93. Tran Quang Tuyen Khoa KTCT 2014

This article was downloaded by: [University of Waikato] On: 14 January 2014, At: 18:22 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK Applied Economics Letters Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rael20 Exports and profitability: a note from quantile regression approach a a a a Huong Vu , Mark Holmes , Steven Lim & Tuyen Tran a Department of Economics, Waikato University, Hamilton, New Zealand Published online: 14 Jan 2014 To cite this article: Huong Vu, Mark Holmes, Steven Lim & Tuyen Tran (2014) Exports and profitability: a note from quantile regression approach, Applied Economics Letters, 21:6, 442-445, DOI: 10.1080/13504851.2013.866197 To link to this article: http://dx.doi.org/10.1080/13504851.2013.866197 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content This article may be used for research, teaching, and private study purposes Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden Terms & Conditions of access and use can be found at http:// www.tandfonline.com/page/terms-and-conditions Applied Economics Letters, 2014 Vol 21, No 6, 442–445, http://dx.doi.org/10.1080/13504851.2013.866197 Exports and profitability: a note from quantile regression approach Huong Vu*, Mark Holmes, Steven Lim and Tuyen Tran Downloaded by [University of Waikato] at 18:22 14 January 2014 Department of Economics, Waikato University, Hamilton, New Zealand Studies of the linkage between exports and profitability often use mean regression approaches and focus only on European countries Using a panel data quantile regression approach, this study analyses the linkage between export behaviour and profit growth in Vietnam Using a panel dataset from 2005 to 2009, our results show an insignificant linkage between export status and firm profit growth when using OLS However, when using a quantile approach, export participation is found to be positively related to profitability for those firms with high profit growth but negatively related for those firms with low profit growth This might suggest that the productivity advantages of exporters with low profit growth are absorbed by costs relating to trading activities in overseas markets Keywords: exports; profitability; quantile approach; SMEs JEL Classification: F14; O12 I Introduction Since the ground-breaking study of Bernard and Jensen (1995), which described ‘exceptional export performance’, many empirical studies have shown that the reason for exporters having higher productivity than nonexporters stems from a self-selection mechanism rather than learning by exporting (e.g Wagner, 2007) Such work has led to a further interesting question that has drawn the attention of some recent studies in international trade Do exporters with the advantage of higher productivity gain higher profitability, or is this advantage absorbed by extra costs relating to trading activities in overseas markets? The motivation for us to pursue this topic stems from several reasons First, as noted by Wagner (2011), considering profitability instead of productivity is very important because profitability reflects the success of firms and the first priority of firms is profit maximization rather than productivity Second, some studies have found export participation to have a positive impact, but other studies indicate a negative or insignificant relationship between firm exporting and profitability (e.g Lu and Beamish, 2006; Fryges and Wagner, 2010; Grazzi, 2011) Third, all the investigations carried out so far are in the context of European countries (Wagner, 2012) Hence, no generalized inferences can be made In terms of methodology, existing regression analysis of the relationship between profitability and exports typically relies on OLS or least absolute deviation methods and so only estimate the marginal effects of the covariates on the conditional mean (median) function of profitability Such estimates sidestep the potentially heterogeneous patterns of the influence of the covariates in the conditional distribution, and this approach provides limited information about the relationship Using a quantile regression approach for panel data, this research therefore aims to bring empirical evidence of the role of exporting on profitability in a transitional economy, Vietnam, to fill the gap that exists in the current literature The quantile approach has further advantages The results are robust to the existence of outliers (Kizhakethalackal et al., 2013), and they also offer a detailed picture of the relationship In our *Corresponding author E-mail: vhv1@waikato.ac.nz Present affiliation for Tuyen Tran: VNU University of Economics and Business, Hanoi, Vietnam 442 © 2014 Taylor & Francis Exports and profitability 443 case, we have evidence of a nonlinear relationship between exports and profitability This has the potential to reconcile the ambiguity in the earlier studies The remainder of the article is as follows Section II presents data sources and methodology Section III discusses the empirical results The final section summarizes main findings II The Data and Methodology Downloaded by [University of Waikato] at 18:22 14 January 2014 The data source The research uses data from the ‘Small and Medium Scale Enterprise Survey in Vietnam’ The surveys were conducted in 2005, 2007 and 2009 as collaboration between the Institute of Labour Science and Social Affairs, Vietnam, and Department of Economics of the University of Copenhagen The original dataset included 2821 enterprises which were interviewed in 2005 The number is 2635 firms in 2007, while a slightly larger number of 2655 were interviewed in 2009.1 The dataset has some inherent advantages This is a uniquely rich dataset of manufacturing SMEs that covered 10 provinces in regions in Vietnam It also covers all the major manufacturing sectors namely food processing, wood products and other sectors Furthermore, the main information on export status of the enterprise and economic indicators as well as firm characteristics is contained in the dataset Hence, the data enable us to conduct a test of the linkage between export status and profitability.2 Methodology Previous studies often use OLS estimation to consider the role of export status on firm profit growth (e.g Fryges and Wagner, 2010) However, as Buchinsky (1994) suggests, mean regression techniques have never been satisfactory approaches when considering heterogeneous populations To consider the potential heterogeneous impacts, we specify the qth quantile (0 < q < 1) of conditional distribution of the dependent variable, given a set of variables Xi, as follows: Qq ðyit =xit Þ ẳ aq ỵ xit q ỵ uit q (1) where yit is the profit growth of firm i through time and uit represents for unobservable factors such as products quality and management quality A vector of independent variables (xit) is included First, the main interest variable, export participation, is captured by a dummy variable to minimize measurement errors We also consider other types of exporting activities Continuous exporters are firms that export through the study period, whereas starting exporters are enterprises that not export in year t – but export in year t Exporting stoppers are firms that export in year t – but not export in year t.3 Second, firms’ profitability may be determined by standard firm characters such as firm size, firm age and innovation (e.g Grazzi, 2011).4 In addition, the behaviour of SMEs may be different among various sectors, kinds of ownership and locations in Vietnam (Rand and Torm, 2011; Vu et al., 2013) We control for all these by using a dummy for low technology sectors, a dummy for household ownership and an urban dummy Cameron and Trivedi (2009) show that estimation of Equation based on the qth quantile regression involves minimizing the absolute value of the residual using the following objective function: Qq ị ẳ ẳ n h X i yit À xit β q i¼1  X qjyit À xit βq j i:yit !xi β þ X (2)  ð1 À qÞjyit À xit βq j i:yit