Tag Archives: exports

The profile of export-oriented firms

The productivity of factors of production, and in particular the professional qualifications of employees, determine a firms’ international performance (photo : F.Dubessy)

What factors determine a firm’s ability to export? To answer this question, Femise experts carried out a comparative study between firms located in the European Union, Israel, Turkey and those in the MENA region (Middle East, North Africa). It seems that while productivity, R & D and size are a common denominator, other criteria may underlie the ability of firms to export to MENA countries. In the North and South of the Mediterranean, impediments and accelerators tend to differ.
In studying the factors that determine the ability of firms to export, the comparative study carried out by Femise in 2016 proves to be rich. Entitled “The determinants of export performance of firms in selected MENA countries”, it examines eight countries: Egypt, Israel, Jordan, Lebanon, Morocco, Tunisia, Turkey and West Bank & Gaza.
The productivity of factors of production, and in particular the professional qualifications of employees, determine a firms’ international performance. But, in the Middle East and Maghreb, productivity plays a lesser role than in Europe.
In addition, there are other factors that come into play related to the location of the head office. “In Tunisia and Morocco, newly created companies do not export. Tunisian start-ups with foreign capital are integrated into the international production chain. Traditional firms founded before the transition remained oriented towards the domestic market, “highlighted Alfred Tovias, professor of international relations at the Hebrew University of Jerusalem and Jan Michalek, professor of economics at the University of Warsaw. In February 2016, the authors of the Femise report had presented the preliminary results of their work at the Femise annual conference in Athens (February 14th).

Western startups are export-oriented

For firms based in the MENA region, seniority, experience and know-how weigh-in on their ability to export. This is not the case for European companies however, which are able to position themselves internationally from the very first months of their creation. In recent years, Western companies have become aware of the strategic role played by demand for foreign markets, the cornerstone of their development.

Conversely, the technological level and the volume of foreign licenses acquired, are factors that influence the export capacity of European companies.

Femise also notes an inherent specificity of SMEs in the MENA region: “Indirect exporters may be less effective in terms of labour productivity, less innovative and more modest than those that export directly,” the report notes.

Moreover, the more MENA firms develop a wide range of products, the more they tend to export. On the other hand, there is no correlation between the nature of private or public capital, and its propensity to export on both shores of the Mediterranean.

Femise conomists encourage authorities of the southern Mediterranean countries to invest in human capital, modernize their education systems and support firms in their research and development efforts. The Femise report also highlights the need for eastern countries to further attract foreign direct investment.

The report is available for download by clicking here.

Article produced in partnership with Econostrum.

Corporate Performance in Transition : The Role of Business Constrains and Institutions in the South Mediterranean Region

Note: The research project comprises three papers:

Paper 1. Labor skills, institutions and firm performance in developing countries

Paper 2. Business environmental constraints in MENA countries with a special focus on Egypt

Paper 3. Exports and governance: Is MENA different?

This report aims at analyzing the recent trends in corporate performance and economic success in Southern Mediterranean countries at the firm and country level. More specifically, it aims at identifying and evaluating the potential factors that may trigger and foster economic changes in the region, focusing in particular on the role played by skill constraints, the business environment and the institutional setting in explaining economic performance, measured as productivity, sales growth rates and exports, as well as quantifying their relative importance. Firstly, we investigate different sources of economic performance steaming from factors that are internal and external to the firm. At the firm level, the business environment encompasses features relative to the work force, legal, regulatory, financial, and institutional system of a country and therefore it has an impact on the performance of firms and industries.

Secondly, since the business environment affects firms and country performance, then we proceed with an empirical investigation at the country level as well. The common underlying assumption is that firms and countries facing ‘better’ business environments and institutions can be expected to perform better.

The main novelty of this report is to produce empirical evidence covering the transition period on the conditions that influence private sector performance and country level exports in the South Mediterranean region in comparison to other regions/countries that also went through an economic and institutional transition in the past. As a result, the study provides the tools for designing appropriate development policies.

This report is structured into three parts: the first part focuses on skills and resource characteristics of firms and the role of the main perceived constrains to do business at the firm level. Micro survey data is used to explore the impact of labor skills and other firm-specific characteristics on firm performance, measured as sales growth rates, in 135 developing countries. The analysis uses a consistent and large data set from the World Bank’s Enterprise Surveys. The results show that labor skills and firm-specific characteristics are significant predictors of firms’ performance. However, the predictive power of labor skills and the firm-specific characteristics is significantly affected by national economic and non-economic factors. Indeed, the national levels of economic, financial and human development as well as income inequality, along with domestic conditions of regulatory governance and other institutions as well as legal and social heterogeneity, all have a role to play in determining firms’ performance. The results show that the classification of firms as labor skill-constrained or not in developing countries can be better assessed on the basis of both micro-level and macro-level factors.

The second part of the report specifically focuses on the main obstacles that MENA firms, and in particular Egyptian enterprises, face to do business in their country and investigates to what extent the constraints affect firm performance. Firm’s performance is measured as Total Factor Productivity (TFP) and labour productivity (LP). Our analysis evaluates the effects of the different business indicators, obtained from the World Bank Enterprise Survey using firm level data from manufacturing firms, on TFP/LP. A number of control variables commonly used in the empirical literature are also included in the model. The main results indicate that access and cost to finance, tax rates, regulatory policy uncertainty, the price of land and basic infrastructures, such as access to water and electricity, are among the most relevant factors for Egypt. These findings have important policy implications, in particular for policy makers and will help them decide what sort of specific actions can be taken to reduce the main obstacles and consequently to pave the way for manufacturing Egyptian firms to become more competitive. The analysis is also extended to other countries in the region, namely Lebanon, Jordan, Morocco and Tunisia and the environmental constrains before and after the Arab Spring are compared. The main findings indicate that regulatory and policy uncertainty, corruption and crime have become more important obstacles after 2011 for most firms in these countries.

The third part focuses on the country-level analysis and investigates the role of the quality of institutions and its different dimensions in the selected countries in explaining export performance. It aims at analysing whether higher quality of economic governance rewards economy performance and facilitates the integration of the MENA region in the world economy. A gravity model of trade augmented with governance indicators is estimated using bilateral exports among 189 trading partners and also for 19 MENA exporters over the period from 1996 to 2013. The main results show that, individually, each of the six governance indicators in the exporting and the importing countries considered has a positive effect on bilateral trade. However, the results for MENA exporters slightly differ. Governance in the importing countries seems to be less relevant for MENA exporters than for the rest of exporters. The effect of country pair similarity in governance indicators indicate similar levels of regulatory quality and the rule of law in exporter and importer countries favours exports of MENA countries. Similarities in voice and accountability also foster exports in the average exporter, but it does not seem relevant for MENA exporters.