The returns to exporting: evidence from UK firms

Transcription

1 The returns to exporting: evidence from UK firms Richard Kneller School of Economics, University of Nottingham Mauro Pisu OECD Abstract. The question of learning versus self-selection has dominated the microeconometric literature on firm export decisions without leading to any firm conclusions. In part this reflects the limited information content of the data typically used. In this paper we use survey data on UK firms to offer some new insights into this debate. We find that the majority of firms report benefits to exporting across a wide range of performance measures, including size, profitability, and the introduction of new products. These effects do not decline as the number of years of exporting rises if the export intensity of the firm rises. JEL classification: D21, F14 Les rendements sur les exportations : résultats pour des firmes du Royaume Uni. La question de la direction de la causalité entre exportations et performance des firmes a dominé la littérature micro-économétrique spécialisée sur les décisions d exporter des firmes sans qu on en soit arrivé à des conclusions fermes. C est en partie à cause du contenu informationnel limité des données habituellement utilisées. Dans ce mémoire, on utilise des données d enquête sur des firmes du Royaume Uni pour suggérer de nouvelles perspectives dans ce débat. On voit que la majorité des firmes rapportent des bénéfices à exporter pour un vaste éventail d indicateurs de performance y compris la taille, la profitabilité et l introduction de nouveaux produits. Ces effets ne chutent pas à proportion qu augmente le nombred années d expérience dans l exportationsil intensitéd exportationde lafirme s accroît. 1. Introduction Following Bernard and Jensen (1999) the literature on firm export behaviour has been dominated by one question: what is the direction of causation between We would like to thank UKTI for financial support and for making the OMB survey available to us. We also acknowledge financial support from the Leverhulme Trust under grant F114/BF and the comments received from a workshop of learning versus self-selection at the University of Nottingham. richard.kneller@nottingham.ac.uk Canadian Journal of Economics / Revue canadienne d Economique, Vol. 43, No. 2 May / mai Printed in Canada / Imprimé au Canada / 10 / / C Canadian Economics Association

2 The returns to exporting 495 exporting and firm performance? Known as the self-selection versus learning debate, this literature has sought to establish whether the best firms choose to become exporters, or whether being exposed to international markets brings additional benefits. The early debate within this literature was won convincingly by those supporting self-selection. Bernard and Jensen (1999, 2004), for example, found that while US exporters had a higher level of productivity, their rate of growth was not significantly different from that of non-exporters. This implied that the productivity distribution within industries does not widen continuously over time. Or put differently, the growth effects from learning could not be permanent. This finding, now replicated across many countries (see Greenaway and Kneller 2007), led to a change in focus away from studying learning effects for all firms, towards their investigation for subgroups of exporters, namely, new exporters. Employing methodologies that control for the self-selection of the best non-exporters into exporting, the literature has since found evidence of modest learning effects for new exporters in some settings. Evidence of post-entry productivity improvements are reported for the average firm in the UK (Girma, Greenaway, and Kneller 2004), Canada (Baldwin and Gu 2004), and Italy (Castellani 2002), but no such evidence is found for firms in Germany (Wagner 2002), the US (Bernard and Jensen 1999, 2004), or Slovenia (Damijan, Polanec, and Prašnikar 2007). In contrast to the evidence for an effect on productivity, more consistent evidence has been found that exporting does impact on firm size (Greenaway and Kneller 2007). In this paper we use survey data for the UK that asks firms whether any improvements in their behaviour and performance can be attributed to their export decision. Compared with the existing literature, the use of survey evidence allows us to provide a more detailed insight into the changes that take place within a firm when it starts to export. In addition, because the data cover both new and established exporters, we are able to compare the responses of new exporters with those of firms with substantial export experience. In so doing we consider whether the benefits to exporting are indeed confined to new exporters as suggested, or instead continue to be accrued several years after the initial internationalization decision has taken place. In using survey data we build on the work of Baldwin and Gu (2004) and Crespi et al. (2008). From their study Baldwin and Gu (2004) find evidence of learning effects for new exporters through changes in scale, increased efficiency and through competition. Canadian exporters used more foreign technologies, were more likely to have R&D collaboration with foreign firms and improved the flow of information about foreign technologies to Canadian firms. That also led to increased innovation and investments in absorptive capacity. In support of this Crespi et al. (2008), using the UK wave of the Community Innovation Survey, find that exporters are more likely to draw upon information provided by buyers when innovating, whereas it is not associated with greater reliance on information from other sources. They argue that this provides direct evidence of learning by exporting.

