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Introduction Methodology Results Robustness Conclusion

Import Uncertainty and Export Dynamics

Mariana Vijil1 Laurent Wagner2 Martha T. Woldemichael3

1World Bank

2FERDI

3IMF

7th IMF-WB-WTO Trade Conference

June 25, 2019


Outline

1 Introduction

2 MethodologyDataEconometric Model

3 ResultsBaseline ResultsHeterogeneity

4 RobustnessMeasurementOmitted Variables

5 Conclusion


Motivation

Timeliness and supply chain reliability matter in a world ofGVCs:

I Most exporting firms need to import intermediate goods.I Unexpected delays in the provision of foreign inputs disrupt

production ⇒ missed delivery deadlines, reputational costs.

How does uncertainty in the time to clear imported inputsat the border affect manufacturing firms’ exportperformance?

I Do unpredictable import clearance times prevent firms fromentering new export markets?

I Do they undermine the export survival of firms alreadyoperating in foreign markets?


Related Literature

Negative effects of border clearance times on trade:I Imports: Hummels (2001), Hummels and Schaur (2013),

Clark et al. (2016).I Exports and diversification: Djankov et al. (2010), Li and

Wilson (2009), Volpe Martincus et al. (2015).

Imported inputs enhance export outcomes by boostingTFP (Amiti and Konings, 2007; Topalova and Khandewal,2011):

I Variety channel: access to a diversified range ofintermediate inputs.

I Quality channel: access to the foreign technology embodiedin imported inputs.


Related Literature (cont’d)

Imported inputs promote export performance by:

I Supporting export diversification at the intensive andextensive margins: Bas (2012), Bas and Strauss-Kahn(2014), Feng et al. (2016), Edwards et al. (2017).

I Raising export survival in foreign markets: Lopez (2006),Wagner (2012).

I Enhancing the quality of exports: Kugler and Verhoogen(2009, 2012), Manova and Zhang (2012).


Contributions

Novel measure of import uncertainty accounting for theheterogeneity in border clearance times across firms.⇒ New source of domestic trade costs.

Emphasis on the granular origins of aggregate tradeperformance.⇒ Use of firm-level information to derive country-sectorlevel indicators.


Outline

1 Introduction




5 Conclusion


The Import Process

Source: Authors’ elaboration.


Data

Data: Import Uncertainty

World Bank Enterprise Surveys, 2006-16.

Interquartile range of the number of days required to clearimported inputs through Customs at thecountry-sector-year level.

16,475 manufacturing firms in 5 sectorsI Food, beverage and tobaccoI Textile and leatherI WoodI Minerals, metals and chemicalsI Advanced products

Stylized facts:I 30% of manufacturing firms are direct exporters.I Among these, 74% import foreign inputs.I Exporting firms tend to be older, larger and more

productive.


Data

Data: Import Clearance Times Across Regions

Source: Authors’ elaboration based on the World Bank Enterprise Surveys.


Data

Data: Export Dynamics

Exporter Dynamics Database, 1997-2014,origin-destination-sector-year level.

Year t− 1 t t+ 1 t+ 2 t+ 3

Exportert YesEntrantt No YesExitert Yes No1st year surviving entrantt No Yes Yes2nd year surviving entrantt No Yes Yes Yes3rd year surviving entrantt No Yes Yes Yes Yes


Data

Data: Export Dynamics (cont’d)

LHS variables of interest:

I Firm entry ratet = # of entrantst / # of exporterst

I Firm exit ratet = # of exiterst / # of exporterst−1

I Entrant 1st year survival ratet = # of 1st year survivingentrantt / # of entrantst

I Entrant 2nd year survival ratet = # of 2nd year survivingentrantt / # of entrantst

I Entrant 3rd year survival ratet = # of 3rd year survivingentrantt / # of entrantst


Data

Export Dynamics: Stylized Facts

Source: Authors’ elaboration based on the World Bank Enterprise Surveys and the ExporterDynamics Database.


Econometric Model

Model

We estimate the following model by PPML:

FirmDynamicsijkt = δ0 ln(Uncertaintyikt) + δ1Xikt+∑s

δ2sWij + δ3EIAijt + δ4Tariffijkt + δ5Fit

+δ6Pjt +∑

(αiOi + βjDj + γkSk + θtTt) + εijkt

Xikt: export intensity, import penetration, experience, size,TFP.

Wij : contiguity, distance, colonial relationship dummy.

Fit and Pit: GDP per capita, cost of business start-upprocedures.

Oi, Dj , Sk and Tt: exporter-, importer-, sector- andyear-specific effects.


