The evidence suggests that export promotion has indeed been an effective tool to help firms survive in the export market. To the extent that export promotion helps firms avoid, at least temporarily, certain fixed costs, they are more likely to survive in the export market.
Beyond export outcomes and beyond export promotion
Yet even an intensive margin change can result from an extensive margin expansion of a firm's customer base (Bernard et al., 2013; Carballo et al., 2013). A recent study by Fernandes et al. 2015) suggest that export promotion effects may not be durable.
Export support agencies 1 PROMPERU
Flanders Investment and Trade (FIT)
FIT has its headquarters in Brussels, regional offices in the five provincial capitals and field offices in approximately 90 locations abroad. Trade missions and participation in trade fairs tend to play a much larger role than in the operations of FIT.
Data
We provided more detailed information on the type of services in the previous section and will describe how their use evolved during the recession below. While the number of exporters fell slightly over the sample period, we see an increase in the number of firms receiving support during the crisis years of 2009 and 2010.
Exports and export support over the crisis 1 Evolution of exports over the crisis
Export support over the crisis: some facts
We then show how the use of export promotion support by the two agencies evolved during the crisis in Figure 3.14 The black solid line shows the number of firms using these services each year. In 2008, the number of new customers in Belgium decreased, but it is likely that some of the "new customers" in 2007 were existing customers who simply skipped using the service in 2006, the first year of our data. For Peru, the number of new customers increased in 2008 and a similar exaggeration in 2007 is likely to underestimate the increase.
For Belgium, we observe not only whether a firm uses the service in a specific year, but also the total number of activities in which it participated. This total use was 6% higher in 2009 than in 2006, but declined rapidly as the crisis subsided. As FIT attracted more marginal customers with low usage, the number of unique firms supported (in black) increased more strongly than the total number of support cases (in gray).
It also shows that the increase due to the crisis is somewhat masked in the annual data. The same applies to the number of new FIT customers, with the barely noticeable rebound during the recession being more pronounced on a quarterly basis. The composition of companies requesting export promotion support also shows a number of patterns during the crisis.
Empirical model
It reveals that the use of export promotion services is fairly seasonal with a peak in the first quarter of the year. To keep the cost of the survey manageable, micro-enterprises were targeted, but they are quite different from most enterprises with which export promotion agencies work. As mentioned, the standard solution in the export promotion literature (which we follow) is to assume that, conditional on a set of covariates, the selection for treatment is random.
More specifically, we assume that conditional on a set of observable outcomes, the export performance of customers and other firms would have been the same without aid (Imbens and Wooldridge, 2009). Although informative about the specific context and small firms' reluctance to enter the export market, its broader relevance to the success of export promotion is limited. They also discuss more sophisticated estimators, which often involve estimating a treatment selection model in a first step and computing the propensity score, that is, the predicted probability of treatment, for all firms.
The equations we estimate to determine the effect of export promotion on export performance differ from the general equation (1) in several respects. We only observe the performance of existing exporters and are only interested in the effectiveness of promoting exports in times of crisis. As an additional robustness check, we also use the inverse propensity score directly as the weights in the regression, an estimator that has the property of double robustness (Imbens and Wooldridge, 2009).
Results
Control for self-selection
A final specification is estimated using the same set of firms operating in the export market in 2006, but includes separate observations for each export destination a firm served in 2006. In this formulation we can again include a firm fixed effect, but only if we observe some variation across destinations in the explanatory variable of interest. Additionally, we estimate a probit model for the subset of firms included in the performance regressions to calculate the propenity score for each firm.
By including firm fixed effects in the regression, exports are normalized to zero in the treatment year. Since the sample includes firms that never receive support and the comparison includes calendar year dummies, the estimates represent the difference in the evolution of exports for customers relative to non-customers leading up to and after export support. 21 To control for a downward bias in the estimate of the lagged dependent variable, see Nickell (1981), we also used the xtlsdvc procedure in Stata which confirmed the negative point estimates.
We observe higher exports after t and lower exports before t, but in the short sample period we cannot rule out that exports merely return to their 'normal' levels and that the support in year t was prompted by a temporary decline in exports. Our conclusion from these graphs is that merely including firm fixed effects in the performance regression may not provide sufficient control for self-selection. At a minimum, we should include export growth in the pre-aid period as an explicit control in the performance regressions, in addition to the firm characteristics and export market connectedness discussed earlier.
Effects of export promotion on export level and export status
Without the fixed characteristics, the point estimates on the support variable were approximately twice as high, but export promotion has a strong positive effect even after conditioning on observables. The interaction term is always strongly negative, and in the first two years it negates the entire baseline effect. Only for the 2010 estimates is there a significant positive effect for intra-EU exporters, estimated at 5% – the sum of the point estimates on the uninteracted and interacted support indicators.
We have included the same set of control variables in the regressions based on Table 5 as in Table 4, but we do not report them since the estimates are very similar. The nature of the analysis in Tables 4 and 5 did not allow for the inclusion of firm-fixed effects in the specification. In panel (a) we follow a standard approach of keeping zero trade observations in the sample, using the logarithm of total exports plus one as the dependent variable.25 Firm destinations thus remain in the analysis even if a firm exits a market. designated export.
In the next two panels of Table 6, we investigate whether the superior performance of supported firms is due to a higher survival probability in destinations hit by the financial crisis or to higher export volumes in relative terms - in practice this probably means ' a smaller reduction in export volumes in those destinations. The support dummy in the performance equations is replaced by two dummy indicators, one for firms that received support only once in the considered period and a second for firms that received support multiple times. We also estimated a specification where the dummy variable for “any” export promotion support is replaced by “the number of years” a firm has received support.
Policy discussion
Since exporting involves sunk entry costs and fixed costs to remain active abroad, providing export promotion support, especially when firms' budgets are to cover recurring fixed costs, can avoid inefficient outflows from the export market. The particularly robust performance at the destination's extensive margin further underscores the benefit of promoting exports as a way to diversify sales and help hedge against fluctuations in the local business cycle. Third, evidence has also shown that export promotion in particular helps firms survive in export markets that have experienced a financial crisis.
We expected that export promotion would also be effective in helping firms navigate protectionist measures that often become more popular during cyclical downturns. The stronger effects on survival outside the EU may also be caused by stronger effects of export promotion for smaller exporters. A more limited approach to evaluating the net benefits would be to make some reasonable assumptions and perform a simple 'back of the envelope' calculation based on our estimates and the export promotion budget of these agencies.
Does the additional tax revenue on exporters' corporate profits at least cover the budget of the export promotion agency? In this narrow sense, we find a positive net benefit of the export promotion program on government revenues for Peru in the years 2009 and 2010 and for Belgium in all years. For Peru, the net return is greatest in 2010, with net income of €2.7 million.28 Although this simple cost-benefit calculation indicates that export promotion covers its own costs, the net gain in government revenues remains modest, which is precisely the case . we would expect.
Export Promotion and Firm Access to and Survival in Export Markets,” World Bank Policy Research Paper No. Cross-National Comparison of Export Promotion Services: Views of Canadian and Austrian Firms,” Journal of International Business Studies. Odyssey in International Markets: An Assessment of the Effectiveness of Export Promotion in Latin America and the Caribbean.
Firm-level evidence on the intensive and extensive export margins," Journal of International Economics. Beyond average effects: the distributional effects of export promotion programs in developing countries," Journal of Development Economics. Export promotion activities in developing countries: What kind of trade do they promote?” Journal of International Trade and Economic Development.
Source: Proprietary calculations based on matched company-level information from administrative trade transaction data sets of each country and supported customer data sets of each export promotion agency.