3 496 R. Kneller and M. Pisu The findings presented in the paper suggest very strongly that the majority of exporters, both new and established, report benefits to their performance, or changes in their behaviour, which they directly attribute to their exporting choices. It would also appear that the probability that the firm reports an effect is, with the exception of low-intensity exporters, no lower, and in many cases higher, than that found for new exporters. This is largely driven by firms with greater export intensity but some residual power for the number of years of exporting remains. Altogether it would seem from these results that the existing literature has underestimated the benefits to exporting. This conclusion is strongest for the effects of exporting on profitability, where new exporters are typically less likely to report such impacts than established exporters. More typically for the other benefits to exporting, including those exporting that might be captured by productivity estimates in most data sets, such as capacity utilization, efficiency, or product improvements, the percentage of firms reporting an effect on their performance falls as export age rises, except for the most export-intensive firms. The rest of the paper proceeds as follows. Section 2 introduces the data used in the study and details the method of collection and the measurement of the variables used in the formal estimations. This section also provides some initial investigations on the relationship between the size, R&D intensity, and previous export experience of the firm with the benefits to exporting. Section 3 details the econometric specification, while section 4 presents the econometric results and identifies areas of similarity with the existing literature. Finally, section 5 draws some conclusions from the study. 2. Data 2.1. Sample frame The data used in the study were collected by OMB Research between May and July 2005 using telephone interviews conducted by CATI (Computer Assisted Telephone Interviewing) as part of a project funded by UK Trade and Investment (UKTI) titled the Relative Economic Benefits of Exports and FDI. 1 UKTI is the UK Government Agency responsible for aiding (domestic and foreign) firms to export from or to locate production (goods and service) within the UK. Of that wider study we use the part of the survey that covers the determinants and effects of exporting. A detailed summary of the survey methods used to collect these data can be found in the OMB Research report Telephone Survey of UKTI Inward Investment and Trade Development Customers and Non-Users: Summary Report (OMB 2005). We provide brief details along with a table of response rates in appendix A to this paper. Contact details (telephone numbers) of the firms surveyed were collected from two sources. The first group consisted of firms that had participated in a 1 A detailed summary of the survey methods used to collect these data can be found in OMB (2005).

4 The returns to exporting 497 UKTI trade development program within the period April 2003 to September Interviews with these firms occurred a maximum of two years after their participation in the UKTI program. 2 Contact details of firms in the second part of the sample were drawn from a commercial UK database called FAME and then were randomly sampled. This group was restricted to firms that had received no UKTI support, but had either exported or made an attempt to export within the last two years. 3 The OMB survey asks a series of questions regarding the impact on firm performance of exporting. 4 The question contains two parts. In the first part, firms are presented with a list of nine ways through which they could benefit from exporting and were asked if they had benefited from any of them. If they answered yes, they were then asked to rate how important this has been on a 1 5 scale, where 5 means to a critical extent and 1 to no extent. 5 The question about Improved profitability was followed by an additional question concerning whether the increase in profits was due to an increase in volumes sold or prices. We use this information to disentangle the effect of improved profitability generated by larger volume and higher prices. In table 1 we list the 11 questions on the potential benefits from exporting asked in the survey. A number of aspects of the data are worthy of some comment. First, the detailed nature of the questions listed in table 1 offer an alternative perspective on the learning by exporting hypothesis compared with that found from relying on more conventional data sources. However, we recognize that these benefits are recorded as perceived by the firm and are of a closed list (firms were not invited to list any additional benefits). Second, the responses to the question refer to the last export market that enterprises expanded into. As such, it is likely that the recall bias (Bertrand and Mullainathan 2001) is reduced. A preliminary question within the survey asks whether they had exported, or attempted to export in the past two years. Those firms that had not at least attempted to export are not asked to complete the survey. We have also chosen to further exclude those firms that had not successfully started to export by the start of the sampling window. A preliminary 2 The firms in the UKTI files represent the complete population of firms that participate in UKTI export programs. The numbers of firms participating within a UKTI program and selected for survey is chosen to provide sufficient coverage of the different types of UKTI program, although within each program the choice of which firms to interview was random. 3 Equal numbers of manufacturing and service sector firms were chosen for this survey. These were further separated by the size of the firm, with an aim that 30 firms would be selected for interview from each of the following four size bands (1 9 employees; employees; employees; 250+ employees). Within the industry and size bands, selection was random. 4 The question asked here reads: I am going to read out a list of possible ways in which your business could benefit from doing business overseas and I would like you to tell me if this is a benefit that your business has experienced over the last 2 years as a direct result of your export activity (underlining in original). These benefits are presented in a randomized order. 5 We do not use the results from this part of the survey here and refer the reader to Kneller and Pisu (2006) for such analysis.

