Trade Adjustment Costs in Developing Countries: - World Bank ...

New Kids on the Block 231tifying MNC suppliers and analyzing the causal relationship between doing businesswith MNCs and supplier performance.The limited information available suggests that MNC suppliers are differentfrom other indigenous producers. Controlling for industry affiliation and yearfixed effects, Javorcik and Spatareanu (2009a) find that Czech firms supplyingMNCs tend to be 13 percent larger in terms of employment and 18 percent largerin terms of sales value, though they do not experience faster sales growth. Theytend to have higher TFP levels (14 percent premium), and higher labor productivitymeasured as value added per worker (23 percent premium). They also appearto be more capital intensive (17 percent) and pay higher wages (12 percent).Controlling for firm size does not change these conclusions (see Table 14.2).Table 14.2. Supplier Premium(a)(b)(%) with controls for firm sizeTotal employment 12.8 –Sales 17.7 11.1Sales growth ns nsCapital per worker 16.6 18.6TFP 14.1 11.6Value added per worker 23.2 12.2Wages per worker 11.7 14.4The(a) The premium is based on coefficients of the Supplier dummy in the following regressions:ln X it = α + β Supplier it + μ j + μ t + ε itwhere μ j stands for two-digit industry and μ t for year fixed effects.The(b) The premium is based on the following regression:ln X it = α + β Supplier it + δ ln Employment it + μ j + μ t + ε itns denotes a coefficient not statistically significant at conventional levels.Source: Javorcik and Spatareanu (2009).Further, Javorcik and Spatareanu (2009a) find that while more productive firmsself-select into supplying relationships with multinationals, the results from theinstrumental variable approach are suggestive of learning from the relationshipswith MNCs. However, as these conclusions are based on a small sample, theyshould be treated with caution and tested using a larger data set.From the perspective of policy makers, more interesting is the observation thatCzech firms supplying MNCs are less credit-constrained than non-suppliers are.A closer inspection of the timing of the effect suggests that this result is due toless-constrained firms self-selecting into becoming MNC suppliers, rather thanfrom the benefits derived from the supplying relationship (Javorcik and Spatareanu2009b). This result is not surprising, as survey evidence suggests that supplyingMNCs often requires significant investment outlays and obtaining costlyquality certifications (for example, ISO 9000). For instance in a survey of Czechenterprises, 40 percent of all respondents who reported having such an ISO certificationobtained the certification to become suppliers to multinationals.The above evidence is suggestive of well functioning credit markets being importantin facilitating business relationships between local firms and MNCs,