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Exports and Profitability - First Evidence for German Business Services Enterprises

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Author Info

  • Alexander Vogel
  • Joachim Wagner

Abstract

We use the unique recently released German business services statistics panel to conduct the first comprehensive empirical study on the relationship between exports and profitability for the business services sector. We document a negative profitability differential of services exporters compared to non-exporters that is statistically significant, though rather small, when observed firm characteristics and unobserved firm specific effects are controlled for. We find that export-starters in services are less profitable than non-starters, even two years before they begin to export, pointing to self-selection of less profitable firms into export markets. We use a recently developed continuous treatment approach to investigate the causal impact of exports on profits. The estimated dose-response function shows an s-shaped relationship between profitability in 2005 and firms’ export-sales ratio in 2004. Enterprises with a very small share of exports in total sales have a lower rate of profit than non-exporting firms. Then, with an increase in export intensity the rate of profit increases, too. However, even at the maximum the average profitability of the exporters is not, or only slightly, higher than the average rate of profit of the non-exporting firms. Given that Germany is one of the leading actors on the world market for services, the evidence provided here is interesting on its own. Furthermore, it can serve as a benchmark for future studies using comparable data for firms from services industries in other countries.

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Bibliographic Info

Article provided by Duncker & Humblot, Berlin in its journal Applied Economics Quarterly.

Volume (Year): 56 (2010)
Issue (Month): 1 ()
Pages: 7-30

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Handle: RePEc:aeq:aeqaeq:v56_y2010_i1_q1_p7-30

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Related research

Keywords: Exports; profitability; business services enterprises; Germany;

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References

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  1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," NBER Working Papers 13054, National Bureau of Economic Research, Inc.
  2. International Study Group on Exports and Productivity, 2007. "Exports and Productivity – Comparable Evidence for 14 Countries," Working Papers 0714, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2007.
  3. Gianmarco Ottaviano & Thierry Mayer, . "The happy few: the internationalisation of European firms," Blueprints, Bruegel, number 12, September.
  4. Wagner, Joachim, 2002. "Unobserved firm heterogeneity and the size-exports nexus : evidence from German panel data," HWWA Discussion Papers 194, Hamburg Institute of International Economics (HWWA).
  5. Michela Bia & Alessandra Mattei, 2008. "A Stata package for the estimation of the dose–response function through adjustment for the generalized propensity score," Stata Journal, StataCorp LP, vol. 8(3), pages 354-373, September.
  6. Gianmarco Ottaviano & Thierry Mayer, 2007. "The happy few: the internationalisation of European firms New facts based on firm-level evidence," Sciences Po publications info:hdl:2441/10147, Sciences Po.
  7. Thorsten Schank & Claus Schnabel & Joachim Wagner, 2006. "Do exporters really pay higher wages? First evidence from German linked employer-employee data," Working Paper Series in Economics 28, University of Lüneburg, Institute of Economics.
  8. Alexander Eickelpasch, 2008. "Export Orientation of Service Companies on the Increase," Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 4(5), pages 28-35.
  9. International Study Group on Exports and Productivity (ISGEP), 2008. "Understanding Cross-Country Differences in Exporter Premia: Comparable Evidence for 14 Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(4), pages 596-635, December.
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