5 498 R. Kneller and M. Pisu TABLE 1 Effect of exporting on firm performance (% of positive replies) Impacts Percentage of firms identifying an impact Group1: Size Growth that otherwise would not have been possible 72.8 Reduce dependence on a single market 71.9 Increased sales 87.0 Improved profitability 71.1 Improved profitability price 14.7 Improved profitability volume 63.5 Group 2: Productivity Improved utilization of capacity 69.7 Ability to compare with competition 69.1 Improvements to products or services 64.0 Improved process efficiency 47.4 Improved marketing 68.0 Mean 63.6 SOURCE: OMB survey. question in the survey also checks to ensure that the person responding to the survey was responsible for the export strategy of the firm. 6 Finally, participation in a UKTI export support program is endogenous and suggests an over-representation of firms that were facing some problems with exporting relative to the population of firms that attempted to increase exports during this period. While there is no clear a priori basis to expect the benefits to exporting to accrue differently to firms identified from the two different data sources, in section 4 we explore the possibility that UKTI program participants might have responded differently. Alongside the benefits to exporting, respondents to the survey were asked a number of questions about their own and industry characteristics. The firm-level information included that on their size (measured by employment), the number of employees engaged in R&D, their export market experience (measured by the number of years they have been exporting and their exports as a ratio to total sales), as well as whether the firm is a multinational, a subsidiary of larger group, and a member of a UK or international trade association. The industry-level variables relate to which industry they operate in and three types of agglomeration measures. These consider whether in the local same area there are other exporting firms, there is a high mobility of workers between firms in their industry, or there is a leading firm from their industry located close by. The firm and industry variables used are reported in table 2. 6 If they were not then the name of the appropriate contact was taken.

6 The returns to exporting 499 TABLE 2 Industry and firm-level variables Firm variables Employment (1 10, , 250+ employees) R&D intensity (Zero, Low-intensity, Low-medium, Medium-high, High) Date of first export market entry (non-exporters, 0 2 years, 2 5 years, 5 10 years, years, 20+ years) Export intensity (0%, 0 5%, 5 15%, 15 25%, 25 50%, 50 75%) Multinational indicator Subsidiary indicator Member of UK or International Trade Association Industry variables Lots of firms in your area with export experience There is considerable movement of staff between firms in your area Some of the leading firms from your industry are based in your area Manufacturing indicator SOURCE: OMB survey. NOTES: R&D activity is measured using the same categorical variable used for employment, but considering the number of employees engaged in R&D only. To capture firm R&D intensity we constructed a categorical variable with the following categories: Zero R&D, Low-intensity R&D, Low-medium R&D, Medium-high R&D, High R&D. Subsidiaries were asked that all answers relate to their experiences as individual plants, not to the group as a whole Summary statistics Along with the list of the performance measures studied in this paper table 1 shows the percentage of firms that replied that their performance was positively affected by their export decision. Overall, it would seem from the survey responses that the average firm reports to benefit from its decision to export. The percentage of firms identifying an effect from exporting, with two exceptions, are in the range from 63.5% (profitability volume) to 87.0% (increased sales). The exceptions were for an impact on the price that firms could charge in foreign markets, where only 14% of firms identified this as a benefit from exporting, and improved efficiency, where the figure was 47.4%. The latter result is of interest, as it is perhaps the closest to a direct measure of productivity among the survey questions. With respect to the result for prices, a concern sometimes raised against existing research on this topic is that any change in firm productivity associated with exporting might reflect changes in the prices the firm charges to foreign customers rather than underlying improvement in efficiency or technical progress. The findings for this measure suggest little evidence in support of this concern. To consider whether firms gave similar responses across the survey questions we use factor analysis. 7 Two clear groups are identified using this process. 8 The 7 We exclude the additional questions on profitability for this exercise. Adding them led to the identification of an additional factor to that above that contained the original question on profitability and the supplementary question on volume. The supplementary question relating to the impact of increased prices and profitability did not belong to any of the identified factors. 8 A third factor was also identified, although this did not turn out to be meaningful.

7 500 R. Kneller and M. Pisu Years of export experience Export intensity sum of benefits sum of benefits years 0-2 years 2-5 years 5-10 years years 20+ years 0% 1%-5% 6%-15% 16%-25% 26%-50% 51%-75% Employment R&D intensity sum of benefits sum of benefits employees employees employees 250+ employees Zero Low Medium-Low Medium-High High FIGURE 1 Box plot of the sum of the export benefits SOURCE: OMB (2005); authors calculation. first group (detailed in table 1) might be described as impacts relating to the size and profitability of the firm. This group includes the benefits relating to the growth of the firm, reduced dependence on a single market, and improvements to sales and profitability. The second set of effects, which we have labelled productivity benefits, includes a number of changes that are usually discussed under the label learning by exporting. Studies in this literature have focused mainly on firm-level productivity measured as value added per worker or as a residual from a firm-level production function. As a consequence, they deal indirectly with issues relating to changes in measured productivity, such as increases in capacity utilization, and competition pressures, reductions in X-inefficiency, as well as factors that might be described as the ability to imitate and improve the quality and delivery of products (ability to compare your self with competitors, improvements to your products and services, and improvements in marketing). When we compare the responses with the questions across these two groups in table 1, it would appear that in general firms more readily attribute a positive impact of exports on their size rather than their productivity, although these differences in the average are, for the most part, small. An interesting extension to knowing which benefits to exporting are important is how these responses vary across firms. To show a general sense of the relationship with firm characteristics, figure 1 depicts the box-whisker plot of the sum of

