Firm-Level Investment and Exporting: New Empirical Evidence from Ghana and Tanzania

Abstract

Using firm-level data from two selected African countries, we examine whether firm-level investment in physical capital is a possible channel through which less productive firms gain entry into export markets. Our findings reveal that non-exporters who invest in physical capital increase their probability of switching status, from non-exporter to exporter, and we provide evidence that firm-level investment is correlated with increased productivity growth among exporters. Consequently, we emphasize that firm-level investment in physical capital enables non-exporters to increase their odds of entry to export markets and provides opportunity for young exporters to grow rapidly and persist long in export markets. Although firm productivity differences can be explained by self-selection factors as one channel, firm-level investment in physical capital provides another explanation as to why less productive firms gain entry into the export markets. We establish that when firms invest in physical capital, they improve their productive capacity thereby raising their productivity in the process. Export promotion policies should target providing support to firms that seek to upgrade or expand their production technology as this would stimulate the probability of export market entry hence promoting exports.

KEYWORDS:

• Firm-level
• investment
• exporters
• firm behaviour
• firm performance

JEL CLASSIFICATIONS:

• D22
• E22
• F14
• L23
• L25

Acknowledgments

We appreciate the Centre for the study of African economies (CSAE) for making the data available for free downloads. We are indebted to you. We also appreciate colleagues at Cavendish University for the constructive suggestions and guidance that have greatly improved the quality of this paper. The rest of the errors are ours.

We thank the Center for the study of African Economies for making the data available for download for free to researchers. We are grateful to you for this assistance without which, it would not have been possible to conduct this study.

Disclosure statement

No potential conflict of interest was reported by the authors.

Data Availability

The data associated with the results of the paper were downloaded from website of Centre for the Study of African Economies at Oxford, available at https://www.csae.ox.ac.uk/data.

ORCID

Stephen Esaku http://orcid.org/0000-0002-2587-4092

Additional information

Notes on contributors

Stephen Esaku

Stephen Esaku is a lecturer of Economics in the department of Business and management Cavendish University Uganda. He holds an MA in Economics from Makerere University, Kampala and a PhD on the topic of trade liberalization, firm dynamic and export participation in Sub-Saharan Africa from North-West University's Potchefstroom campus, South Africa. His teaching experiences spans 8 years. Stephen's research interests include: international Economics and Development Economics.

Waldo Krugell

Waldo Krugell is a Professor in Economics at the North-West University's Potchefstroom Campus. He holds an MSc in Economics from the University of Warwick and a PhD on the topic of the geographical economy of South Africa from North-West University's Potchefstroom Campus. His teaching experience includes two years at the University of South Africa and 12 years at North-West University. Waldo's research interests focus on development issues and the outputs can be grouped into two broad strands: Geographical Economics and Tourism Economics.