Outline

1 Introduction




5 Conclusion


Baseline Results

Baseline Results

Firm Entry Firm Exit First yr. Second yr. Third yr.Rate Rate Survival Survival Survival(1) (2) (3) (4) (5)

Log import uncertainty 0.000 0.000 -0.040*** -0.059*** -0.072**(0.006) (0.007) (0.014) (0.021) (0.036)

Log direct imports (%) -0.014 -0.004 -0.026 -0.020 0.061(0.011) (0.015) (0.031) (0.053) (0.093)

Log direct exports (% sales) -0.027*** -0.032*** 0.105*** 0.113*** 0.088(0.005) (0.013) (0.028) (0.040) (0.062)

Log experience 0.001 -0.004 0.115*** 0.157*** 0.126(0.013) (0.016) (0.035) (0.058) (0.104)

Log nb. of employees -0.020* -0.027*** 0.081*** 0.117*** 0.132**(0.010) (0.009) (0.019) (0.029) (0.057)

Log TFP 0.043* -0.045** 0.175*** 0.308*** 0.269***(0.024) (0.019) (0.039) (0.063) (0.100)

Common border -0.033 -0.040 0.065* 0.068 -0.020(0.022) (0.027) (0.039) (0.059) (0.089)

Colony -0.079* -0.019 0.148** 0.219* 0.080(0.041) (0.041) (0.073) (0.112) (0.283)

Log distance 0.110*** 0.037*** -0.071*** -0.109*** -0.150***(0.009) (0.010) (0.018) (0.029) (0.051)

Trade agreement -0.063*** -0.035** 0.098*** 0.162*** 0.194**(0.016) (0.018) (0.033) (0.051) (0.082)

Log tariffs 0.008 0.012* -0.027** -0.028* -0.030(0.005) (0.006) (0.011) (0.017) (0.027)

Log exporter GDP cap. -0.075 0.056 -0.042 -0.182 2.706*(0.097) (0.117) (0.181) (0.260) (1.640)

Log importer GDP cap. 0.061 0.004 0.122 0.136 0.264(0.041) (0.049) (0.098) (0.152) (0.229)

Log exporter entry cost (% GNI) -0.021 -0.078* -0.141* -0.327*** 0.155(0.036) (0.043) (0.084) (0.121) (0.400)

Log importer entry cost (% GNI) 0.013 -0.013 -0.011 -0.021 -0.115(0.014) (0.018) (0.035) (0.054) (0.083)


Heterogeneity

Time-Sensitivity of Buyers

Is the adverse effect of import uncertainty on survival ratesmore pronounced for exports to high-income countries?

Assumption: Buyers in developed countries are particularlysensitive to delivery schedules.


Log import uncertainty: South-North Trade 0.009 0.011 -0.061*** -0.085*** -0.091**(0.007) (0.008) (0.016) (0.024) (0.041)

Log import uncertainty: South-South Trade -0.014 -0.022 0.020 0.029 -0.025(0.012) (0.015) (0.030) (0.000) (0.000)

High-income destination dummy = 1 0.005 0.009 -0.059*** -0.089*** -0.090**(0.007) (0.008) (0.016) (0.023) (0.040)


Heterogeneity

Time-Sensitivity of Export Industries

Are exports from time-sensitive industries more affected byimport uncertainty?

Sector-specific marginal effects of import uncertainty:


Manufacture of food, beverage and tobacco products 0.016 0.017 -0.082*** -0.104** -0.068(0.016) (0.019) (0.028) (0.043) (0.065)

Manufacture of textile and leather-related products 0.014 0.000 0.002 -0.070* -0.134**(0.012) (0.014) (0.027) (0.042) (0.063)

Manufacture of wood-related products -0.026* 0.024 -0.025 -0.042 -0.044(0.015) (0.017) (0.034) (0.047) (0.094)

Manufacture of minerals, metals and chemicals 0.032*** 0.011 -0.053** -0.040 0.020(0.011) (0.013) (0.025) (0.037) (0.068)

Manufacture of advanced products -0.030*** -0.034*** -0.039 -0.030 -0.155*(0.009) (0.012) (0.029) (0.047) (0.086)


Heterogeneity

Sunk Costs of Entry in Foreign Markets

Do sunk costs of entry mitigate the relationship betweenimport uncertainty and export dynamics?

