Structural Reform and Firm Exports

Abstract

0We analyze the impact of structural reform on firm exports. We argue that structural reform generates new opportunities and reduces transaction costs, inducing firms to improve their efficiency and competitiveness to international levels, therefore, helping them to export. However, we propose that not all companies benefit equally, because firms differ in how structural reform affects their competitiveness. We argue that subsidiaries of foreign firms are the main beneficiaries of structural reform, followed by domestic private firms, and finally by domestic state-owned firms. 0 We test these arguments on a sample of the largest companies in Latin America for the period 1990-2005. We find that structural reform induces firms to export. Furthermore, it has the highest positive impact on the exports of subsidiaries of foreign firms, followed by those of domestic private firms. Surprisingly, we find that structural reform has a negative impact on the exports of domestic state-owned firms. 0The paper contributes to a better understanding of how changes in institutions affect firm behavior by explaining the mechanisms that link structural reform to firm exports and how these vary across firms. Moreover, by indicating that not only foreign but also domestic private firms benefit from structural reform, it counters the arguments of detractors of globalization who claim that foreign firms are the sole beneficiaries of structural reform. The paper also highlights the need to discuss who benefits from structural reform rather than whether structural reform is beneficial or detrimental.

Assessing the Impact of Business Group Diversification on the Internationalization of their Affiliates: The Case of Latin American Firms

“…On the other, the rapid internationalization of emerging market firms has been linked to the home country's adoption of pro-market structural reforms that reduces the transaction costs and agency problems which business groups are meant to help overcome (i.e. Cuervo-Cazurra, 2007;Cuervo-Cazurra and Dao, 2009a;Dunning, Kim and Park, 2008).…”

“…Pro-market reforms reduce the number of regulations and improve their quality, improve the implementation of rules, reduce discretion of government officials and reduce the overall levels of corruption (Cuervo-Cazurra, 2007;Cuervo-Cazurra and Dao, 2009a). Further, these pro-market reforms favor the development of a competitive market for managers, ease the development of external capital markets and increase the competitive pressures favoring efficiency to assure survival (Cuervo-Cazurra and Dao, 2009b).…”

“…Cuervo-Cazurra and Dao (2009a) argued that pro-market reforms reduce the number of regulations and enhance their quality, improve consistency in the implementation of rules, reduce the discretion of government officials and reduce overall corruption levels (CuervoCazurra, 2007;Cuervo-Cazurra and Dao, 2009a). Further, pro-market structural reforms also favor the emergence of intermediaries in emerging markets, improve the existence of reliable information and improve monitoring mechanisms favoring competition and the efficiency of emerging market firms (Cuervo-Cazurra and Dao, 2009b;Diaz-Hermelo and Vassolo, 2010).…”

“…Further, pro-market structural reforms also favor the emergence of intermediaries in emerging markets, improve the existence of reliable information and improve monitoring mechanisms favoring competition and the efficiency of emerging market firms (Cuervo-Cazurra and Dao, 2009b;Diaz-Hermelo and Vassolo, 2010). For instance, Cuervo-Cazurra and Dao (2009a) argued that economic liberalization has positively impacted competitive pressures in Latin American countries. These pressures have forced Latin American firms to develop firm specific assets and improve their competitiveness.…”

“…On the other side, emerging market multinationals developed because of gains in efficiency in their home countries associated with the adoption of such promarket structural reforms (i.e. Cuervo-Cazurra, 2007;Cuervo-Cazurra and Dao, 2009a;Dunning, Kim and Park, 2008). In fact, because of better resource allocation mechanisms, more capacity to access high quality resources, higher level of domestic competition and improved governance mechanisms, diversified business groups have found not only more difficulties to generate value within their home countries but also faced increasing pressures to refocus their scope of operations.…”