4.1 Relative Share of Firms in the Aggregate Value of Exports

Product alteration behaviour is investigated further by calculating the relative share of export value contributions by entering, exiting and continuing firms. In order to do so, the change in export value from one year to the next is calculated for several categories.^[12]

The aggregate change in the value of exports, can be decomposed into the sum of the changes due to new (N), exiting (X), and continuing (C) firms,

where j indexes firms. At each continuing firm, the change in the value of exports can be further decomposed into the sum of the changes due to added (A), dropped (D), and continuing (B) products,

where i indexes products. Finally, the value of exports of continued products can be broken into products that grow (G) and shrink (S),

Substituting, the aggregate change in the value of exports can be written as

The first two terms reflect the contribution of firm entry and exit. The third and fourth terms represent changes due to product adding and dropping by surviving firms, i.e. adjustments to firms' so-called extensive margins. The last two terms account for the growth and decline of continuing firms' continuing products, i.e., their intensive margins.

Table 7 decomposes value of exports according to these contributions for each year. The first column presents the changes in the aggregate value of exports. The remaining columns show changes due to the new firms, continuing firms and exiting firms (columns two to four) and changes due to product switching behaviour (columns five to seven).

Note: Table reports aggregate change in the value of exports (in millions of dollars) according to firm type—whether the firm is an entering, existing or exiting firm---and product type—whether the product is a newly added, existing or dropped product. See also Figures 4 and 5.

As in the U.S. and India, intensive margin accounts for the majority of growth in exports. The results show that between 1997 and 2007, continuing firms are the biggest contributors as expected. Looking at the relative share of entering and exiting firms (excluding continuing firms) in Figure 4 shows a variation across time. Until 2004, new firms make up a larger proportion of exports than exiting firms, which suggests that new entrants to export markets are likely to be larger firms. It is expected that exiting firms are generally those that are not doing so well, thus the smaller contribution to the aggregate change in the value of exports. However, this trend reverses after 2004.

Figure 4 - Relative Share of New vs. Exiting Firms in the Total Value of Exports (excluding continuing firms)

Note: Numbers from Table 7.

Looking at the extensive margin shows that continuing products are the biggest source of growth/decline, suggesting that perhaps adding and dropping of products does not alter firm behaviour or profits drastically. This issue is further investigated in the next section. Figure 5 looks at the relative shares of added and dropped products in the value of exports of continuing firms (excluding continuing products). A similar pattern as new and exiting firms is observed. Although product entry dominates most of the sample, this is not the case in the last two years of the sample.

Figure 5 - Relative Share of Added vs. Dropped Products in the Value of Exports of Continuing Firms (excluding continuing products)—Extensive Margin

Note: Numbers from Table 7.

Finally, Table 8 shows the aggregate contributions through the whole sample of whether continuing products have been growing or shrinking. Analysis of the intensive margin in Figure 6 indicates that growing products make up a bigger share of continuing products in terms of value, except for 2003.

Note: Table reports aggregate change (in millions of dollars) in the value of exports for products that are not added or dropped, i.e., continuing, whether they are growing or shrinking products. See also Figure 6.

Figure 6 - Relative Share of Shrinking vs. Growing Products in the Value of Exports of Continuing Products—Intensive Margin

Note: Numbers from Table 8.