Structural Reform and Firm Exports
Luis Alfonso Dau
University of South Carolina; Northeastern University - Department of International Business and Strategy
September 5, 2008
William Davidson Institute Working Paper No. 942
We analyze the impact of structural reform on firm exports. We argue that structural reform generates new opportunities and reduces transaction costs, inducing firms to improve their efficiency and competitiveness to international levels and, therefore, helps them to export. However, we propose that not all companies benefit equally, because firms differ in how structural reform affects their competitiveness. Thus, we argue that subsidiaries of foreign firms are the main beneficiaries of structural reform, followed by domestic private firms, and finally by domestic state-owned firms. We test these arguments on a sample of the largest companies in Latin America for the period 1990-2005. We find that structural reform induces firms in general to export. Furthermore, it has the highest positive impact on the exports of subsidiaries of foreign firms, followed by domestic private firms. Surprisingly, we find that structural reform has a negative impact on the exports of domestic state-owned firms.
The paper contributes to a better understanding of how changes in institutions affect firm behavior by explaining the mechanisms that link structural reform to firm exports and how these vary across firms. Moreover, it counters the arguments of numerous detractors of globalization who claim that foreign firms are the sole beneficiaries of structural reform by indicating that not only foreign but also domestic private firms benefit from structural reform. The paper also highlights the need to discuss who benefits from structural reform rather than whether structural reform is beneficial or detrimental.
Keywords: Structural reform, firm exports, subsidiaries of foreign firms, domestic private firms, domestic
JEL Classification: F23, L20, P16
Date posted: December 8, 2008