Does internationalization foster firm performance

Abstract

The research in this dissertation concerns the impact of internationalization of business activities on several dimensions of firm performance. We show that the productivity ranking by trade status of Dutch manufacturing firms in increasing order of productivity is: non-traders, importers, exporters and two-way traders. We find considerable heterogeneity in the productivity premia of trade along the firm size distribution. We find significant importer productivity premia for all firm size classes, but a clear pattern in the magnitude of the premia by size group does not emerge. Exporter premia tend to decrease in firm size. The results point in the direction of self-selection of more productive manufacturing firms into importing, particularly for firms that did not trade altogether prior to the import start and for build-up periods of two and three years towards the import start. We do not find evidence that firms become more productive after an import start because of learning effects. We show that both the geographic component (what country is the import from) and the intensity component (what type of good is imported) are factors affecting the diffusion of efficiency gains embodied in imported goods. We show that increasing distance and decreasing levels of development of the origin economy negatively affect the diffusion of efficiency gains embodied in imported goods. Similarly, these gains are larger for technology intensive goods and smaller for unskilled-labor intensive goods. A diversified import portfolio is always positively associated with firm-level productivity. These findings imply that the use of the country of origin of imports as a proxy for the factor intensity, as is frequently done in the literature, is too general. From two existing theoretical models regarding firm heterogeneity and trade we derive the hypothesis that profit rates of exporters are lower than or equal to those of non-exporters. We take this hypothesis to the data and show that internationalization of firm activities is not heavily correlated with profit rates. We find largely insignificant or significantly negative trade premia of small magnitude. The negative trade premia seem to be related mainly to exporting rather than to importing and particularly to micro- and small firms. Our findings also consistently show that productivity is an important indicator for firm-level profitability. We do find some evidence suggesting that export starters in manufacturing sectors materialize higher profit margins in the longer run. We also investigate the export performance of firms participating in an export promotion program specifically designed to support small businesses in the early stages of their export involvement. Utilizing propensity score matching techniques, we show that exports generated by participants do generally rise in the years after program entry, however, export growth does not outpace that of comparable, but unsupported firms. There is some evidence suggesting that export shares in sales rise faster among program entrants, particularly in the first and second year after participation. Furthermore, we present evidence suggesting that the probability of becoming a permanent exporter is higher for participants relative to beginning exporters that did not receive support from the program.

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