Bee Yan Aw

Productivity and the export market: A firm-level analysis

Abstract An empirical model is developed to distinguish the roles of resource-level differences from productivity differences in explaining output differences between exporters and non-exporters of Taiwanese electronic products. Our results indicate that the larger size of exporters relative to non-exporters explains the bulk of the difference in output between the two groups of producers. Nevertheless, there are significant differences in productivity levels between exporters and non-exporters in three out of the four products examined. The contribution of these differences to output differences between the two groups of producers vary from 3 to 20%, depending on the electronic product and model specification.

Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing

Abstract High rates of firm entry and exit have accompanied the rapid and sustained growth of output in Taiwans manufacturing sector. A high rate of firm turnover can contribute to industry productivity growth if it reflects a transfer of resources from less efficient to more efficient producers. Using comprehensive firm-level panel data from the Taiwanese Census of Manufactures for 1981, 1986, and 1991, we measure total factor productivity for entering, exiting, and continuing cohorts of firms and quantify the contribution of firm turnover to industry productivity improvements. Across manufacturing firms, we find significant differences in productivity that are reflected in turnover patterns. Cohorts of new firms have lower average productivity than incumbents but are themselves a heterogeneous group. The more productive members of the group, on average, survive and, in many cases, their productivity converges to the productivity level of older incumbents. Exiting firms are less productive than survivors. The productivity differential between entering and exiting firms is an important source of industry-level productivity growth in Taiwanese manufacturing, accounting for as much as one-half of industry improvement in some industries and time periods.

Export Market Participation, Investments in R&D and Worker Training, and the Evolution of Firm Productivity

This paper uses micro panel data for firms in the Taiwanese electronics industry in 1986, 1991 and 1996 to investigate a firms decision to invest in two sources of knowledge - participation in the export market and investments in R&D and/or worker training - and assess their effect on the firms future productivity. The firms decisions to export and invest in R&D and/or worker training are modelled with a bivariate probit model that recognises the interdependence of the decisions. The effect of these investments on the firms future productivity trajectory is then modelled while controlling for the selection bias introduced by endo-genous firm exit. The findings indicate a significant interaction effect between exporting and R&D investments and future productivity, after controlling for size, age and current productivity. Firms that undertake both investment activities have significantly higher future productivity than firms that do one or neither. In addition, these firms are more likely to continue investing in these activities leading to further productivity gains. These findings are consistent with the hypothesis that export experience is an important source of productivity growth for Taiwanese firms and that firm investments in R&D and worker training facilitate their ability to benefit from their exposure to the export market. Copyright 2007 The Authors Journal compilation Blackwell Publishing Ltd. 2007 .

Firm-Level Evidence on Productivity Differentials, Turnover, and Exports in Taiwanese Manufacturing

The manufacturing sector in Taiwan has a market structure composed of large numbers of small firms, a focus on less capital-intensive industries, and a dense network of firms specializing in subcontracting and trading services. It has been argued that these features lower the start-up costs of new manufacturing firms. Recent theoretical models of market evolution show that low sunk entry and exit costs act to speed firm turnover by facilitating entry and increasing the pressure on inefficient firms to exit. As a result, low cost entry and exit may help improve aggregate productivity by allowing for the rapid transfer of resources from less to more efficient producers within an industry. Using comprehensive firm-level panel data from the Taiwanese Census of Manufactures for 1981, 1986, and 1991, we measure differences in total factor productivity among entering, exiting, and continuing firms, and quantify the contribution of firm turnover to industry productivity improvements. We find notable differences in productivity across manufacturing firms that are reflected in turnover patterns in both the domestic and export market. Cohorts of new firms have lower average productivity than incumbents but are also a heterogeneous group. The more productive members of the group survive and in many cases their productivity converges to the productivity level of incumbents. Exiting firms are less productive than survivors. Exporters, including firms that recently left the export market, are more productive than nonexporters. These patterns are consistent with the view that both the domestic and export market sort out high productivity from low productivity firms and that the export market is a tougher screen.

