Foreign Networks and Exports: Results From Indonesian Panel Data

Abstract

Most firms and plants in developing countries produce only for the domestic market and few are able to export. One plausible hypothesis is that foreign networks decrease export costs and that plants with large amounts of such networks will be relatively likely to start exporting. We focus on two types of foreign networks: foreign ownership and imports of intermediate products. Our results suggest that plants in Indonesian manufacturing with any foreign ownership are substantially more likely to start exporting than wholly domestically owned plants. The results remain robust to alternative model specifications and after controlling for other plant characteristics. There is no effect on exports of imports of intermediate products.Keywords : Exports; Sunk costs; Foreign ownership; Imports JEL classification : F10, F23, L10 I. INTRODUCTION T he heterogeneity of firms has been a core aspect in recent empirical literature on international trade (Helpman 2006; Bernard et al. 2007). Firms within sectors and countries differ substantially in various characteristics such as size, capital intensities, and productivity levels. The heterogeneity includes firms' participation in international trade: most firms typically produce for the domestic market and there are often few entries into exports. The obvious question is: what are the determinants of firms' participation in exports?Microeconometric studies on panel data find size, productivity, and skills of the labor force to be important determinants.1 It is likely, however, that more than large This paper was prepared as part of an ICSEAD project on "Foreign Multinational Corporations and Host-Country Labor Markets in Asia." The authors wish to thank participants at an ICSEAD seminar in Japan. Fredrik Sjöholm gratefully acknowledges financial support from the Marianne and Marcus Wallenberg Foundation. 1 See, for example, Jensen (1999, 2004), Bernard and Wagner (2001), Clerides, Lach, and Tybout (1998), and Roberts and Tybout (1997).foreign networks and exports © 2008 The Authors Journal compilation © 2008 Institute of Developing Economiessize and high productivity are required in order to export, considering the substantial difficulties involved. For instance, being able to export requires knowledge about foreign consumer preferences, distribution systems, legal frameworks, and a host of other aspects relating to the foreign market. Such information is costly to collect and is normally referred to as sunk entry costs: expenses incurred from entering a foreign market must be written off whether the firm decides to export or not.2 However, once the firm has invested in collecting the information, it can use this information without any large additional costs. The export entry costs can be expected to vary between firms, and Roberts and Tybout (1997, p. 561) suggest that foreign networks will decrease a firm's cost of collecting information on new markets. However, this issue has not been fully empirically examined. There are different channels where foreign networks can deve...

Competition and Cooperation in Economics and Business

“…A high portion of foreign capital encouraged the firm to export in the industrial estate. These results support Sjöholm and Takii (2008) who found that foreign capital firms are more likely to export than domestically funded firms in Indonesia. The main reason of why foreign capital might encourage export is global production network.…”

“…The higher the foreign share, the higher the export opportunities. Sjöholm and Takii (2008) found that in Indonesia firms that use foreign capital are more likely to export than domestically funded firms. However, the influence of a firm's age on its export decision is still inconclusive.…”

Foreign direct investment and growth in East Asia: lessons for Indonesia

“…Sjöholm (2003b) 1996 Exports Foreign firms are better able to start exporting than local firms. Sjöholm and Takii (2008) 1990-2000 Exports Foreign firms are better able to start exporting than local firms. Sjöholm (2004a) 1996 Wages per employee Foreign firms pay higher wages than local firms.…”

Exit from Exporting: Does Being a Two-way Trader Matter?

“…Some of them focus on the impact of foreign intermediate inputs on the probability of exporting (Sjöholm and Takii, 2008;Aristei et al, 2013;Lo Turco and Maggioni, 2013;Giovannetti et al, 2013;Meinen, 2015) and others on export volume and export scope (Bas and StraussKahn, 2014;Bertrand, 2011;Feng et al, 2012;Navas et al, 2013). 4 To the best of our knowledge, this is the first study that is focused on the impact of being an importer of intermediate inputs on the probability that a firm will cease exporting, which is our main contribution to this strand of literature.…”