Abstract
This paper empirically investigates the key firm- and industry-specific restrictions to the performance of small- and medium-sized enterprises (SMEs) in services trade. For this purpose, we use firm-level data from firms in France operating in different services sectors over the time period 1998–2007 and formulate two-part models consisting of (1) (dynamic) export equations and (2) (dynamic) export share equations. Our results confirm the view that a relatively low share of SMEs engages in services trade. In line with the new-new trade theory, our results also corroborate that more productive SMEs have a higher export probability. The key finding of this paper is that the export decisions of SMEs in services sectors are estimated to be extremely persistent, implying that trade policy efforts, including the allocation of scarce trade promotion budgets, should be directed at addressing the barriers faced in establishing the first export operation. Finally, our sub-sectoral estimates reveal considerable heterogeneity across different types of services.
Similar content being viewed by others
Notes
The term new-new trade theory refers to models that incorporate firm-level heterogeneity in standard trade models in order to account for new stylized facts that are observed in firm-level data sets (Baldwin and Robert-Nicoud 2008).
The literature review by Wagner (2012) exclusively focuses on contributions from the international economics literature, which mainly test predictions obtained from the new-new trade theory for data on service firms. In this section, we augment these findings by contributions from the small business economics literature.
In a similar vein, the so-far available empirical evidence is mainly based on data that end prior to the last recession that have been triggered by the financial crisis. Accordingly, evidence on the impact of a world-wide decrease in GDP on the international engagement of services firms is still very scarce, and therefore, surveys that explicitly focus on such questions could be very helpful.
The AMADEUS database does not provided a matched employer–employee dataset, and therefore, we are not able to observe worker-specific characteristics such as wages and the skill level. Accordingly, we are not able to include this information in our empirical analysis. More details on the available data are presented in Sect. 3.2.
For French manufacturing firms, Stiebale (2011), however, is able to show that once observed and unobserved firm heterogeneity is taken into account, financial constraints have no significant effects on the export probability and the export shares.
This ‘pecking order’ of productivity with regard to the choice of internationalization strategies has been confirmed by a huge bulk of empirical contributions (see, e.g., Head and Ries 2004; Greenaway and Kneller 2007; Aw and Lee 2008; Oberhofer and Pfaffermayr 2012; Temouria et al. 2013; Vogel and Wagner 2013). However, it is worth noting, that the vast majority of these investigations rely on manufacturing firms only Wagner (2012).
Below we estimate two different models, where the former assumes that conditional on all other covariates a firm’s export decision is independent of its past exporter status. By contrast, our second model allows to test for this by additionally including the lagged exporter status. More details on the differences between both models will be discussed below.
For the econometric analysis, we also apply alternative definitions for exporting firms in order to check the robustness of the baseline results. Correspondingly, we classify firms as exporters if a non-negligible share of overall revenues (i.e., 10 and 25 %, respectively) is generated through exports.
This also implies that we are not able to distinguish between goods and service exports within firms. For this reason our definition of service firms is based on revision 2 of the NACE industry classification as well as the W120 services classification of the World Trade Organization.
Among these sub-industries are manufacture of paper and paper products (NACE Rev. 2 codes: 17), manufacture of computer, electronic and optical products (NACE Rev. 2 codes: 26), water transport (NACE Rev. 2 codes: 50), programming and broadcasting activities (NACE Rev. 2 codes: 60), information service activities (NACE Rev. 2 codes: 63) and activities of membership organizations (NACE Rev. 2 codes: 94).
Accordingly, a firm is classified as micro-firm if it employees less than ten employees. Small (medium) firms employ ten or more (50 or more) workers but less than 50 (250). Firms with at least 250 employees are classified as large firms.
Here, it is worth noting that we exclude manufacturing firms from this analysis because in our econometric analysis below we solely focus in firms in these respective industries.
A very similar model for the exporter status and export shares of French manufacturing firms is presented by Stiebale (2011). In econometric terms, the main difference is that Stiebale (2011) applies a Tobit model for the second part, while we make use of a fractional response model. This latter model has the main advantage that it explicitly accounts for the bounded nature of the export share data at hand.
