A very interesting paper by Cebeci et al. based on Exporter Dynamics Database, which has measures on exporter characteristics and dynamics based on firm-level customs information from 38 developing countries and seven developed countries. Excerpts from the paper:
This paper introduces the Exporter Dynamics Database. The database includes exporter characteristics and measures of exporter growth based on firm-level customs information from 38 developing and seven developed countries, primarily for the period between 2003 and 2010. The measures are available at different levels of aggregation, including: a) country-year, b) country-year-product, and c) country-year-destination. Several new stylized facts about exporter behavior across countries emerge from the database. (i) Larger or more developed economies have more exporters, larger and more diversified exporters, and lower entry and exit rates than smaller or developing economies. (ii) In the short run, expansions along the intensive margin (exporter size) contribute more to export growth than expansions along the extensive margin (number of exporters). (iii) Exit rates are highly correlated with entry rates and both are negatively correlated with survival rates, average exporter size, and diversification. (iv) The number of exporters and the entry and exit rates in a country-product group are partially driven by country and product-group effects; however, the average size of exporters in a country-product group is not. Although the first three facts can be explained by models incorporating firm heterogeneity and uncertainty, the fourth fact is more difficult to explain with existing models. Several findings are confirmed in this database, including the importance of large multi-product firms. This database can be a valuable tool to improve the understanding of the micro-foundations of export growth, by providing new insights about exporter characteristics and dynamics.
Though Nepal is not included in the database, an important finding of the paper that is directly relevant to Nepal’s trade sector is that increasing export growth in the short run is possible by expanding capacities of existing exporters rather than promoting entry of new exporters or concessions in export market destinations. In Nepal’s context, it would mean boosting capacities of those exporting firms performing below capacity. The findings of a recent NRB report, which found that industrial capacity utilization has merely been 58%, nicely fits with the findings of the paper by Cebeci et al. The low capacity utilization is due to lack of electricity, labor disputes, rise in cost of raw materials, and persistent supply side constraints. If Nepal wants to boost exports, then it first needs to create a conducive environment for existing firms to fully utilize their capacities.
Unfortunately, rather than working on operating existing exporting firms at full capacity, the government seems to be always asking for concessions in foreign markets. Of course, concessions in exporting destinations are important, but Nepal has to first create an environment to utilize existing firms’ capacities fully and competitively. The need is to first put the house in order before seeking concessions abroad.