Exports, Investment and Productivity Growth in Small Firms: A Firm-level Analysis from Tanzania and Ghana

ABSTRACT

This paper examines the effect of firm-level investment in capital on export entry and productivity growth among different firm size classes using matching and difference-in-differences techniques. We find that firm-level investment in capital reduces the burden of sunk costs of export market entry, thereby inducing small firms to enter export markets with ease and increase their productivity as a result of export market participation. New entrants who survive their first year of exporting also grow their investment levels to consolidate market share. We show that micro and small firms that initiate exporting are more likely to implement firm-level investment as well, one way of technology upgrading, to remain competitive in export markets. Moreover, firm-level investment helps small exporters to generate higher productivity once they engage in export markets. This may suggest that the observed market selection and growth of small firms could be the outcome of distinctive productivity improvements in these firms. We note that investing in capital, especially plant and equipment, may help micro and small firms improve their productive capacity to produce more output at lower unit costs as a result of low-marginal costs of production. Export-led growth policies should be directed at supporting micro and small firms access the much needed financing to upgrade their production processes and improve their productivity.

KEYWORDS:

• Firm
• investment
• export markets
• firm performance
• manufacturing firms

Acknowledgements

I appreciate the Centre for the study of African economies (CSAE) for making the data available for free downloads. I am indebted to you. I 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 mine.

Disclosure statement

In accordance with Journal of African Business and my ethical obligation as a researcher, I report that I have no financial and/or business interests that have arisen from the direct application of this research.

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

Notes

¹ We use physical capital, capital or capital stock interchangeably. In this study, they have the same meaning.

² 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.

Additional information

Funding

This is to affirm that this research has not benefited from any funding.