In our application, we assume that only averages of time-varying covariates directly affect the random effects \(\alpha _i\). Otherwise, we would not be able to obtain (short-run) estimates for the impact of legal form and the number of subsidiaries, respectively. We also alternatively estimated the first part using a conditional (fixed effects) logit model. In this model the identification of the parameters of interest is only possible for time-variant covariates and solely relies on the subsample of firms that switch their exporter status during our observational period (see, e.g., Train 2003). The estimates for the time-varying covariates from the conditional logit model are virtually identical to our random effects probit estimates and are available from the authors upon request.
More details on this estimation procedure and the parameter estimates for the Cobb–Douglas production function can be found in Lejárraga et al. (2014).
Due to the inclusion of the lagged export information, the number of observations in the full sample is reduced to 276,039. There are two reasons for this. First, the inclusion of lagged information does not allow to include the first observed year. Second, the AMADEUS data set provides data with missing observations for some years leaving us with an unbalanced panel dataset which further reduces the number of available observations.
The estimation results for other service industries are available from the authors upon request.
References
Aw, B. Y., & Lee, Y. (2008). Firm heterogeneity and location choice of Taiwanese multinationals. Journal of International Economics, 75, 167–179.
Baldwin, R., & Robert-Nicoud, F. (2008). Trade and growth with heterogeneous firms. Journal of International Economics, 74, 21–34.
Bartus, T. (2005). Estimation of marginal effects using margeff. Stata Journal, 5, 309–329.
Bhattacharya, R., Patnaik, I., & Shah, A. (2012). Export versus FDI in services. The World Economy, 35, 61–78.
Breinlich, H., & Criscuolo, C. (2011). International trade in services: A portrait of importers and exporters. Journal of International Economics, 84, 188–206.
Cabral, L. M. B., & Mata, J. (2003). On the evolution of the firm size distribution: Facts and theory. American Economic Review, 93, 1075–1090.
Caves, R. E. (1998). Industrial organization and new findings on the turnover and mobility of firms. Journal of Economic Literature, 36, 1947–1982.
Chamberlain, G. (1980). Analysis of variance with qualitative data. Review of Economic Studies, 93, 225–238.
Chiru, R. (2007). Innovativeness and export orientation among establishments in knowledge-intensive business services (KIBS) 2003, Working Paper No. 1, Science and Innovation Surveys Section, Statistics Canada.
Conti, G., Lo Turco, A., & Maggioni, D. (2010). Exporters in services: New evidence from Italian firms. Applied Economics Quarterly, 56, 73–98.
Davidsson, P., Lindmark, P., & Olofsson, C. (1998). The extent of overestimation of small firm job creation: An empirical examination of the regression bias. Small Business Economics, 11, 87–100.
Del Gatto, M., Di Liberto, A., & Petraglia, C. (2011). Measuring productivity. Journal of Economic Surveys, 25, 952–1008.
Ebling, G., & Janz, N. (1999). Export and innovation activities in the German service sector: empirical evidence at the firm level, ZEW Discussion Papers, No. 99–53, Centre for European Economic Research.
Eickelpasch, A. F., & Vogel, A. (2011). Determinants of export behavior of German business services companies. The Service Industries Journal, 31, 513–526.
Engel, D., Procher, V., & Schmidt, C. M. (2013). Does firm heterogeneity affect foreign market entry and exit symmetrically? Empirical evidence for French firms. Journal of Economic Behavior & Organization, 85, 35–47.
Eurostat (2008). Enterprises by size class: Overview of SMEs in the EU. http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-08-031/EN/KS-SF-08-031-EN.PDF.
Fazzari, S. M., Hubbard, R. G., & Petersen, B. C. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 1988, 141–206.
Federico, S., & Tosti, E. (2012). Exporters and importers of services: Firm-level evidence on Italy, Bank of Italy Temi di Discussione (Working Paper) No. 877, Bank of Italy.
