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Reassessing the link between firm size and exports

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Abstract

This paper re-examines the link between firm size and exports. The new theories of international trade emphasize firm heterogeneity as the theoretical basis of export behavior. In the context of this heterogeneity, this paper uses the quantile regression methodology to analyze the effects of firm size on firm export propensity (percentage of exported sales). The paper confirms the existence of a positive relationship between firm size and export propensity but finds that the conventional estimates of the elasticity of export propensity with respect to firm size on the average of the export propensities’ distribution underestimate the effect at the bottom of the distribution and overestimate the effect on the rest. Consequently, policies aimed at increasing exports should focus their efforts on increasing the size of those firms with a lower export propensity.

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Notes

  1. While this result suggests several policy guidelines, I am not proposing a specific policy in the paper. There are, at least, three types of policies that can increase firm size: (i) policies aimed at removing tax and labor distortions; (ii) policies that subsidize merges between firms; and iii) policies that enhance firms’ competition (those that reduce bureaucracy, increase transparency, and so on). However, I do not attempt to analyze these policies in detail in the paper.

  2. Since my measure is not bounded above, I can perform an estimation of the proposed econometric specification. In case there was an upper bound for export propensity, I should have used instead an alternative econometric model.

  3. I also estimate the elasticity of percentage of sales exported with respect to firm size. These estimates appear in the Appendix (Table 8). The results obtained under this measure turn out to be very similar to those obtained with the relative measure of export propensity.

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Acknowledgements

I acknowledge financial support from the Spanish Ministry of Science and Innovation under project ECO2011-28501 and the Ministry of Economy and Competitiveness under project ECO2014-53419-R. I would like to thank David Powell for his Stata code for the quantile regression for fixed effects panel data models and Francisco Alcalá, Francisco Candel, Diego Peñarrubia and participants at the XIX Applied Economics Meeting for their helpful comments. Any remaining errors are my own.

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  1. Departamento de Fundamentos del Análisis Económico, Universidad de Murcia, Campus de Espinardo, 30100, Murcia, Spain

    Pedro J. Hernández

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Correspondence to Pedro J. Hernández.

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Appendix

Appendix

Tables 6, 7 and 8.

Table 6 Percentage of exporting firms and average percentage of sales exported
Full size table
Table 7 Average percentage of sales exported by industries. ESEE dataset
Full size table
Table 8 Mean and quantile regression estimates of the elasticity of percentage of sales exported with respect to firm size
Full size table

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Hernández, P.J. Reassessing the link between firm size and exports. Eurasian Bus Rev 10, 207–223 (2020). https://doi.org/10.1007/s40821-019-00126-9

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