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Entry and Survival in the Export Market: Spillovers from Foreign and Outward-Looking Domestic Firms in Ethiopia

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Abstract

This paper examines spillovers from domestic-exporting and foreign-owned firms to the export entry and exit of local manufacturing firms in Ethiopia for the period 1996-2010. We find that downstream and upstream foreign-owned exporting firms improve the probability of domestic firms’ entering into export markets. Besides, foreign-owned exporting firms generate intraindustry spillovers that increase the export entry and survival rates of local firms. Spillovers from domestic exporters enhance the exporting likelihood of firms in input-supplying sectors. Moreover, exporting domestic and foreign-owned firms generate backward productivity spillovers that advance the export entry and survival of domestic firms through productivity gains.

Résumé

Cet article étudie les retombées des entreprises étrangères exportatrices de produits locaux sur les exportations des entreprises manufacturières locales en Éthiopie de 1996 à 2010. Nous constatons que les entreprises étrangères exportatrices présentes en aval et en amont augmentent la probabilité que les entreprises nationales pénètrent sur les marchés de l’exportation. En outre, les entreprises étrangères exportatrices génèrent des externalités intra-industrie qui augmentent les taux d’entrée sur les marchés d’exportation et de survie des entreprises locales. Les retombées des exportateurs de produits locaux augmentent la probabilité d’exportation des entreprises des secteurs de l’approvisionnement. En outre, les entreprises étrangères exportatrices de produits locaux génèrent des retombées tardives et positives sur la productivité, favorisant l’entrée sur le marché d’exportation des entreprises nationales, ainsi que leur survie, grâce aux gains de productivité.

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Notes

  1. On the literature seeking to distinguish between learning from exporting and self-selection, see Melitz (2003), Clerides et al. (1998), Bernard and Jensen (1999), and Alvarez and Lopez (2005).

  2. Widely applied approaches to control for endogeneity of input choices include those of Olley and Pakes (1996) and Levinsohn and Petrin (2003).

  3. The system-GMM approach accounts for endogeneities of the input choices, spillover indexes, and firm characteristics such as export status and import ratio.

  4. Foreign ownership of firms is defined by at least 10% equity (paid-up capital) share.

  5. It was prepared by the Ethiopian Development Research Institute in collaboration with the Institute of Development Studies at the University of Sussex. Detailed documentation on the SAM can be found in Tebekew et al. (2009).

  6. The data have been used in many studies, including those of Shiferaw (2007), Bigsten and Gebreeyesus (2009), and Bigsten and Gebreeyesus (2007).

  7. In subsequent discussions, we refer to wearing apparel and tanning leather and footwear sectors as apparel and leather, respectively.

  8. The entry (exit) rate shown in Table 1 is a ratio of the number of firms starting (quitting) exporting in the current year to the total number of exporting firms in the previous year.

  9. The horizontal spillover from foreign-owned firms in sector j, \(Hor\_for_{jt} = s_{jt}^{f} /s_{jt}\), is computed as the sales share of foreign-owned firms in the total sales of the sector; and the horizontal spillover from exporting firms, \({\text{Hor}}\_{\text{export}}_{jt} = E_{jt} /s_{jt}\), is the share of total exports in the total sales of the sector. Following the spillover indexes in “Spillover Indexes” section, we construct aggregate backward and forward indexes as well.

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Authors and Affiliations

  1. Department of Economics, University of Minnesota Duluth, 1318 Kirby Dr., Duluth, MN, 55812, USA

    Melaku Abegaz

  2. Department of Economics, Southern Illinois University Carbondale, 1000 Faner Dr, Carbondale, IL, 62901, USA

    Sajal Lahiri

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  1. Melaku Abegaz
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  2. Sajal Lahiri
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Correspondence to Melaku Abegaz.

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Abegaz, M., Lahiri, S. Entry and Survival in the Export Market: Spillovers from Foreign and Outward-Looking Domestic Firms in Ethiopia. Eur J Dev Res 32, 847–872 (2020). https://doi.org/10.1057/s41287-019-00242-2

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