Using a panel data quantile regression approach, this study analyses the linkage between export profit growth when using OLS.. However, when using a quantile approach, export participatio
Trang 1This article was downloaded by: [University of Waikato]
On: 14 January 2014, At: 18:22
Publisher: Routledge
Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK
Applied Economics Letters
Publication details, including instructions for authors and subscription information:
http://www.tandfonline.com/loi/rael20
Exports and profitability: a note from quantile regression approach
Huong Vua, Mark Holmesa, Steven Lima & Tuyen Trana
a
Department of Economics, Waikato University, Hamilton, New Zealand Published online: 14 Jan 2014
To cite this article: Huong Vu, Mark Holmes, Steven Lim & Tuyen Tran (2014) Exports and profitability: a note from quantile
regression approach, Applied Economics Letters, 21:6, 442-445, DOI: 10.1080/13504851.2013.866197
To link to this article: http://dx.doi.org/10.1080/13504851.2013.866197
PLEASE SCROLL DOWN FOR ARTICLE
Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained
in the publications on our platform However, Taylor & Francis, our agents, and our licensors make no
representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever
or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content
This article may be used for research, teaching, and private study purposes Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any
form to anyone is expressly forbidden Terms & Conditions of access and use can be found at http://
www.tandfonline.com/page/terms-and-conditions
Trang 2Exports and profitability: a note from
quantile regression approach
Huong Vu*, Mark Holmes, Steven Lim and Tuyen Tran
Department of Economics, Waikato University, Hamilton, New Zealand
Studies of the linkage between exports and profitability often use mean
regres-sion approaches and focus only on European countries Using a panel data
quantile regression approach, this study analyses the linkage between export
profit growth when using OLS However, when using a quantile approach, export
participation is found to be positively related to profitability for those firms with
high profit growth but negatively related for those firms with low profit growth
This might suggest that the productivity advantages of exporters with low profit
growth are absorbed by costs relating to trading activities in overseas markets
I Introduction
Since the ground-breaking study of Bernard and Jensen
perfor-mance’, many empirical studies have shown that the
rea-son for exporters having higher productivity than
nonexporters stems from a self-selection mechanism
Such work has led to a further interesting question that
has drawn the attention of some recent studies in
interna-tional trade Do exporters with the advantage of higher
productivity gain higher profitability, or is this advantage
absorbed by extra costs relating to trading activities in
overseas markets? The motivation for us to pursue this
topic stems from several reasons First, as noted by
Wagner (2011), considering profitability instead of
pro-ductivity is very important because profitability reflects
the success offirms and the first priority of firms is profit
maximization rather than productivity Second, some
stu-dies have found export participation to have a positive
impact, but other studies indicate a negative or
insignif-icant relationship betweenfirm exporting and profitability
Grazzi,2011) Third, all the investigations carried out so far are in the context of European countries (Wagner, 2012) Hence, no generalized inferences can be made
In terms of methodology, existing regression ana-lysis of the relationship between profitability and exports typically relies on OLS or least absolute deviation methods and so only estimate the marginal effects of the covariates on the conditional mean (median) function of profitability Such estimates sidestep the potentially heterogeneous patterns of the influence of the covariates in the conditional distribution, and this approach provides limited infor-mation about the relationship Using a quantile regression approach for panel data, this research therefore aims to bring empirical evidence of the role of exporting on profitability in a transitional
current literature The quantile approach has further advantages The results are robust to the existence of
offer a detailed picture of the relationship In our
*Corresponding author E-mail:vhv1@waikato.ac.nz
Present affiliation for Tuyen Tran: VNU University of Economics and Business, Hanoi, Vietnam
Vol 21, No 6, 442–445, http://dx.doi.org/10.1080/13504851.2013.866197
Trang 3case, we have evidence of a nonlinear relationship
between exports and profitability This has the
poten-tial to reconcile the ambiguity in the earlier studies
The remainder of the article is as follows Section II
