Abstract
This chapter is an attempt to understand the nature of productivity heterogeneity and firm level export market participation in the Indian manufacturing industry. We test two alternative hypothesis first, self-selection of most productive firms into the export market and second, learning by exporting, where firms become more productive once they enter the export market. We also observe the role of R&D investment on export market participation of firms. The paper employs firm level data obtained from the Centre for Monitoring Indian Economy (CMIE) for the period 1990–2009 for analysis. Firm level Total factor productivity is estimated using Jevinsohn and Petrin (2003 Rev Econ Stud 70:317–341) method. Preliminary analysis indicates that exporting firms are more productive than the non-exporting firms in the Indian industry. However, the extent of this productivity difference is not very large compared to other countries. Study reports self-selection of more productive firms into the export market for the period from 1990 to 1999. Investment in R&D is important for the decision of the firms to enter the export market 1999–2009. We found no evidence in support of learning by exporting for the period from 1990 to 2009. However, continued participation in the export market and the intensity of exporting is associated with growth in productivity, indicating the presence of learning by exporting for the period from 2000 to 2009.
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Notes
- 1.
- 2.
Roberts and Tybout (1997) shows that firms the entry decision of a firm into the export market largely depends on the ability to cover the sunk cost of exporting. In the case of learning by exporting, one view is that exporters acquire knowledge of new production methods, inputs, and product designs from their international contacts, and this learning induces higher productivity for exporters relative to their more insulated domestic counterparts. See Clerides et al. (1998) for more discussion on this.
- 3.
- 4.
- 5.
See Goldberg et al. (2009).
- 6.
Which is in fact discussed in the trade literature as import effect (Topalova and Khandelwal 2011).
- 7.
See Bernard and Jensen (1999).
- 8.
See Melitz (2003) for detailed discussion.
- 9.
See Levinsohn and Petrin (2003) for detailed derivation.
- 10.
See Levinsohn and Petrin (2003) for detailed discussion of the estimation of production function.
- 11.
The estimation of revaluation factor involves following three underlying assumptions. First, given the 25 years life duration of capital and the selected base year 2004–05 (maximum number of observation), it is presumed that the no firm has the capital of vintage earlier than 1980–1981 and firms incorporated this year have employed the capital of vintage of the same year. We take the life tenure of capitals employed in mining sector published by in the ‘National Accounts Statistics-Sources and Methods, 2007’ by the Central Statistical Organisation (CSO) New Delhi. Second, Price of capital is also assumed to have changed at a uniform rate from 1980–81 or the year of incorporation, whichever is latter, up to 2004–05 for all the firms. This value is estimated by constructing a price index for the Gross Capital Formation for the mining and quarrying sector compiled from the various volumes of National Account Statistics of India. Third, investment is assumed to have changed at a uniform rate during 1980–81 and 2004–05 for the firms incorporated in same years. Here the growth rate of gross fixed capital formation in manufacturing sector at 1993–94 price is assumed to apply to all firms.
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Thomas, R., Narayanan, K. (2016). Productivity Heterogeneity and Export Market Participation: A Study of Indian Manufacturing Firms. In: De Beule, F., Narayanan, K. (eds) Globalization of Indian Industries. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-10-0083-6_5
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