Services transactions less frequent; entry and exit appear more frequent in services (Ariu 2012)

7 Trade Costs in Services Head, Mayer, Ries (EER 2010) - aggregate services trade flows follow patterns of the typical gravity model. Distance effect appears to be falling over time. Jung, McCann and Toubal (Mimeo) - At the French firm level, cultural proximity, trust, language, distance, GDP all matter for business service offshoring. Breinlich and Criscuolo (JIE 2011) - gravity holds when aggregating the UK services firm level data. Cristea and Hummels (Mimeo) - Liberalizing air transport leads to 31 per cent reduction in quality and variety-adjusted prices. Anderson, Milot and Yotov (NBER WP 2011) Barriers to services international trade are huge relative to inter-provincial trade and large relative to goods international trade. Gervais and Jensen (Mimeo) - Estimate trade costs across US states from demand-supply mismatches. A third of US employment is in tradeable service sectors.

8 Data Data built from several sets of micro-data that are provided by different French administrations. Data at firm-level and not plant level from Restrict the analysis (first) to manufacturing firms. BRN: Balance sheets and income statements of firms annual turnover > than 763KE DADS: Employee data, skill intensity (occupations at firms level) Custom Data: export of goods per country of all firms exporting more than 100KE (2003: 150KE) Banque de France: export of services per country of all firms exporting more than 150KE Regression Sample: Keep firms that either export goods or services at least once during the sample period. All services considered in current version. Extension limiting data to business services. Do not know if trade is with an affiliate or arm s length.

9 Table: Summary Statistics of the it sample Variable Obs Mean Std. Dev. Exp Serv it Exp Serv it Exp Serv it Services Scope it Exp Goods ijt Goods Scope it TFP it Skill Intensity it Intangible Assets it Size (Lag) it Foreign Status

10 So what are these traded services? Service Product Share Consultancy and Technical Assistance Exchange of Know-how Construction Management Fees Telecoms IT Services Professional Services AudioVisual Patents and Licenses Banking and Financial Fees Marketing 0.025

11 Distributions of geographic export scope Figure: Histogram of number of markets to which firms export goods.

12 Distributions of geographic export scope Figure: Histogram of number of markets to which firms export services.

13 Figure: How many firms reach how many markets? Goods.

14 Figure: How many firms reach how many markets? Services.

15 Table: Countries ranked by share in total exports reported in the data, Country Goods Exports Country Services Exports DEU USA GBR GBR ITA NLD ESP DEU USA CHE BEL ITA NLD BEL CHE SGP SWE ESP CHN JPN JPN CAN POL CHN PRT BRA AUT IRL TUR RUS 0.009

16 Firm sorting across destinations Do firms trading goods and services follow similar sorting patterns? Unit of observation: Country-Year Y = TFP for all firms in the data selling goods or services to each country-year. Merge with traditional gravity covariates. Expect that less productive firms sort into easier markets on average (Crozet, Head, Mayer ReStud 2011).

17 Table: Do goods and services trade display a similar quality-sorting gravity pattern? (1) (2) TFP Goods TFP Services Log Distance (13.64) (7.63) Common Language Dummy (-23.67) (-5.07) Common Border (0.10) (-1.04) Log GDP (-28.96) (-9.23) Log GDPPC (-11.36) (0.82) Constant (51.34) (19.80) Observations t statistics in parentheses p <.1, p <.05, p <.01

18 Estimation Strategy Follow Roberts and Tybout specification, estimate a dynamic probit model a la Wooldridge (2005), controlling for the set of initial conditions. identify hysteresis coefficients for services. analyze how they shift when controlling for exports in goods. Exp it = β 1Exp it 1 + β 2Exp it 2 + β 5TFP it 1 (1) + +β 6SKILL it 1 + β 7INTANGSH it 1 + β 8EMP it 1 (2) + InitialConditions i + Sec i + T t + ν ij (3) (4) TFP: Olley-Pakes Skill Intensity: Number of white-collars/total number of employees Share of Intangible assets Size: log of employment

19 Estimation Strategy (Cont.) Keep firms in manufacturing sector as we can control for TFP and other firm-level variables. TFP is fuzzy concept in services. Manufacturing firms have moved towards service provision. Extension: come up with other proxies for TFP and extend the sample to firms in services NACE codes. Dynamic Probit: computing power issues for the moment in estimating Method of Simulated Moments. Restriction to manufacturing firms also helps computation.