8 The returns to exporting 501 the benefits from exporting reported by firms with different firm characteristics. 9 We concentrate on the number of years firms have been active in export markets, their export intensity, their number of employees, and their R&D intensity. The first two of these characteristics can be linked to the export experience, whereas the latter two refer to their size and technological capabilities. As it is possible to see from figure 1, in certain respects the behaviour of the distribution of the sum of positive benefits from exporting for firms with different years of export experience, employment, and R&D intensity are similar, while that for export intensity behaves somewhat differently. For years of export experience, R&D intensity, and employment level, the median initially tends to increase, but then falls when export age rises above 10 years, employment rises above 250 employees, and R&D is at high levels. In contrast, with respect to export intensity the median rises monotonically. The behaviour of the interquartile range behaves in a similar fashion. Whereas it becomes narrower as export intensity rises, it shrinks and then widens again for the other firm-level characteristics. Taken together, these basic patterns would suggest either that the benefits from exporting become more uncertain the longer firms have been active into export markets the bigger or the more intensive they get, or that respondents become unsure that the changes that occur can be directly attributed to exporting (unless exports account for a large part of total sales). Table 3 develops these patterns for export age further by reporting for each level of export experience the percentage of firms that responded that exporting mattered for their performance. There are some noticeable differences in the patterns across the effects. First, and of interest given the focus of the current literature on new exporters, this group is the least likely to attribute an improvement in their performance measures to their export behaviour. For example, around half or fewer of the new exporters report a benefit to their growth, reduced dependence on a single market, and improved profitability, capacity utilization, and efficiency. In contrast, for experienced exporters, with the exception of the efficiency question, at least two-thirds of firms reported such effects. However, there are some export effects that new exporters seem relatively more willing to relate to their export entry decision. The percentage of new exporters replying that they benefited from an ability to compare themselves with the competition and improved marketing is close to 70%, and this does not fall markedly as experience rises (the percentage ranges from 67.3%, for firms exporting between 5 and 10 years, to 70.7%, for those with between 10 and 20 years of export experience). For increased sales and improved marketing, the numbers of new exporters identifying an impact is also high (76% and 62%, respectively), but this percentage rises still further when the firm has been exporting for up to 10 years. One possible explanation behind the finding that the benefits from exporting rise with export experience is that established exporters are also more export 9 In the box-whisker plot the median of the distribution is identified by the dark line in the middle of the box, the edges of the box indicate the 25th and 75th percentiles (i.e., the interquartile range), and the Ts indicate the minimum and maximum values.

9 502 R. Kneller and M. Pisu TABLE 3 Export experience and effect on firm performance (% of positive replies) < >20 Impact on firm performance years years years years years Group 1: Size Growth that would not otherwise have been possible Reduce dependence on a single market Increased sales Improved profitability Improved profitability price Improved profitability volume Group 2: Productivity Improved utilization of capacity Ability to compare with competition Improvements to products or services Improved process efficiency Improved marketing Mean TABLE 4 Export experience and export intensity (as a percentage of turnover) Export intensity Export experience 1 5% 6 15% 16 25% 26 50% 51 75% % Total Withinthelast years (7.17%) 2 5 years ago (17.83%) 5 10 years ago (12.83%) years ago (22.39%) 20+ years ago (34.14%) Total (16.52%) (13.91%) (12.39%) (20.65%) (15.65%) (15.22%) (100%) SOURCE: OMB (2005); authors calculation. intensive. Kraay (1999), Castellani (2002), Girma, Greenaway, and Kneller (2004) and Damijan, Polanec, and Prašnikar (2007) all have previously reported that export-intensive firms are more productive and appear to benefit most from their new exposure to export markets. We tabulate the export experience and export intensity of firms in our sample in table 4. While it is the case that firms with

