Importing and Firm Export Performance: New Evidence from South Africa

• Author: Asha Sundaram,Lawrence Edwards,Marco Sanfilippo
• Published date: 01 January 2018
• Date: 01 January 2018
• DOI: http://doi.org/10.1111/saje.12154

IMPORTING AND FIRM EXPORT PERFORMANCE: NEW

EVIDENCE FROM SOUTH AFRICA

LAWRENCE EDWARDS*, MARCO SANFILIPPO

†

AND ASHA SUNDARAM

‡

Abstract

This article uses f‌irm-level data from company income tax and customs declarations from South

Africa to analyse the complementary relationship between direct access to imported intermediate

inputs and f‌irm exports in the manufacturing industry. There are two main f‌indings. The f‌irst is

on f‌irm heterogeneity, showing that f‌irms that import and export consistently demonstrate pre-

miums in terms of productivity, employment, wages and capital intensity in production com-

pared to f‌irms that do not trade, or only export or import. The second supports the hypothesis

that importing raises exports, especially if inputs are sourced from advanced economies.

JEL Classif‌ication: F14, D24, F61

Keywords: Imports, exports, productivity, f‌irms, South Africa

1. INTRODUCTION

Exporting provides f‌irms an opportunity to grow by exploiting international markets,

spurring growth and dynamism in the domestic economy. However, exporting is diff‌icult

and rare. Bernard, Eaton, Jensen and Kortum (2003) show that exporting is rare among

USA f‌irms and that US exporters are more productive and larger than their domestic

counterparts. The literature spawned by Melitz (2003) argues that only the most produc-

tive f‌irms can cover the signif‌icant f‌ixed costs of exporting, leading to a tight relationship

between f‌irm productivity and exporting. In addition, Verhoogen (2008) argues that

exporting from developing countries often involves upgrading product quality to appeal

to consumers in advanced countries. This in turn involves employing better quality and

a greater variety of intermediate inputs in production.

In this paper, we argue that foreign intermediate inputs sourced via imports may be

important for f‌irm exports, particularly in developing countries. The variety and character-

istics of imported goods are a measure of the knowledge that f‌lows into a country from

abroad, resulting in new learning opportunities related to the use of new products. Imports

can provide f‌irms in developing countries with access to cheaper, better quality and a wider

* Corresponding author: Professor, University of Cape Town, Economics, Rondebosch, Cape

Town, Western Cape, South Africa 7701. E-mail: lawrence.edwards@uct.ac.za

†

University of Bari, Bari, Italy and University of Antwerp, Antwerpen, Belgium.

‡

Department of Economics, University of Auckland, Auckland, New Zealand.

We would like to thank the reviewers for their excellent comments as well as participants at

the Economic Society of South Africa conference, 2–4 September 2015, and the South Afri-

can National Treasury/UNU-WIDER/South African Revenue Services Policy seminar on

‘Firm-level analysis’, 21 January 2016. Support from UNU-WIDER is gratefully acknowl-

edged. The South African National Research Foundation (NRF) (Unique Grant No.: 93648)

provided additional support to cover subsistence and travel.

V

C2017 UNU-WIDER. South African Journal of Economics published by John Wiley & Sons Ltd on behalf of

Economics Society of South Africa.

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which

permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not

used for commercial purposes. doi: 10.1111/saje.12154

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South African Journal of Economics Vol. 86:S1 January 2018

South African Journal

of Economics

variety of intermediate inputs, including the foreign technology embodied in them that

may be more advanced than locally available technology. By facilitating the access to inter-

mediate inputs and machinery, openness to trade represents the most traditional channel

for knowledge and technological acquisition (Grossman and Helpman, 1991).

The use of imported inputs might increase the likelihood of exporting in three ways.

First, imported inputs may be associated with increases in f‌irm productivity (Schor,

2004; Broda and Weinstein, 2006; Amiti and Konings, 2007; Kasahara and Rodrigue,

2008; Topalova and Khandelwal, 2011; Halpern et al., 2015). Second, access to lower

cost imported inputs may boost export revenue (Bas and Strauss-Kahn, 2014). These

channels boosts f‌irm prof‌itability, which can increase existing exports and allow f‌irms to

bear the f‌ixed costs of accessing new product markets. Third, imported inputs may allow

f‌irms to upgrade product quality, due to the introduction of more sophisticated inputs in

the production process. Importing goods that are different from one’s own exports is

likely to generate a higher variety in external knowledge f‌lows and induce incremental

innovation, which in turn should allow developing countries to produce more sophisti-

cated goods (Puga and Tref‌ler, 2010). This might not only encourage the creation of

new varieties for the domestic market (Goldberg et al., 2010), but could also allow f‌irms

to introduce higher quality goods for the export market (Kugler and Verhoogen, 2009).

Existing evidence on the role of importing on f‌irm export performance seems to sup-

port previous claims. A study by Bas (2012) on Argentinean f‌irms f‌inds a positive effect

of input trade liberalisation on the entry of f‌irms into exporting. Some other recent evi-

dence has shown that f‌irms that import, and especially those importing more and higher

quality varieties, end up exporting more at both the intensive and extensive margins (Bas

and Strauss-Kahn, 2014; Feng et al., 2016). Other studies focus on the quality and vari-

eties of imported inputs. Procuring more sophisticated inputs, especially those originat-

ing from advanced markets, positively affects both the propensity to export (Manova and

Zhang, 2012) and the quality of exports (Fan et al., 2015).

In light of the above, with this paper we aim to analyze the association between

imports and export performance of South African manufacturing f‌irms. Boosting exports

has been identif‌ied as a policy priority of the government in its National Development

Plan 2030 (NDP, 2013). Over the past decade, South Africa’s exports have underper-

formed (Purf‌ield et al., 2014) and have lagged other emerging economies in the upgrad-

ing of export sophistication (Hausmann and Klinger, 2008). Key constraints identif‌ied

include lack of productivity of domestic f‌irms, infrastructure bottlenecks and continued

barriers to regional trade (Purf‌ield et al., 2014). Tariff and other barriers to imported

inputs have also restricted export growth and diversif‌ication, although tariff reform from

the early 1990s has alleviated much of this constraint (Edwards and Lawrence, 2008).

In this paper, we take advantage of detailed transaction-level data from South Africa on

f‌irm exports and imports matched with f‌irm-level data from company tax records. The data

covers the period 2009–2013. This data allow us to conf‌irm the premium enjoyed by export-

ers and indeed, f‌irms that both import and export, in a wide array of f‌irm characteristics and

outcomes. In addition, we examine the relationship between importing and exporting in the

data in a more rigorous empirical analysis that controls for f‌irm characteristics like size and

technique of production (capital and skill-intensity). Our results corroborate existing evidence

that importing has positive implications for exporting (Bas and Strauss-Kahn, 2014). We

f‌ind that imports from advanced economies prove to be relatively more relevant determinants

of exporting, both at the intensive and the extensive margins (the value of exports and the

80 South African Journal of Economics Vol. 86:S1 January 2018

V

C2017 UNU-WIDER. South African Journal of Economics published by John Wiley & Sons Ltd on behalf of

Economics Society of South Africa.