presents data sources and methodology Section III
dis-cusses the empirical results Thefinal section summarizes
II The Data and Methodology
The data source
con-ducted in 2005, 2007 and 2009 as collaboration between
the Institute of Labour Science and Social Affairs,
University of Copenhagen The original dataset included
2821 enterprises which were interviewed in 2005 The
The dataset has some inherent advantages This is a
uniquely rich dataset of manufacturing SMEs that covered
10 provinces in 3 regions in Vietnam It also covers all the
major manufacturing sectors namely food processing,
wood products and other sectors Furthermore, the main
information on export status of the enterprise and economic
indicators as well asfirm characteristics is contained in the
dataset Hence, the data enable us to conduct a test of the
linkage between export status and profitability.2
Methodology
Previous studies often use OLS estimation to consider the
role of export status onfirm profit growth (e.g Fryges and
mean regression techniques have never been satisfactory
approaches when considering heterogeneous populations
To consider the potential heterogeneous impacts, we specify
the qth quantile (0 < q < 1) of conditional distribution of the
dependent variable, given a set of variables Xi,as follows:
where yitis the profit growth of firm i through time and uit
represents for unobservable factors such as products
quality and management quality A vector of independent
variable, export participation, is captured by a dummy
variable to minimize measurement errors We also con-sider other types of exporting activities Continuous exporters arefirms that export through the study period, whereas starting exporters are enterprises that do not
addition, the behaviour of SMEs may be different among various sectors, kinds of ownership and locations
control for all these by using a dummy for low technol-ogy sectors, a dummy for household ownership and an urban dummy
Cameron and Trivedi (2009) show that estimation of Equation 1 based on the qth quantile regression involves minimizing the absolute value of the residual using the following objective function:
β
i¼1
yit xitβq
i :y it x i β qjyit xitβqj
i:y it <x it β ð1 qÞjyit xitβqj
(2)
A series of studies have discussed the problem of
these approaches According to Canay (2011), the estima-tion procedure comprises two stages In thefirst stage, the conditional mean of uitis estimated In the second stage, this component is subtracted from the original dependent variable, and then the standard estimation of quantile regression is used
III Empirical Results
average regression approaches There is a statistically
results in the linkage with profit growth have also been found when using export participation at 1
This data has been kindly shared by Prof John Rand
2
Variables with current prices are deflated to 1994 prices using GDP deflators to avoid biases that might arise from inflation
3
The direct information of import status is not available Export intensity is also unavailable in 2007 The caveats of data prevent us from considering these covariates in the regression
4
We also usefirm size squared and firm age squared to capture the nonlinear nature of the linkages
Trang 4different stages Fixed effect estimations do not
pro-vide qualitatively different results.5
A totally different picture emerges when using quantile
regression As displayed by the top half ofTable 1and the
top left graph in Fig 1, there is a positive relationship
between export participation and profit growth at the 70th
and 80th percentiles, but a negative linkage is observed
between export participation with enterprises having low
profit growth at the 10th percentile These results imply
that the average approach has clouded the role of export
findings here suggest that the productivity advantages of
having high profit growth at 70th and 80th percentiles For
firms with low profit growth at 10th percentile, these
advantages are possibly absorbed by costs relating to
trading activities on overseas markets such as entry costs
and advertisement costs Our results hence move towards
reconciling the mixedfindings of previous results in the
literature (See Wagner (2012) for a review) If export
participation is replaced by each exporting activity in
turn, then the lower half ofTable 1reports an insignificant
growth However, the negative and significant links
quantiles are still being observed in the case of both continuous and starting exporters This is further demon-strated using the confidence intervals shown inFig 1
are generally consistent with other international empirical studies For example, wefind that a higher profit growth is associated withfirms of a larger size In addition, while innovators gain a higher profit growth than
growth in profitability compared to firms with less busi-ness experience
IV Summary
