Discussion Paper

No. 2016-25 | June 22, 2016
Reassessing the Link Between Firm Size and Exports
(Published in Special Issue Recent Developments in Applied Economics)

Abstract

The small average size of Spanish firms has been put forward as the main impediment to their international competitiveness. This paper re-examines the link between firm size and exports. The new theories of international trade emphasize firm heterogeneity as the theoretical basis of export behavior. In the context of this heterogeneity, the paper uses the quantile regression methodology to analyze the effect of firm size on firm export propensity (percentage of exported sales). The paper confirms the existence of a positive relationship between firm size and export intensity but finds that the conventional estimates of the elasticity of export propensity with respect to firm size on the average of the export propensities distribution underestimate the effect at the bottom of the distribution and overestimate the effect on most of it. Consequently, policies aimed at increasing exports should concentrate their efforts on increasing the size of those firms with lower export propensity.

JEL Classification:

F14, L25

Assessment

  • Downloads: 744

Links

Cite As

Pedro J. Hernández (2016). Reassessing the Link Between Firm Size and Exports. Economics Discussion Papers, No 2016-25, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2016-25


Comments and Questions


Anonymous - Expert assessment
July 07, 2016 - 11:43

The research uses data from the Encuesta Sobre Estrategias Empresariales for Spain and from the EFIGE dataset for seven European countries (including Spain) in order to re-examine the link between firm size in exports. The author uses different quantile regression techniques in order to analyze the effect of firm size ...[more]

... on firm export propensity. His findings confirm a positive relationship between firm size and export intensity but show that the elasticity of export propensity with respect to firm size varies significantly along the export propensity distribution. In light of this evidence, the main recommendation regarding policies aimed at increasing exports is that they should concentrate their efforts on increasing the size of those firms with lower export propensity.

In my opinion, the research provides interesting evidence about the link between firm size and export propensity, an issue which is especially important in those countries like Spain with a high prevalence of low-size firms and, for that reason, it merits publication. Yet, from my point of view, there are some shortcoming in the analysis that should be treated before publication.

In the following, I will summarize the points where I think that the research could be improved:
1) The Introduction section is rather short, very especially considering that there is not an additional section with a review of the relevant literature. In my opinion, the research would benefit from an expansion of the section. It could include, inter alia, a thorough explanation of how the new theories of international trade emphasize firm heterogeneity to explain export status; a deeper review of the literature that has previously examined the relationship between firm size and export propensity (the third paragraph in the introduction section of the manuscript focuses mainly on the studies that find little or no influence and tiptoes those that find a positive relationship), including potential non-linear relationships between firm size and exporting (see e.g. Wagner (1995), ‘Exports, Firm Size, and Firm Dynamics’, Small Business Economics) and the inclusion of appropriate references to previous studies that have examined the impact of certain plant characteristics, including in some case firm size, on export intensity along the export intensity distribution (for example, Wagner (2006), ‘Export intensity and plant characteristics: what can we learn from quantile regression?’, Review of World Economics; Piccardo, Bottasso and Benfratello (2014), ‘Innovative capacity and export performance: Exploring heterogeneity along the export intensity distribution’, Centre for Studies in Economics and Finance and Yasar, Nelson and Rejesus (2006), ‘Productivity and exporting status of manufacturing firms: Evidence from quantile regressions’, Review of World Economics).
2) Considering the specific focus of the research, the fact that firms with less than 10 employees are not covered by any of the two dataset employed is a remarkable problem, given that those firms comprise a very significant portion of the total employment in certain countries like Spain. The text should include some comments regarding this shortcoming and how it could potentially affect the main findings of the research (i.e. in the light of the result of previous studies).
3) There is some confusion throughout the text with the different measures of export performance used (i.e. export propensity and export intensity) since in some cases they appear to be used interchangeably (see e.g. Table 4).
4) The presentation of the econometric methodology is rather short and could be extended, including for instance a thorough explanation of the advantages of the Powell (2015) estimation technique regarding potential alternatives.
5) Given that the results section is rather brief, the potential selection bias issue mentioned in footnote 5 could be extended and incorporated to the text. Moreover, evidence disaggregated by country could be provided with the EFIGE dataset and potential non-linear relationships between firm size and exporting could be examined.
6) As the main policy recommendation arising from the empirical analysis is that the size of firms with lower export propensity should be increased in order to increase overall exports, in my opinion the empirical analysis should shed some light about the factors other than firm size that could influence export performance, such as firm productivity (see e.g. Wagner (2007), ‘Exports and productivity: A survey of the evidence from firm‐level data’, The World Economy and Wagner (2011), ‘Exports and firm characteristics in Germany: A survey of empirical studies, Applied Economics Quarterly).
7) Regarding minor issues, some of the footnotes (particularly footnotes 2, 3 and 6) might provide irrelevant and unnecessary information and could be eliminated.


Pedro J. Hernández - Reply
July 07, 2016 - 14:59

I would like to thank for the useful comments, which will help to significantly improve the new version of the paper.
I’m going to include the suggested references in the Introduction section and extend the Econometric Specification and Estimations Results sections following your advices


Anonymous - Referee Report 1
July 14, 2016 - 10:44

See attached file


Pedro J. Hernández - Reply to Referee Report 1
July 25, 2016 - 12:30

see attached file


Anonymous - Referee Report 2
July 14, 2016 - 10:46

See attached file


Pedro J. Hernández - Reply to Referee Report 2
July 25, 2016 - 12:31

see attached file


Anonymous - Assessment for the paper 2016-25
July 29, 2016 - 12:07

Attached is my assessment for the Discussion Paper No. 2016-25,
"Reassessing the Link Between Firm Size and Exports".

Best regards.


Pedro J. Hernández - Response to Reader
August 02, 2016 - 08:31

see attached file