10 The returns to exporting 503 TABLE 5 Export intensity and effect on firm performance (percentage of positive replies) Impacts 1 5% 6 15% 16 25% 26 50% 51 75% Group1: Size Growth that would not otherwise have been possible Reduce dependence on a single market Increased sales Improved profitability Improved profitability price Improved profitability volume Group 2: Productivity Improved utilization of capacity Ability to compare with competition Improvements to products or services Improved process efficiency Improved marketing Mean longer export experience ship abroad a greater fraction of their total output, this is not a linear relationship. Those firms that started to export in the last two years have a mean (model) response that they export less than 5% of turnover. This is the same for firms that started to export between 2 and 5 years ago, although for this group the median response is 16 25% of turnover. The export intensity of firms that have been exporting for more than 5 years is spread across the export intensity bands, with some exporting a small share of total output and others a great deal. In table 5 we report the percentage of firms that reported an effect on their performance in each of the intensity bands. In this table the relationships are more stable across the different benefits from exporting. They are consistently lowest in the least export-intensive bands and are highest in the most export-intensive bands. 3. Econometric specification As a second step we consider how the patterns suggested in tables 3 and 5 and figure 1 develop if we control for a number of firm and market characteristics at once. In this exercise we are interested in identifying which firms are more likely to benefit from exporting. To investigate the effects of firm- and industry-level variables on the probability of reporting some particular benefit from exporting we estimate the following latent variable model:

11 504 R. Kneller and M. Pisu y i = x i β + ε i, (1) where i indexes firms, x i is the set of explanatory variables in table 2, β is the vector of parameter to be estimated, and ε i is a normal error term. y i can be considered a latent variable, unobserved by the econometrician, which captures the actual benefit from exporting accruing to the firm. We assume that surveyed firms will reply positively to the question of whether or not exporting has produced any particular benefit if y i > 0 (i.e., positive benefits) and negatively if y i 0 (i.e., negative benefits). Therefore, the probability of experiencing positive benefits from exporting can be modelled through the standard probit specification as (see Verbeek 2005, 192): P(y i = 1 x i ) = P(y i > 0 x i ) = P(x i β + ε i > 0) = P(ε i x i β) = F(x i β), (2) where F() is the cumulative normal distribution, since ε i is assumed to be normally distributed. The parameter of interest can then be estimated through the standard maximum likelihood method Empirical results We organize the results according to their inclusion in one of the two groups identified from the factor analysis in table 1. We provide the results for the impacts on firm size in table 6a and the productivity impacts in table 6b. We choose to focus initially on the role of export experience, conditional on measures of firm size, R&D intensity, ownership, industry, and location variables. In practice, these control variables are rarely significant and we choose to omit them from the tables to conserve space. To test whether the existing literature has under-identified the benefits to exporting, the export experience dummies are expressed relative to new exporters. To help with the interpretation of the coefficients in the table, we report the marginal effects calculated at the mean of the right hand side variables. To reflect the finding in table 3 that for some of the questions new exporters were very likely to report a benefit from exporting, whereas for other questions this figure was very low, we also report the estimated probability a new export firm will respond positively to the question set. Taking a broad perspective on the results, perhaps two patterns stand out. First, the signs on estimated coefficients are not predominantly negative. Across tables 6a and 6b, of the 44 coefficients on export age within the 11 regressions only 13 are negative, of which just one is statistically significantly different from zero. There are, in comparison, 16 positive coefficients that are 10 It is worth noting that the econometric specification we estimate does not capture the parameters of the underlying structural model of the profit maximizing firm. More simply, it allows us to gauge in a parsimonious model the effect of the explanatory variables on the probability of reporting specific benefits of exports. All estimations have been conducted using Stata 9.

12 The returns to exporting 505 TABLE 6a Marginal effects of probit regressions; size effects Less dependence Improved Improved Increased on single Increased Improved profitability profitability growth market sales profitability (price) (volume) Export years (1.54) (1.92) + (2.02) (3.67) (0.55) (4.09) Export years (1.84) + (2.54) (1.23) (3.36) (0.66) (3.00) Export years (1.86) + (0.67) (0.21) (2.08) (0.72) (2.62) Export years (0.21) (1.73) + (0.03) (1.70) + (0.15) (2.02) Observations Predicted probability new exporters identify an effect on NOTES: Robust z-statistics in parentheses; + significant at 10%; significant at 5%; significant at 1%; all the reported coefficients refer to estimated marginal effects (calculated at the mean of the right-hand-side variables). Additional control variables not reported include firm size, firm R&D intensity, MNE dummy, Subsidiary dummy, Member of Trade Association dummy, Industry export agglomeration, Industry staff movement, Technical Frontier, and Manufacturing dummy. Omitted category for export years is 0 2 years and for export intensity is 0 5%, for employment is 0 10 employees, and for R&D is Zero R&D. TABLE 6b Marginal effects of probit regressions; productivity effects Ability to Utilization of compare with Improved Increase in Improved capacity competition products efficiency marketing Export years (1.13) (0.32) (0.81) (0.79) (1.27) Export years (1.65) + (0.67) (0.22) (0.85) (1.17) Export years (0.65) (0.83) (1.68) + (0.63) (0.76) Export years (1.87) + (1.31) (1.43) (0.33) (1.35) Observations Predicted probability new exporters identify an effect on NOTES: See the notes to table 6a.

