Essays on international trade and firm performance

Abstract

This thesis comprises an overview (Chapter 1) and five main chapters (Chapters 2 to 6) on international trade and firm performance in developing countries. Chapter 2 examines whether developing countries could benefit from having a commodity exchange. We consider this question by studying the potential benefits of a commodity exchange for coffee exports in Ethiopia. Using a triple-differencing (DDD) approach, we find that that the introduction of coffee trading through a commodity exchange has led to a significant increase in Ethiopia's coffee export. We also find that having a commodity exchange has helped Ethiopia to export into new foreign markets. Therefore, policy intervention such as the establishment of a commodity exchange can help to reduce market-related barriers of trade faced by developing countries. Chapter 3 examines the impact of landlockedness on trade by exploiting a novel natural experiment associated with the transition of Ethiopia from a coastal to a landlocked country. Ethiopia became de facto landlocked following a con ict with Eritrea in 1998. Using triple-difference and synthetic control approach, we find that landlockedness has a large negative effect on Ethiopia's exports and imports. Specifically, on average, landlocked geography has contributed to a 43-80% and 67-71% reduction in Ethiopia's ocean-borne exports and imports, respectively. The landlockedness "shock" of Ethiopia also has a persistent effect on trade across time, suggesting that the in uence of landlockedness in general is long-lasting. Chapter 4 examines how landlockedness affects firm productivity by reducing the firm's access to imported inputs. We use the same quasi-natural experiment as Chapter 3 to identify the casual effect of landlockedness on productivity and employ a rich census dataset on Ethiopian manufacturing firms over the period 1996-2006. We find that landlockedness leads to a productivity loss of 14% for firms that rely on imported inputs. We also find that the negative effect of landlockedness is especially strong for small and private-owned firms. Chapter 5 uses data on over 33,000 firms from 94 countries to study if genetic distance from the world technology frontier, the United States, influences firm productivity in laggard countries. The thesis adopts a novel method on quantile treatment models and find that genetic distance to the global frontier has an economically and statistically significant effect on firm productivity. Firms operating in a country that are genetically far from the technology leader tend to have lower levels of productivity with the largest negative impact observed at the higher quantiles. Chapter 6 investigates if the presence of foreign-owned firms in sub-Saharan African countries (SSAs) can help to reduce domestic firms' financial constraints. Using firm-level data spanning across 36 SSAs from the World Bank Enterprise Survey, we find that an increase in foreign firm presence can ease the financial constraints of domestic firms in the SSAs. One reason is that foreign-owned firms are not only less financially constrained, they are also less likely to apply for bank loans. Therefore, an increase in foreign firm presence may reduce the competition for loans and ease the financial constraints of domestic firms by improving their borrowing success.