Evidence from Firm-level Data in Vietnam

contribution to the literature that still shows controversy due to mixed empirical results.In this paper, an export decision model will be used for examining possible effects of entry costs andfirm characteristics on the probability of exporting. The model will be tested in a framework that controls forunobserved heterogeneity among firms, using panel data of 1150 Vietnam’s manufacturing firms surveyed bythe World Bank Group. One of the important characteristics of firms employed in this analysis is total factorproductivity used as a measure of productivity of firms. It is estimated in a more accurate way by employingsemi-parametric model that controls for the phenomenon of possible simultaneity usually faced inproductivity calculation. Among the specifications employed in this paper, a dynamic random effects probitmodel is chosen as the preferred measure to test for the relationship of interest. We expect to have properexplanation of the decision to export of firms in Vietnam, especially the role of sunk costs, productivity, inputintensity, firm size and firm age.The paper is outlined as follows. The next section, Section II, specifies theoretical background andempirical framework of the model. Section III describes the data used while Section IV argues for the choiceof estimation specifications and variables. The estimation results are interpreted and discussed in Section V.Section VI raises concluding remarks.II. THEORETICAL BACKGROUND AND EMPIRICAL FRAMEWORKII.1 Theoretical backgroundIt is usually assumed in models of the type that the decision to export of a rational and profit-maximizing firmis endogenous to its decision to market a new product. Roberts and Tybout (1997) develop a dynamic modelof exporting with entry costs. The model is applied by almost all the parametrically empirical studies of theexporting behavior because it takes into account the entry costs so that the heterogeneity in productivitybetween firms becomes relevant in the decision to export or not to export of firms. We will also follow thisframework in this study. A firm will export if the expected profit from doing so net any fixed entry costs isnon-negative. Before getting to the expected value of profits in a multiple period framework with entry costs,we consider first the single period case of maximization with no entry costs. Assume that at the period t , ifthe firm i produces and sells to foreign markets, it will always be able to produce at*q it, theprofit-maximizing level of exports. The profit the firm can yield isπ ( Xitt, Zit) =pitq*it− c ( Xitt, Zit| q*it)(1)*where p is the price of the goods sold abroad and (.) is the variable cost of producing q ; X anditc itittZitare vectors of exogenous factors and firm-specific factors affecting profitability of the firm, respectively.The firm will export if this profit is non-negative. Denote the export status of the firm i at the period t byYit, we haveYit⎧1 if πit≥ 0= ⎨⎩0 otherwise(2)6