13 506 R. Kneller and M. Pisu statistically significant. It would appear, therefore, that, except in the odd case, established exporters are no less likely to identify benefits associated with exporting than new exporters. A second pattern evident from the tables is that these significant coefficients are in general concentrated in table 6a (the impacts on firm size) rather than table 6b (the impacts on productivity). There is greater variation in the responses between firms for the impacts of exporting on firm size compared with productivity. Given that the coefficients are in general positive, these size impacts would appear consistent with improvements in aggregate productivity growth through resource reallocation towards exporters found by Bernard and Jensen (2004), Hansson and Lundin (2004) and Falvey et al. (2004). The probability figures reported in the last row of these tables suggests that the significant coefficients in the tables tend to be concentrated in the columns where the probability a new exporter attributing an improvement due to exporting is relatively low when compared with the other benefits questions. For example, a strong statistical relationship is found between export age and improved profitability, whereas this relationship is weaker for improved products. However, the estimated probability (at the mean of the other right-hand-side variables) that a new exporter identifies an effect on profitability at 0.47 is much lower than that for improved products at Perhaps unexpectedly, given the conclusions reached by Wagner (2007) and Greenaway and Kneller (2007), new exporters appear less willing to relate their improvements in the size and profitability to their export behaviour compared with changes in their productivity. The learning versus self-selection literature has demonstrated very clearly that export intensity can play a role in the benefits that firms receive as a consequence of exporting. Given the suggestion from table 4 that more experienced exporters also receive a higher proportion of their total sales from abroad in table 7a and 7b, we introduce to the regression a measure of export intensity to test whether intensity and experience have separate effects. The export intensity variables are expressed relative to those firms with an export intensity of less than 5% of turnover. This represents the intensity level of the average new exporter. Conditioning on the export intensity of the firm has some impact on the experience variables. We no longer find a significant relationship with the number of years the firm has been exporting for increased growth and capacity utilization and a weaker relationship for a reduced dependence on a single market. We also find once we control for the export intensity of the firm, stronger evidence in table 7b that experience has a negative relationship on a firm s performance. For experienced exporters, the probability that they identified an impact on their ability to compare themselves to the competition, improved products, and improved marketing were lower than was estimated for new exporters. The declines in the estimated probability are large. At the mean of the other right-hand-side variables, the probability that a firm that has been exporting for between 10 and 20 years identifies an effect on improved marketing is 0.16 lower and for

14 The returns to exporting 507 TABLE 7a Marginal effects of probit regressions; size effects Less Improved Improved Increased dependence on Increased Improved profitability profitability growth single market sales profitability (price) (volume) Export years (0.93) (1.20) (2.02) (4.50) (0.37) (4.96) Export years (1.05) (1.78) + (0.74) (4.00) (0.39) (2.83) Export years (0.33) (0.97) (0.82) (1.26) (0.17) (1.79) + Export years (1.40) (0.07) (1.12) (0.65) (0.22) (0.87) Export % (1.69) + (2.78) (1.49) (1.16) (0.94) (1.41) Export % (2.75) (3.79) (2.91) (2.70) (0.82) (3.29) Export % (6.91) (5.12) (3.21) (3.14) (0.23) (3.67) Export % (7.82) (9.13) (4.67) (4.06) (1.85) + (4.31) Observations Predicted probability new exporters identify an effect on Hypothesis tests: Age or Intensity category (marginal effect) Export age < % 5 15% 15 25% 15 25% % Export age % % 15 25% % % % Export age % % % 15 25% % % Export age 15 25% % % 15 25% % % Export age % % % 15 25% % % Export <5% >20 yrs yrs >20 yrs yrs 2 5 yrs Export 5 15% >20 yrs yrs 2 5 yrs 2é5 yrs Export 15 25% >20 yrs yrs 2 5 yrs yrs Export 25 50% >20 yrs yrs 2 5 yrs 2 5 yrs Export 50 75% >20 yrs yrs yrs yrs NOTES: See the notes to table 6a. The first set of hypothesis tests refers to a test for whether the marginal effect for export intensity at that level of export age is significantly different from that calculated for that export age and an export intensity below 5%. Reported is the level of intensity for which that hypothesis is first accepted and below the estimated marginal effect. The significance level is denoted by + significant at 10%; significant at 5%; significant at 1%. Blank cells indicate that at no level of export intensity is the hypothesis accepted. The bottom hypothesis refers to the same test but for export intensity.

