Workshop on Trade and Poverty: Conceptual and Methodological Approaches

1. WORKSHOP ON TEACHING AND RESEARCH OF TRADE AND POVERTY: Conceptual and Methodological approaches and Policy Implications Peacock, Hotel, Dar-es-Salaam, Tanzania,19-23 November 2007 Manufacturing Export Performance, Macro-economic Adjustment and the Role of Networks By Takawira Mumvuma Economics Department University of Zimbabwe

2. IMPORTANCE OF STUDY • The objective of this study was to assess the extent of changes in exporting patterns over time, by sector and by destination; • Understanding these firm level export responses was crucial to the evaluation of the success or failure of the policy reforms; and • In particular focusing on firm level characteristics and networks allowed the study to capture the great variation among firms in responses to the new economic environment.

3. DATA CHOICE & DATA ANALYSIS METHODS • The firm level data are suitable to study the impact of liberalization on firm export performance and do some descriptive and econometrics analysis using this micro level data; • In our regression analysis the logit and tobit models were preferred because our censored regression models could be estimated directly using the maximum likelihood approach-the so called two-step estimation procedure; • This procedure is the most preferable if in the model to be estimated there are some variables that affect the chance of being an exporter for example, differently from the percentage of output exported. The network variables are good example in this case; and • Also traditional ordinary least squares analysis of censored data gives biased estimator (s)

4. MAIN RESEARCH FINDINGS TRADE PATTERNS BASED ON THE FIRM LEVEL DESCRIPTIVE DATA MOVEMENTS IN EXPORTED VALUE 1991-1995

5. MOVEMENTS IN EXPORTED VALUE 1991-1995 • Initially after a decline in 1992, and a slight recovery in 1993, exports pick up in 1994 and 1995; • Between 1991 and 1995 the index for all firms increased from 100 to 145 in 1995, implying an average annual firm level increase in exported value in real terms of 7.7%; • The value exported by small firms (those employing up to 100 employees) increases most rapidly: it tripled between 1991 and 1995; • For large firms (those employing more than 100 employees) it increased by approximately 6.4% each year; • What is important to note is the fact that the most important contribution to Zimbabwe’s export receipts is generated by the large firms since the total value exported by these firms is about 50 to 60 times as much as that of the small firms.

6. FIRM TRANSITION RATES IN THE EXPORTMARKET 1991-1995

7. FIRM TRANSITION RATES IN THE EXPORTMARKET 1991-1995 • On average, each year 3% of the non-exporting firms becomes an exporter while 2% of the exporting firms ceased exporting the following year; • However, most firms (87%) did not change their exporting status between 1991 and 1995: 77% remained non-exporters, 10% continued to be an exporting firm and 13% made at least one switch; • Of interest are the transition figures for 1993-1994-they show that a substantial number of non-exporting firms became exporters (6.8%), while very few exporting firms (less than 1%) stopped being exporters the next year; • The implication is that that during this period Zimbabwean firms easily switched in and out of exporting, a process that could also have been hastened by the firms’ survival motive; • It can also be concluded that the large number of small and large firms that made the transition to exporting in 1993-1994 and the relatively small number of firms that quit exporting, is a sign that Zimbabwean firms have no problems in breaking into export markets and remain there.

8. PERCENTAGE OF OUTPUT EXPORTED 1991-1995

9. PERCENTAGE OF OUTPUT EXPORTED 1991-1995 • In terms of the actual proportion of output which is exported; on average firms export less than 2% of their output; • Large differences between small and large firms again exist. Whilst the percentage exported by small firms declined until 1995 in which year it nearly doubles, that of large firms increased steadily from year to year • Most firms do not export at all, so that on average only 2% of output is sold on foreign markets; • Exporting firms sell approximately 15% of their output abroad with a clear variance between small and large firms; • Whilst small exporting firms sell about 12% of their output abroad, large firms sell more than a quarter of their production.

10. PERCENTAGE OF FIRMS EXPORTING BY SECTOR 1991-1995

11. PERCENTAGE OF FIRMS EXPORTING BY SECTOR 1991-1995 • Indications are that at the sectoral level, firms were responsive to the changes in the relative prices in favor of exports; • The wood and textile sub-sectors are remarkable in this respect, as the percentage of textile firms exporting doubled while the percentage of wood firms exporting more than tripled between 1991 and 1995; • Although the percentage of exporting firms is still the lowest in the wood sub-sector, the wood firms that do export are generally large firms; • At the same time, for all sectors it is true that a larger proportion of the large firms are exporters than of the small firms.

12. LINK BETWEEN NETWORKS AND THE PERCENTAGE OF OUTPUT EXPORTED • Statistical results shows that firms which are partly or wholly foreign owned export a larger fraction of their output: on average 3.2% between 1993 and 1995 against 1.5% for firms with Zimbabwean owners only; • This also holds for firms that are a subsidiary of a multinational corporation. They export 5.9% on average against 1.2% for other firms.

13. ETHNIC DISTRIBUTION OF FIRM OWNERSHIP AND DESTINATION OF EXPORTS

14. ETHNIC DISTRIBUTION OF FIRM OWNERSHIP AND DESTINATION OF EXPORTS • Cultural background may serve as a network variable and indeed results in the table above seems to confirm this; • It is true that European owners are more internationally oriented and export especially to white-dominated markets of Europe, the United States and South Africa; • That it is easier to trade with people of a similar cultural background is confirmed by the fact that African owners specialize in trading with customers in other African countries; • But Asians are found not to export to Asia, while they are over-represented in exports to Europe and the United States. Why is this so?

15. DETERMINANTS OF EXPORT PERFORMANCE IN THE MANUFACTURING SECTOR: RESULTS BASED ON REGRESSION ANALYSIS Tobit regression results based on the decision to export and output exported

16. DETERMINANTS OF EXPORT PERFORMANCE IN THE MANUFACTURING SECTOR: RESULTS BASED ON REGRESSION ANALYSIS Logit regression on whether a firm exports within the region or to the world market

17. LIMITATIONS OF THE STUDY AND AREAS FOR FURTHER RESEARCH • A major weakness of the study was its emphasis on the quantitative determinants of export performance at the expense of some important qualitative explanation of the modest export supply response registered during the reform period; • In terms of research this calls for detailed micro level case studies in order to capture this more qualitative determinants of firm level export performance; • From a policy perspective, it may also be interesting to investigate the complementary policy measures that may be most effective in dealing with the problem of uncertainty, including measures aimed at improving the government’s credibility and support for trade policy reforms.