Gourlay, A., Seaton, J., & Suppakitjarak, J. (2005). The determinants of export behaviour in UK service firms. The Service Industries Journal, 25, 879–888.
Greenaway, D., & Kneller, R. (2007). Firm heterogeneity, exporting and foreign direct investment. Economic Journal, 117, F134–161.
Haltiwanger, J. C., Jarmin, R. S., & Miranda, J. (2013). Who creates jobs? Small vs. large vs. young. Review of Economics and Statistics, 95, 347–361.
Hart, P. E., & Oulton, N. (1996). Growth and size of firms. Economic Journal, 106, 1242–1252.
Head, K., & Ries, J. (2004). Exporting and FDI as alternative strategies. Oxford Review of Economic Policy, 20, 409–423.
Helpman, E. (2006). Trade, FDI, and the organization of firms. Journal of Economic Literature, 44, 589–630.
Helpman, E., Melitz, M., & Yeaple, S. (2004). Export versus FDI with heterogeneous firms. American Economic Review, 94, 300–316.
Hollenstein, H. (2005). Determinants of international activities: Are SME’s different? Small Business Economics, 24, 431–450.
Huber, P., Oberhofer, H., & Pfaffermayr, M. (2013). Who creates jobs? Estimating job creation rates at the firm level, Working Papers in Economics and Finance 2013–05, University of Salzburg.
Kelle, M., Kleinert, J., Raff, H., & Toubal, M. (2013). Cross-border and foreign-affiliate sales of services: Evidence from German micro-data. The World Economy, 36, 1373–1392.
Konings, J., & Vandenbussche, H. (2013). Antidumping protection hurts exporters: Firm-level evidence from France. Review of World Economics, 149, 295–320.
Kox, H. L. M., & Rojas-Romagosa, H. (2010). Exports and productivity selection effects for Dutch firms. De Economist, 158, 295–322.
Lejárraga, I., Rizzo, H. L., Oberhofer, H., Stone, S., & Shepherd, B. (2014). Small and medium-sized enterprises in global markets: A differential approach for services? OECD Trade Policy Paper No. 165, OECD Publishing.
Lejpras, A. (2009). Determinants of internationalization: Differences between service and manufacturing SMEs, Discussion Paper No. 886, German Institute for Economic Research (DIW Berlin).
Levinsohn, J., & Petrin, A. (2003). Estimating production functions using inputs to control for unobservables. Review of Economic Studies, 243, 317–342.
Love, J. H., & Ganotakis, P. (2013). Learning by exporting: Lessons from high-technology SMEs unobservables. International Business Review, 22, 1–17.
Love, J. H., & Mansury, M. A. (2009). Exporting and productivity in business services: Evidence from the United States. International Business Review, 18, 630–642.
Lööf, H. (2010). Are services different exporters? Applied Economics Quarterly, 56, 99–117.
Masurel, E. (2001). Export behaviour of service sector SMEs. International Small Business Journal, 19, 80–84.
Melitz, M. J. (2003). The Impact of trade on aggregate industry productivity and intra-industry reallocations. Econometrica, 71, 1695–1725.
Minondo, A. (2011). Exporters of services in Spain, Orkestra Working Paper Series in Territorial Competitiveness No. 2011–R04, Basque Institute of Competitiveness.
Mundlak, Y. (1978). On the pooling of time series and cross section data. Econometrica, 46, 69–85.
Oberhofer, H., & Pfaffermayr, M. (2012a). FDI versus exports: Multiple host countries and empirical evidence. The World Economy, 35, 316–330.
Oberhofer, H., & Pfaffermayr, M. (2012b). Fractional response models—A replication exercise of Papke and Wooldridge (1996). Contemporary Economics, 6, 56–64.
OECD (2009). Measuring entrepreneurship: A collection of indicators. http://www.oecd.org/dataoecd/43/50/44068449.pdf.
Papke, L. E., & Wooldridge, J. M. (1996). Econometric methods for fractional response variables with an application to 401(k) plan participation rates. Journal of Applied Econometrics, 11, 619–632.