15 508 R. Kneller and M. Pisu TABLE 7b Marginal effects of probit regressions; productivity effects Ability to Utilization of compare with Improved Increase in Improved capacity competition products efficiency marketing Export years (0.58) (0.67) (1.18) (0.52) (1.07) Export years (0.86) (1.11) (0.64) (0.55) (0.75) Export years (0.51) (1.61) (2.49) (1.25) (1.29) Export years (0.54) (1.99) (2.20) (1.01) (1.78) + Export % (1.61) (0.32) (0.20) (0.65) (0.28) Export % (2.02) (0.71) (0.57) (1.47) (1.50) Export % (4.91) (2.60) (2.92) (1.91) + (1.28) Export % (4.98) (4.54) (3.75) (2.47) (3.25) Observations Predicted probability new exporters identify an effect on Hypothesis tests: Age or Intensity category (marginal effect) Export age <2 15% % 5 50% 15% Export age % % 25 50% 5 15% Export age % % 25 50% 5 15% Export age % % 25 50% 25 50% Export age % % 25 50% 25 50% Export <5% yrs yrs yrs Export 5 15% yrs yrs yrs Export 15 25% yrs yrs yrs Export 25 50% yrs yrs yrs Export 50% 75% yrs yrs yrs NOTES: See the notes to table 7a. improved products is as much as 0.3 lower than that of a new exporter. Again, it is perhaps noteworthy that these negative coefficients occur on those performance measures that new exporters were very likely to identify as attributable to their export decision.

16 The returns to exporting 509 In contrast to experience, we find a strong positive role for export intensity. All bar two of the variables measuring export intensity above 25% are statistically significant, in the majority of cases with a marginal effect greater than 0.2. For firm size and profitability, a significant relationship is found when export intensity is lower, at between 15% and 25%. The results for this variable might be used to provide some insight into the relationship between productivity and export intensity reported by Castellani (2002) and others in the literature. The improvements in productivity would appear to be a consequence of a number of changes taking place within the firm, including improvements in efficiency, products, possible technology transfer effects, and, in terms of the marginal effects, improvements in the utilization of existing capacity. The latter result has some implications for the measurement of productivity at the firm level, where firms are assumed to always operate at full capacity. As a way to further develop the insights from tables 7a and 7b, which captures the interdependence between experience and intensity, we also calculate the estimated marginal effects of export age and export intensity for different levels of export intensity and export age, respectively, setting the remaining independent variables at their mean. These marginal effects capture the non-linearity of the marginal effect implied by the probit model. Using these, we consider two questions. First, what is the level of export intensity above which the marginal effect of export age becomes statistically significant (at the 10% level of significance)? In the bottom half of the table we report when the effect is statistically significant, while below we report the point estimate of the marginal effect. The table shows, for example, that for reduced dependence on a single market, for firms that have been exporting for 5 10 years, the marginal effect is significant when export intensity rises above 5%, with a marginal effect of These differences in the marginal effects can be seen as a development of the intensity question considered previously in the literature to other levels of export experience. As expected, it would appear that in all age categories the most exportintensive firms are the ones for which the marginal effect is significantly higher than it is for the least export-intensive firms. The point at which the differences become significant, however, differs across the questions. For capacity utilization it occurs when intensity rises above 5%, whereas for marketing it occurs when intensity is between 50% and 75%. The second question does the same for export intensity: what is the level of experience for which the marginal effect of export intensity is statistically significant. The table shows that for reduced dependence on a single market for example, when export intensity is between 5% and 15% the marginal effect of is significantly lower for firms that have been exporting for more than 10 years. That the marginal effect of export intensity declines as the number of years the firm has been exporting increases has not previously been shown in the literature. A general finding from the table is that the marginal effects of export intensity are lower for established exporters only when the experience of the firm rises

17 510 R. Kneller and M. Pisu FIGURE 2 Predicted probability of exports SOURCE: OMB (2005); Authors calculation. NOTES: The predicted probability of exports have been obtained by estimating the same model as in table 6(a,b) and setting all the other controls to their mean. above 10 years for four of the questions, 20 years for another, and (almost) never for a further four. We also find that in the case of improved profitability the marginal effects are positive. At each level of export intensity firms the marginal effects for profitability are significantly higher than that for new exporters for firms that have been exporting between 2 and 5 years. 11 As a final exercise, shown in figures 2a d, we calculate the estimated probability that the firm replied yes, that exporting had an effect on its performance at various levels of age and intensity, setting all other independent variables at 11 At age categories over 5 years the marginal effect is statistically insignificant.

