Does Export Openness Increase Firm‐level Output Volatility?

Abstract

There is a widespread concern that increased trade may lead to increased instability and thus risk at the firm level. Greater export openness can indeed affect firm-level volatility by changing the exposure and the reaction of firms to macroeconomic developments. The net effect is ambiguous from a theoretical point of view. This paper provides firm-level evidence on the link between openness and volatility. Using comprehensive data on more than 21,000 German manufacturing firms for the period 1980-2001, we analyse the evolution of firm-level output volatility and the link between volatility and export openness. Our paper has three main findings. First, firm-level output volatility is significantly higher than the level of aggregate volatility, but it displays similar patterns. Second, increased export openness lowers firm-level output volatility. This effect is primarily driven by variations along the extensive margin, i.e. by the distinction between exporters and non-exporters. Variations along the intensive margin, i.e. the volume of exports, tend to have a dampening impact on volatility as well. Third, small firms are more volatile than large firms. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

Does product complexity matter for firms' output volatility?

“…Finally, there is a positive correlation (0.15) between firm complexity and export share to low income economies. 21 This evidence also confirms the interpretation of the findings by Buch et al (2009) who state that the lower volatility of exporters compared to non exporters could be due to the low correlation between domestic and foreign shocks which would lead to gains from diversification. While they are not able to empirically investigate this hypothesis, we show that exposition to a larger number of destinations reduces a firm's volatility, thus suggesting an imperfect correlation of shocks among different destination countries.…”

“…In columns [5]- [9] we explore the robustness of this finding to the adoption of alternative measures of volatility. In particular, baseline results are corroborated in column [5] when we use the log of the squared residuals of a firm growth regression on time and firm fixed effects (Blanchard and Simon, 2001;Buch et al, 2009). Nevertheless, the significant association between past complexity and subsequent firm output growth volatility could be driven by the omission of the firm's past growth pattern.…”

“…Empirical work has found a significant association between firm volatility and export intensities (Buch et al, 2009;Vannoorenberghe, 2012). Also, within narrowly defined sectors and regions, heterogenous firm complexity levels could well be related with different firm export shares if the domestic and foreign markets display different preferences for complex goods.…”

Export characteristics and output volatility: comparative firm-level evidence for CEE countries

“…On one side are the results of Buch et al (2009) and Kurz and Senses (2015), which show that exporters have lower volatility, and that this effect stems mostly from the extensive margin and not from the intensive margin (Buch et al (2009)), while in the other camp are Vannoorenberghe (2012) and Nguyen and Schaur (2010), who find that a large export share is related to higher sales volatility. Vannoorenberghe (2012) also shows that the sales to domestic and foreign markets are negatively correlated, indicating the simultaneity of the diversification decision and volatility.…”

“…The relatively scarce firm-level evidence available so far offers ambiguous conclusions. Buch et al (2009) and Kurz and Senses (2015) find exporting to be related to lower volatility, while Vannoorenberghe (2012) and Nguyen and Schaur (2010) find exporting to be related to higher volatility. Our paper contributes to the literature by applying the exact same methodology to large representative firm-level databases from five countries.…”