Measuring quality change in quota-constrained import markets: The Case of U.S. Footwear

Abstract Theoretical models predict that quantitative import restrictions, such as orderly marketing agreements (OMAs), lead to substitution into higher quality products within the quotaconstrained import category. The country specific nature of OMAs results in further substitution among supplying countries. Using index number techniques, this paper measures the impact of product and country substitution on the price of U.S. footwear imports in the period surrounding the 1977–1981 footwear OMA with Korea and Taiwan. Upgrading of the import bundle was observed in most quota categories throughout the OMA period and accounted for 12 percent of the observed rise in the average price of footwear imports.

Productivity Dynamics of Small and Medium Enterprises in Taiwan

Using firm level data from Taiwan, this paper examines the link between firm size, growth and productivity. It shows that firms grow because they are more productive and not because they are larger in size. Indeed, the statistical analysis shows that while employment growth among Taiwanese firms was positively related to initial levels of total factor productivity, it was negatively related to initial size. The paper also shows that the productivity-size relationship has a virtuous cycle built in. More productive firms get larger and, in the process, obtain access to resources and information which enables them to become more productive. One implication of these results is that public policies should target productivity rather than size and should support reforms that make it possible for market mechanisms to weed out low productivity firms while facilitating the entry or growth of high productivity firms. Taiwan’s ability to keep entry and exit costs low is one reason why productivity gains there have been high.

Firm size and the pattern of diversification

Abstract In this paper, the entry of firms into the foreign market is treated as a form of diversification that is an alternative to the more conventional form of product diversification. We develop a firm-level total index of diversification which comprises of product-line and geographical diversities. Using semi-parametric regression techniques, we analyze the relationship between various forms of diversification and firm size in five major manufacturing industries in Taiwan. Our findings indicate that diversification need not be solely a large firm phenomenon as observed in developed countries. Among small and medium firms, the most common form of diversification consists of diversifying into a different geographical market. The positive relation between firm size and product diversification typically found in developed countries is limited to large exporting firms in Taiwan.

Price discrimination and markups in export markets

Abstract Imperfect competition in international markets is one of the key explanations for why prices of ‘similar’ goods might differ among destination countries. This paper develops an empirical model to examine the presence of price discrimination stemming from imperfect competition in the international market for a countrys exports. The model is used to examine the export behavior of Taiwanese exporters of footwear. The generalized supply relation allows identification of deviations from competitive pricing in each export market. In addition, the model provides insights into the extent of exchange rate pass-through. Finally, the model is modified in order to estimate the effect of the voluntary export restraint imposed in the U.S. on footwear imports from Taiwan.

Firm heterogeneity and export–domestic price differentials: A study of Taiwanese electronics products

Abstract This paper uses firm-level data to determine if there are systematic differences in the export and domestic prices charged by Taiwanese electronics producers. The analysis exploits new micro data that allow us to measure firm-level prices in both the domestic and export market for each of 30 disaggregated products in 1986 and 24 products in 1991. We find a substantial difference in the average domestic and export price of most products but trace much of the difference to heterogeneity in prices across firms in the same product market. Once this firm-level heterogeneity is accounted for, statistically significant price differences between the export and domestic market are found for seven products in 1986, with the domestic market price always being higher. The largest price differences are found for consumer electronics products where there were significant import restrictions. By 1991, when all import restrictions had been relaxed, the export–domestic price differential narrows, often substantially, for 18 of the 24 products where comparisons are possible. Statistically significant price differences are found for only one product in 1991. The pricing patterns are consistent with price discrimination in some product markets with the discrimination supported by trade restrictions that raised domestic prices. The magnitude of price variability across firms in the same product market also provides further evidence of the danger of using market-level aggregates to infer competitiveness.

The Role of Imports from the Newly-industrializing Countries in U.S. Production

This paper examines the relationship among U.S. imports from the NICs, imports from developed countries, capital, and labor in the production of goods for final demand. Import demand and substitution elasticities are estimated for the period 1960-80. U.S. imports from the NICs are found to be complements with both labor and imports from industrialized countries. This indicates that the substitution effect resulting from a reduction in the price of imports from the NICs would lead to a net increase in employment. Multilateral tariff cuts by the United States would increase the demand for NIC goods despite a reduction in their preferential tariff margins.