Papke, L. E., & Wooldridge, J. M. (2008). Panel data methods for fractional response variables with an application to test pass rates. Journal of Econometrics, 145, 121–133.
Persin, D. (2011). Market access for small versus large service enterprises: The preferential and multilateral trade liberalization tracks compared. Journal of World Trade, 45, 785–819.
Pilat, P., Cimper, A., Olsen, K., & Webb, C. (2006). The changing nature of manufacturing in OECD economies, STI Working Paper 2006/9, OECD.
Ramalho, E. A., Ramalho, J. J., & Murteira, J. M. (2011). Alternative estimating and testing empirical strategies for fractional regression models. Journal of Economic Surveys, 25, 19–68.
Sloan, B., & Chittenden, F. (2006). Fiscal policy and self-employment: Targeting business growth. Environment and Planning C: Government and Policy, 24, 83–98.
Stiebale, J. (2011). Do financial constraints matter for foreign market entry? A firm-level examination. The World Economy, 34, 123–153.
Storey, D. J. (1994). The role of legal status in influencing bank financing and new firm growth. Applied Economics, 26, 129–136.
Temouria, Y., Vogel, A., & Wagner, J. (2013). Self-selection into export markets by business services firms? Evidence from France, Germany and the United Kingdom. Structural Change and Economic Dynamics, 25, 146–158.
Train, K. E. (2003). Discrete choice methods with simulation. Cambridge: Cambridge University Press.
Van Beveren, I. (2012). Total factor productivity estimation: A practical review. Journal of Economic Surveys, 26, 98–128.
Vogel, A. (2011). Exporter performance in the German business services sector. The Service Industries Journal, 31, 1015–1031.
Vogel, A., & Wagner, J. (2013). Exports R&D and productivity in German business services firms: A test of the Bustos-model. Empirical Economics Letters, 12, 1–6.
Wagner, J. (2012). International trade and firm performance: A survey of empirical studies since 2006. Review of World Economics, 148, 235–267.
Wagner, J. (2013). Exports, foreign direct investments and productivity: Are services firms different? The Service Industries Journal, 34, 24–37.
Wolfmayr, Y., Christen, E., & Pfaffermayr M. (2013). Pattern, determinants and dynamics of Austrian service exports—A firm-level analysis, FIW-Research Reports 2012/13 No. 05, Research Centre International Economics (FIW).
Wooldridge, J. M. (2005). Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity. Journal of Applied Econometrics, 20, 39–54.
Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data (2nd ed.). Cambridge, MA: MIT Press.
World Trade Organization. (1991). Services sectoral classification list. Geneva: WTO Publications.
Acknowledgments
We would like to thank Rui Baptista, two anonymous referees, the participants of the 5th FIW research conference in International Economics at the Vienna University of Economics and Business, the participants of the FIW-WIIW research seminar in International economics, and the participants of the Inter-American Development Bank-ELSNIT XI Annual Conference on “Internationalisation of SMEs.” The authors also thank the OECD Working Party of the Trade Committee and the OECD Working Party on SMEs and Entrepreneurship for useful comments and discussions.
Author information
Authors and Affiliations
Corresponding author
Additional information
Disclaimer This paper builds on an earlier analysis that was published as part of the OECD Trade Policy Paper No. 165 ”Small- and medium-sized enterprises in global markets: A differential approach for services?” Lejárraga et al. (2014). The opinions expressed and arguments employed herein are those of the authors and do not necessarily reflect the official views of the OECD or of the governments of its member countries.
Appendix
Appendix
See Table 9.
Rights and permissions
About this article
Cite this article
Lejárraga, I., Oberhofer, H. Performance of small- and medium-sized enterprises in services trade: evidence from French firms. Small Bus Econ 45, 673–702 (2015). https://doi.org/10.1007/s11187-015-9647-z
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11187-015-9647-z
Keywords
- Internationalization
- Services trade
- Small- and medium-sized enterprises
- Export activities
- Dynamic export questions