18 The returns to exporting 511 FIGURE 2 Continued their mean. We do so for 4 of the 11 different channels: reduced dependence, profitability, capacity utilization, and improved products, chosen as representative of the patterns found for the others. The estimated probabilities are useful for showing variation in the age-intensity interactions and differences in the level of the estimated probability. There is a clear tendency in all of the figures for the lines, which show the probability for the same experience cohort with different levels of export intensity, to slope upwards to the right. Export-intensive firms (an export intensity above 25%) have a higher probability of reporting a benefit from exporting, with the estimated probability around above 0.8 in most cases and even as high as 0.9. For the least export-intensive firms (intensity below 15%) that have been exporting for more than 10 years the estimated probabilities are, in contrast, around 0.5 and

19 512 R. Kneller and M. Pisu in the case of reduced dependence on a single market as low as Interestingly, the figures also suggest a tendency for the dispersion across the measures of age to narrow with export intensity, with the effect most marked for the question about reduced dependence on a single market. The range of probabilities for the question of reduced dependence on a single market when export intensity is below 5% is 0.22 and only 0.1 when export intensity is at its highest. Firms would appear much more certain that exporting had a strong benefit on their performance when export intensity is high. When we compare the ordering of the lines at each level of export intensity, there are fewer common patterns across the four figures. For the question about profitability the least experienced firms those that have been exporting less than 2 years have the lowest estimated probability of reporting an effect at each level of export intensity, whereas for improved products they have the highest estimated probability. For the remaining questions on reduced dependence and capacity utilization they lie in the middle. However, there is the suggestion that, the effect on improved products aside, the estimated probability of reporting an effect on their performance is lower for new exporters compared with those with 2 5 years and 5 10 years of experience, before this probability falls again. The pattern of estimated probabilities for improvements in products is somewhat different, with a relatively high probability that new exporters identify such an effect. New exporters with an export intensity below 5% have an estimated probability that they reported an improvement in their products associated with exporting of 0.72, and it is 0.45 for firms that have been exporting for more than 20 years with the same intensity level. As already noted, while the median new exporter has an average export intensity below 5%, having such a low intensity level is untypical for established exporters. According to table 4, 59% of new exporters have an export intensity below 5%, but for those with 2 5 years of experience only 31% have sales below this point, and when experience rises above 5 years, it is only 14%. This suggests that the probability that the median firm in each category identifies an effect on their performance might be less affected across the age categories than suggested so far. The median export intensity for a firm with less than 2 years of export experience is less than 5%, but for firms with between 2 and 10 years it is 15 25%, and when the firm has been exporting for more than 10 years, it is between 50% and 75%. For capacity utilization, for example, the median new exporters would therefore have a probability of 0.46, which then rises to 0.71, 0.74, 0.76, and 0.85 for the median firm in the final age ranges. For profitability, the difference is even stronger, rising from 0.36 for new exporters to 0.91, 0.89 for firms exporting up to 10 years and then falling to 0.75 and 0.7 for the median firm when exporting over 10 years. The exception is again for improvements in products. For this effect from exporting the probability now falls compared with the median new exporter, although not by much. Across the age categories the estimated probability at the median intensity levels is 0.72

20 The returns to exporting 513 for new exporters compared with a rather stable 0.64, 0.69, 0.66, and 0.69 for older exporters. Again, the conclusion drawn from existing research, that established exporters do not benefit from their export behaviour, would appear too strong UKTI program participation A concern raised in section 2 was the possibility that firms that participated in a UKTI support program may reply differently to the questions on the benefits to exporting than did those firms that did not. We investigate this in tables 8a and 8b by adding a dummy equal to one for those firms that did not participate in one of the UKTI programs as a control variable, but also by testing whether these firms are more likely to report benefits from exporting as their export experience and intensity change. Of the 147 firms that did not participate in one of the UKTI programs only 11 have less than 10 years of prior export experience. For this reason we include interaction terms with UKTI participation only for years and 20+ years of export experience. We test for the significance of these interaction terms using a Wald test, where we separately test the significance of the interaction terms with number of years and intensity. For the size impacts of exporting in table 8a we find that on no occasion, either individually or collectively, can we find a statistically significant differences in the responses given by those that did not participate in a trade promotion program. This is less clearly the case for table 8b. Here, significant interaction effects for export age are found for capacity utilization, efficiency, and improved products (for this effect this is given from the test of the significance of the individual parameters), and for improved products and capacity utilization for the interactions with export intensity. The interactions for capacity utilization and efficiency are significant at the 10% level and the interactions for improved products are significant at the 5% level. Perhaps unexpectedly, these significant interactions are a mix of both positive and negative coefficients. Firms that were not UKTI participants and that have been exporting for more than 20 years reported that they were less likely to identify an effect on efficiency, but more likely to identify an impact on capacity utilization. To the limited extent that the responses given by participants and non-participants in UKTI trade development programs are not the same, their differences do not systematically seem to differ in one direction. Restricting the sample to those firms that took part in a UKTI trade development program would appear to modify the conclusions reached from tables 7a and 7b only slightly. The most important changes are confined to the effects on improved products. Using the coefficient estimates from table 9b, it would appear that there is no systematic variation in the responses across firms. Experienced exporters, including very export-intensive firms, are no more or less likely to report an effect on improved products than new exporters. A second outcome is that the significant negative coefficients on the and 20+ age categories in