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Investments, export entry and export intensity in small manufacturing firms

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  • Stephen Esaku

    (Cavendish University Uganda)

Abstract

We analyze the effect of investment in physical capital on the firm’s choice to enter the export market and increase export intensity. We specifically examine the hypothesis that firm-level investment facilitates small firms to initiate exporting and increase their export intensity. Using propensity score matching techniques, the results we find are remarkable. First, we find that firm-level investments in physical capital significantly increase the probability of export market entry among small firms. Second, we show that small firms that investment significantly increase the probability of expanding their exports, as observed in the high export intensity. This implies that firm-level investment is a substantial component in the firm’s choice to export and may be another channel through which small firms can access export markets despite the presence of sunk entry costs that act as a barrier to entry. Third, we show that firms that invest above the industry average investment level stand the highest probability of entering the export market and expanding their export sales. Moreover, we also find that exporting experience significantly influences the firm’s choice to invest, probably as a measure of upgrading production technology. At the policy level, we observe that export subsidies should be directed at addressing capacity and technology related constraints as these have hampered export entry and export intensity among small firms.

Suggested Citation

  • Stephen Esaku, 2020. "Investments, export entry and export intensity in small manufacturing firms," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(4), pages 677-697, December.
    • Handle: RePEc:spr:epolin:v:47:y:2020:i:4:d:10.1007_s40812-020-00156-9
    DOI: 10.1007/s40812-020-00156-9
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    2. Goel Aditi & Gaur Dolly & Gupta Khushboo & Gupta Kanishka, 2023. "Factors impacting export intensity of SMEs in India," Economics and Business Review, Sciendo, vol. 9(3), pages 22-43, October.
    3. Stephen Esaku, 2022. "Which firms drive employment growth in Sub-Saharan Africa? Evidence from Kenya," Small Business Economics, Springer, vol. 59(1), pages 383-396, June.

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    More about this item

    Keywords

    Treatment effects model; Investments; Exports; Firm performance; SMEs;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F1 - International Economics - - Trade
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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