Abstract
This paper analyses the role of a firm’s home market performance in its export entry decision for Indian manufacturing firms during the period 2000–2014. Classifying firms under three broad categories of new exporters, incumbent exporters and non-exporters, we show that new exporters, as well as incumbent exporters, are bigger and more productive compared to non-exporters. Comparing between exporters, we find that new exporters are bigger than incumbent exporters, but not different in terms of factor productivity. Using longitudinal micro-level data, we estimate a random effect probit model to test for the significance of the home market performance on firm export behaviour for new exporters vis-à-vis non-exporters. We find that home market performance enhances export behaviour, and firms with higher growth rate in the home market are more likely to enter the export market in future.
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Notes
- 1.
All actively listed companies in the Bombay stock exchange and some unlisted companies are included in Prowess. The availability of the audited report is the basis for the inclusion of a company in this database. Apart from that, CMIE conducts its own surveys to collect information on small companies that do not prepare annual reports.
- 2.
While cleaning, we have dropped firms that did not have data on the key variables like sales, wages and salaries, gross fixed assets for at least five years.
- 3.
Only 25% firms have data for every year of the sample period.
- 4.
There are only 358 firms out of 5334 firms which incorporated post 2000.
- 5.
Unlike new exporters, home market performance of the incumbent exporters is likely to be influenced by their past export performance and therefore may not truly reflect the feature of the home market.
- 6.
This is because \(q_{it}\) depends \(\varvec{X}_{it}\) and \(\omega_{t}\). We have assumed that price \(p_{t}\) is constant across firms. Price, although varies across time, is controlled in the empirical exercise by use of price deflators. \(N\) is constant and does not vary across firms.
- 7.
Innovation activities exclusively happen in pharmaceuticals and chemicals industries in India. Importance of R&D therefore may get reflected in some industry-specific analysis where R&D activities are prevalent. On the other hand, in almost every industry, machines are imported and adapted to the local conditions.
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Ghosh, P., Sawhney, A. (2021). Does the Past Performance in Home Market Affect Export Participation of New Exporters? Evidence from Indian Firms. In: Lakhanpal, P., Mukherjee, J., Nag, B., Tuteja, D. (eds) Trade, Investment and Economic Growth. Springer, Singapore. https://doi.org/10.1007/978-981-33-6973-3_2
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