Exports, foreign direct investments and productivity: are services firms different?

Abstract

This paper contributes to the literature on international firm activities by providing the first evidence on the link between productivity and both exports and foreign direct investment (FDI) in services firms from a highly developed country. It uses unique new data from Germany, one of the leading actors in the world market for services. Statistical tests and regression analyses indicate that the productivity pecking order found in numerous studies using data for firms from manufacturing industries – where the firms with the highest productivity engage in FDI while the least productive firms serve the home market only and the productivity of exporting firms is in between – does not exist among firms from services industries. There is evidence that firms with FDI are less productive than firms that export; this finding is in line with recent empirical results reported for software firms from India.

Keywords:

• export
• foreign direct investment
• productivity

Notes

^†All computations for this study were done in the research data center of the Statistical Office of Lower Saxony. Helpful comments from the editor and two anonymous referees are gratefully acknowledged. Many thanks to Florian Köhler for his help with the data, for running my Stata do-file and for checking the output for violation of privacy. The firm-level data used are confidential but not exclusive; see Zühlke, Zwick, Scharnhorst, and Wende (2004) for a description of how to access the data. To facilitate replication, the Stata do-file is available from the author on request. I thank Alexander Vogel for helpful comments on an earlier version.

1. The word ‘heterogeneous’ is used in the paper in a way that is completely different from the way it is often used when extremely heterogeneous service industries are analysed. In the literature on international activities of heterogeneous firms heterogeneity refers to differences between firms within a narrowly defined industry with regard to productivity and other dimensions of firm performance – and not to differences between firms from various industries with regard to, for example, services provided and the skill intensity or capital intensity of its production.

2. See Wagner (2007) for a survey.

3. See Wagner (2012) for a summary of the findings from seven micro-econometric studies on trade and productivity based on services firm data from six countries published in 2010 and 2011.

4. Note that Bhattacharya et al. (2012) do not consider firms that sell their services on the national market only.

5. Note, however, that transport costs do matter if services exports require experts to travel to the destination country for consulting activities or after sales services.

6. See Bhattacharya et al. (2012) for a profits–profitability diagram illustrating this and a comparison with the diagram used by Helpman et al. (2004) and Helpman (2011) for the case of firms from manufacturing industries.

7. At least, I am not aware of other studies looking at the productivity pecking order of services firms with different forms of international activities.

8. According to the Monthly Report of the German Minister for Economics and Technology for April 2009, Germany is number three in the ranking of services exporters worldwide.

9. For more details about the dataset and how to access it, see Vogel (2009). See Eickelpasch and Vogel (2011), Vogel (2011) and Vogel and Wagner (2011) for studies on exports of German business services firms using these data.

10. Note that Bartelsman and Doms (2000, p. 575) point to the fact that heterogeneity in labour productivity has been found to be accompanied by similar heterogeneity in total factor productivity in the reviewed research where both concepts are measured. In a recent comprehensive survey Syverson (2011) argues that high-productivity producers will tend to look efficient regardless of the specific way that their productivity is measured. See International Study Group on Exportrs and Productivity (ISGEP) (2008) for a comparison of results for productivity differentials between exporting and non-exporting firms based on sales per employee, value added per employee and total factor productivity. Results proved remarkably robust. Furthermore, Foster, Haltiwanger and Syverson (2008) show that productivity measures that use sales (i.e. quantities multiplied by prices) and measures that use quantities only are highly positively correlated.

11. Participation in a special purpose surveys is voluntary, and the sample is limited to 20,000 units. A prerequisite for this kind of survey is either a pressing need for data in the process of preparing or substantiating a planned decision by a high government agency, or the clarification of a methodological question in statistics.

12. Note that only enterprises with at least 100 employees in 2006 were sampled in the relocation survey, and all results, therefore, are for larger firms only. However, it can be argued that fdi might well be considered to be a rare event among smaller enterprises. Furthermore, in the empirical models estimated in this study firm size is controlled for by the number of employees (also included in squares to take care for non-linearity).

13. Note that the minima and maxima cannot be reported because these are values that are for single observations and that have, therefore, to be treated as confidential.

14. A discussion of the details of this estimator is far beyond the scope of this paper; see Verardi and Croux (2009). Computations were done using the ado-files provided by Verardi and Croux (2009) with the efficiency parameter set at 0.7 as suggested there based on a simulation study; details are available on request.