previous studies of the role of exporting onfirms’ profit growth, we argue that the empirical linkage between exporting and profit growth has been clouded by the use of a mean approach Using an OLS approach, our results do not show a linkage between export participation and the growth of profit estimates However, quantile
Table 1 Exports and profit growth
Variables
OLS
Fixed effect quantile regression
Export participation and profit growthI
Export −0.02 −0.09*** −0.04 −0.02 −0.02 −0.01 0.02 0.05* 0.09* 0.06
(0.035) (0.050) (0.030) (0.015) (0.017) (0.019) (0.021) (0.024) (0.034) (0.037) Size in log 0.02* −0.01 0.01*** 0.02** 0.02** 0.02** 0.02** 0.03** 0.04** 0.05**
(0.008) (0.009) (0.006) (0.004) (0.003) (0.003) (0.004) (0.004) (0.005) (0.010) Firm age −0.01** −0.01** −0.01** −0.01** −0.01** −0.01** −0.01** −0.01** −0.01** −0.01**
(0.002) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.002) Innovation dummy 0.03* 0.02 −0.00 0.00 0.00 0.01*** 0.02* 0.02** 0.02** 0.03*
(0.011) (0.012) (0.008) (0.007) (0.005) (0.005) (0.006) (0.006) (0.008) (0.014) Constant 0.13** −0.19** −0.08** −0.03* 0.01 0.04** 0.09** 0.14** 0.23** 0.43**
(0.032) (0.029) (0.019) (0.015) (0.013) (0.011) (0.013) (0.013) (0.022) (0.036) Other exporting activities and profit growtha
Continuous exporters −0.06 −0.16 −0.13*** −0.07*** −0.07*** −0.01 0.01 0.02 0.07 −0.01
(0.062) (0.101) (0.076) (0.039) (0.044) (0.051) (0.052) (0.067) (0.079) (0.116) Starting exporters −0.04 −0.03 −0.04 −0.05*** −0.06*** −0.04*** −0.04 0.01 0.00 −0.06
(0.046) (0.069) (0.034) (0.027) (0.033) (0.026) (0.044) (0.049) (0.051) (0.074) Exporting stoppers −0.11 −0.17 −0.06 −0.05 −0.02 −0.03 −0.03 0.04 0.02 0.00
(0.071) (0.112) (0.092) (0.042) (0.036) (0.029) (0.051) (0.056) (0.056) (0.075) Notes: Bootstrap SEs in parentheses with 2000 replications *** significant at 10%, * at 5% and ** at 1% OLS SEs are robust Model I controls forfirm size squared, firm age squared, year 2009, urban dummy, a dummy for household ownership and a dummy for low technology sectors The number of observations is 7612
a
This model also controls for other independent variables as Model I
5
The results are available on request
Trang 5participation has a positive association for those firms
with high profit growth at the higher quantiles but a
negative link with low profit growth for those firms at
the lower quantiles
Acknowledgement
The author Huong Vu is grateful for the helpful feedback
from Prof Canay regarding this article
Funding
support from the Vietnamese government
References
Bernard, A B and Jensen, J B (1995) Exporters, jobs, and
wages in US manufacturing: 1976–1987, Brookings Papers on Economic Activity, Microeconomics, 1995,
67–119
Buchinsky, M (1994) Changes in the US wage structure 1963–
1987: application of quantile regression, Econometrica:
Journal of the Econometric Society, 62, 405–58
Cameron, A C and Trivedi, P K (2009) Microeconometrics
Using Stata, Vol 5, Stata Press, College Station, TX
Canay, I A (2011) A simple approach to quantile regression for panel data, The Econometrics Journal, 14, 368–86 Fryges, H and Wagner, J (2010) Exports and profitability: first evidence for German manufacturing firms, The World Economy, 33, 399–423
Grazzi, M (2011) Export andfirm performance: evidence on productivity and profitability of Italian companies, Journal
of Industry, Competition and Trade, 12, 413–44
Kizhakethalackal, E T., Mukherjee, D and Alvi, E (2013) Quantile regression analysis of health-aid and infant mor-tality: a note, Applied Economics Letters, 20, 1197–201 Koenker, R (2004) Quantile regression for longitudinal data, Journal of Multivariate Analysis, 91, 74–89
Lu, J W and Beamish, P W (2006) SME internationalization and performance: growth vs profitability, Journal of International Entrepreneurship, 4, 27–48
Rand, J and Torm, N (2011) The benefits of formalization: evidence from Vietnamese manufacturing SMEs, World Development, 40, 983–98
Vu, H., Lim, S., Holmes, M et al (2013) Firm exporting and employee benefits: first evidence from Vietnam Manufacturing SMEs, Economics Bulletin, 33, 519–35 Wagner, J (2007) Exports and productivity: a survey of the evidence from firm‐level data, The World Economy, 30, 60–82
Wagner, J (2011) Exports, imports and profitability: first evi-dence for manufacturing enterprises, Open Economies Review, 23, 747–65
Wagner, J (2012) International trade and firm performance: a survey of empirical studies since 2006, Review of World Economics, 148, 235–67
Quantile Quantile impact 90% upper CI
Export participation and profit growth
Continuous exporters and profit growth
Starting exporters and profit growth
Exporting stoppers and profit growth
90% lower CI OLS impact
Quantile Quantile impact 90% upper CI
90% lower CI OLS impact
Quantile Quantile impact 90% upper CI
90% lower CI OLS impact
Quantile Quantile impact 90% upper CI
90% lower CI OLS impact
Fig 1 Slope and 90% coefficient intervals for quantile treatment regression