20 Dynamic Probit Results - it panel (1) (2) (3) (4) (5) Exp Serv it a 1.183a 1.287a 1.309a 1.201a (0.042) (0.043) (0.042) (0.041) (0.042) Exp Serv it a 0.346a 0.422a 0.462a 0.381a (0.044) (0.044) (0.044) (0.042) (0.043) Services Scope it a 0.027a (0.003) (0.003) Exp Goods it a 0.107a (0.034) (0.034) Goods Scope it a 0.006a (0.001) (0.001) TFP it b 0.076b 0.071b 0.057c (0.035) (0.035) (0.035) (0.034) (0.035) Skill Intensity it a 0.616a 0.633a 0.564a 0.557a (0.080) (0.081) (0.080) (0.078) (0.079) Intangible Assets it b 0.207b 0.206b 0.184b 0.188b (0.094) (0.095) (0.094) (0.092) (0.093) Size (Lag) it a 0.142a 0.144a 0.123a 0.126a (0.035) (0.035) (0.035) (0.034) (0.035) Foreign Status 0.163a 0.168a 0.157a 0.162a 0.164a (0.025) (0.025) (0.024) (0.024) (0.025) Observations 238, , , , ,395 rho Nace2, Year Dummies included. Standard errors in parentheses a p < 0.01, b p < 0.05, c p < 0.1

21 What to take from the it model Hysteresis coefficients for trade in services are large and in the ballpark of Roberts and Tybout (1997). Services export scope matters. Hysteresis coefficient unchanged. Controlling for goods export status and scope does very little to the coefficient. Extension - run the model as above with Y it = Goods Export status. Compare coefficients. Initial suggestions that hysteresis coefficients are lower for trade in services.

22 Econometric Model - The Geographic Dimension New unit of observation ijt: Services Export of firm i in country j at time t Exp ijt = β 1Exp ijt 1 + β 2Exp ijt 2 + β 3GDP jt 1 + β 4Dist ij + β 4Border(5) ij + β 5TFP it 1 + β 6SKILL it 1 + β 7INTANGSH it 1 + β 8EMP it 1 (6) + InitialConditions i + InitialConditions j + Sec i + T t + ν ij + ν(7) ijt (8) Firm-specific Distance and Border Specifications add: Services Export Scope, Goods Export Status, Services Export Status. Sector and Year FE

23 Dynamic Probit Results - ijt panel (1) (2) (3) (4) (5) Exp Serv ijt a 0.750a 0.699a 0.962a 0.888a (0.033) (0.030) (0.033) (0.030) (0.028) Exp Serv ijt a 0.782a 0.739a 0.989a 0.916a (0.032) (0.029) (0.032) (0.029) (0.027) Services Scope it a 0.005a (0.000) (0.000) Exp Goods ijt a 0.190a (0.032) (0.029) Goods Scope it (0.001) (0.001) ln(gdp) jt 0.306a 0.250a 0.288a 0.181a 0.167a (0.042) (0.040) (0.042) (0.037) (0.038) ln(distance) ijt a a a a a (0.008) (0.007) (0.008) (0.007) (0.007) Border ijt 0.358a 0.275a 0.325a 0.303a 0.218a (0.050) (0.046) (0.051) (0.043) (0.043) TFP it a a 0.127a (0.025) (0.024) (0.025) (0.023) (0.023) Skill Intensity it a 0.723a 1.036a 0.910a 0.654a (0.073) (0.070) (0.074) (0.066) (0.066) Intangible Assets it a 0.281a 0.550a 0.459a 0.232a (0.078) (0.077) (0.078) (0.069) (0.072) Size (Lag) it a 0.269a 0.239a 0.201a 0.259a (0.027) (0.026) (0.028) (0.025) (0.025) Foreign status a a a a c (0.017) (0.016) (0.017) (0.015) (0.015) Observations 1,417,200 1,412,071 1,417,200 1,417,200 1,412,071 rho Nace2, Year Dummies included. Standard errors in parentheses; a p < 0.01, b p < 0.05, c p < 0.1

24 What to take from the ijt model Hysteresis coefficients lower than in the it model - lower country-specific sunk costs? Services Export Scope is significant, and removes the effect of TFP on entry - exporting to many markets acts to reduce sunk costs significantly. Coefficients robust and in fact larger when controlling for goods. Goods exports dummy is positive and significant - possible bundling? GDP, distance, border dummies: Services follow gravity!

25 Extensions Model for goods exports to compare coefficients. Extend to firms with Services NACE codes, alter proxies for productivity. Limit services data to business services exports.

26 Conclusions Services trade much less common among firms than goods trade. Firms that trade in services serve much fewer markets than firms trading goods. Firms sort into markets in a similar fashion for goods and services. In terms of entry, sunk costs appear similar across services and goods. Services hysteresis is robust to controlling for goods trade. ijt panel suggests sunk costs lower at ijt than at it level. The geographic scope of trade (previous export experience) matters for entry. It removes the impact of TFP. Learning from previous exports? Initial estimates suggest lower sunk costs in services than goods.