(a) Firm Exit Rate (b) 1st Year Survival Rate


Outline

1 Introduction




5 Conclusion


Measurement

Uncertainty vs. Mean/Median Time to Import

Entrant First yr. Entrant Second yr. Entrant Third yr.Survival Rate Survival Rate Survival Rate

(1) (2) (3) (4) (5) (6)

Log import uncertainty -0.044** -0.054* -0.022(0.020) (0.032) (0.062)

Log mean time to import -0.021 0.010 -0.056 -0.013 -0.080 -0.142(0.023) (0.042) (0.037) (0.069) (0.071) (0.142)

(7) (8) (9) (10) (11) (12)

Log import uncertainty -0.047*** -0.068*** -0.047(0.016) (0.025) (0.047)

Log median time to import -0.009 0.025 -0.007 0.037 -0.066 -0.073(0.020) (0.026) (0.031) (0.045) (0.059) (0.082)

(13) (14) (15) (16) (17) (18)

Log import uncertainty -0.030* -0.024 -0.079*(0.017) (0.026) (0.042)

Log export uncertainty 0.005 0.010 -0.009 -0.002 0.043 -0.005(0.014) (0.016) (0.021) (0.024) (0.040) (0.045)

Log median time to export -0.004 0.012 0.004 0.026 0.048 0.180*(0.024) (0.027) (0.035) (0.040) (0.079) (0.093)


Omitted Variables

Documents to Import and LPI

# of documents required to import ⇒ cumbersomeadministrative formalities.

Timeliness of shipments in reaching their destinationwithin the scheduled or expected delivery time.

Firm Entry Firm Exit First yr. Second yr. Third yr.Rate Rate Survival Survival Survival

(1) (2) (3) (4) (5)

Log import uncertainty -0.004 -0.003 -0.036** -0.057*** -0.072**(0.006) (0.007) (0.014) (0.021) (0.036)

Log documents to import -0.082** 0.081 0.052 0.281 -0.526**(0.041) (0.053) (0.116) (0.178) (0.238)

(6) (7) (8) (9) (10)

Log import uncertainty 0.007 0.000 -0.045*** -0.074*** -0.090**(0.006) (0.007) (0.014) (0.022) (0.038)

Log LPI timeliness 0.047 -0.145 -0.033 -0.530 2.018(0.133) (0.168) (0.319) (0.488) (1.480)


Omitted Variables

Access to Finance

% of firms required to provide collateral to obtain a loan.

% of firms that needed a loan but did not apply due tocomplex application procedures, unfavorable interest rates,high collateral requirements, insufficient maturity and loansize, and anticipation of a bank rejection.


(11) (12) (13) (14) (15)

Log import uncertainty -0.000 0.003 -0.041*** -0.060*** -0.079**(0.006) (0.008) (0.015) (0.022) (0.036)

Log collateral (%) -0.034** 0.016 -0.060* 0.000 -0.040(0.016) (0.016) (0.031) (0.045) (0.070)

(16) (17) (18) (19) (20)

Log import uncertainty 0.000 0.001 -0.033** -0.037 -0.080*(0.006) (0.009) (0.016) (0.026) (0.045)

Log no loan application (%) -0.003 0.002 -0.023 -0.068** -0.108**(0.008) (0.009) (0.018) (0.028) (0.051)


Omitted Variables

Corruption

% of annual sales spent in informal payments or gifts topublic officials to “get things done”.

% of firms identifying business licensing and permits as amajor or very severe obstacle ⇒ quality of firms’interaction with public officials.


(21) (22) (23) (24) (25)

Log import uncertainty 0.004 -0.001 -0.039*** -0.061*** -0.051(0.006) (0.008) (0.015) (0.022) (0.037)

Log bribes (% annual sales) -0.008 0.020* 0.012 0.003 -0.006(0.009) (0.012) (0.027) (0.039) (0.065)

(26) (27) (28) (29) (30)

Log import uncertainty -0.001 -0.010 -0.033* -0.045* -0.105**(0.006) (0.010) (0.017) (0.025) (0.045)

Log licensing obstacle (%) -0.006 -0.008 -0.031** -0.027 -0.073*(0.007) (0.007) (0.013) (0.019) (0.043)


Outline

1 Introduction




5 Conclusion


Key Takeaways

We quantify a new source of trade costs constraining thecapacity of firms to import.

Uncertainty in import clearance times impacts neither theentry nor the exit rate of manufacturing firms indeveloping countries . . .

. . . but translates into lower survival rates for newexporters, reducing the number of firms that continue toserve the foreign market beyond their first year of entry.

This effect grows larger over time as input-importingexporters bear the increasing reputational costs associatedwith missed delivery deadlines.


Key Takeaways (cont’d)

This effect is mainly driven by South-North trade, possiblyreflecting the time-sensitivity of buyers located inhigh-income countries.

The export dynamics effects of import uncertainty areheterogeneous across export industries.

Sunk costs of entry in foreign markets attenuate thenegative effect of uncertainty on export survival rates asfirms delay exiting the export market.


Policy Recommendations

Measures:

I Address coordination failures among public and privateactors involved in the movement of goods ⇒ IT andelectronic interconnection facilitate collaboration andinformation sharing.

I Implement WTO Trade Facilitation Agreement: provisionson advance rulings and border agency and Customscooperation.

I Support the modernization of border agencies ⇒ adoptionof risk management systems to reduce physical inspectionsfor low-risk consignments.