Essays on International Trade and Firm Performance
Author: Muhammad Luqman Khan

In the light of the vast and still growing body of literature on the firm heterogeneity in international trade theory, this thesis explores the performance of manufacturing firms operating in four largest South Asian countries. The dissertation consists of three essays, although interrelated, but each essay is independent self-contained study In the first essay, we explore the response of extensive and intensive margins of trade to corruption in selected south Asian countries. Although, both margins of trade are important for explaining the rapid growth and development, the extensive margin of trade plays a major role in export growth and diversification besides circumventing volatility in export earnings. In this context, we develop a theoretical framework which links corruption with extensive and intensive margins of trade and guides our empirical analysis. Based on our theoretical underpinning, we hypothesize that corruption would oppositely affects the intensive and extensive margins of trade. By using cross sectional data of manufacturing firms from four South Asian economies, we find that corruption reduces the probability of new firm to enter into export market and act as ‘sand in the wheels’ for extensive margin of trade. Conversely, the results also confirm that corruption has positive effects on the volume of export of incumbent firms and promotes the intensive margin of trade. These results suggest that pervasive corruption in selected south Asian countries has been one of the most detrimental factors for export growth and volatility in exports earnings. Moreover, corruption prevents inter-industrial reallocation in favor of most productive firms and averts the additional channel of overall productivity growth predicted by the New-New trade theory Trade facilitation through improving access to imported inputs is relatively more important for developing countries that were seeking productivity growth in inward-looking import substitution policies. South Asian economies has exercised inward looking policies from the early 1950s to mid-1980s in order to replace its major imports with indigenous productivity. In this context, second essay intends to examine the impact of imported inputs on the productivity of firms operating in selected South Asian countries. In addition, to come across profoundly, the study also tests complementarity between firms’ capabilities and imported inputs in augmenting productivity performance. The empirical analyses carried out at cross sectional data set of manufacturing firms of the four largest South Asian economies. To cope with the nature of data and empirical models, the empirical estimations carried out with stochastic frontier model, ordinary least square, and instrumental variable estimation techniques. At large, findings of the study reveal that imported inputs positively and significantly contributes to firms’ productivity of the sample countries. Moreover, we came with the findings that firms ‘capabilities play a complementary role in the expansion of firms’ production frontier. Findings of the study put forward that sample countries should reduce tariff on imported inputs in order to amplify the firms’ productivity growth. Furthermore, findings of the study suggest that the potential gain of imported inputs is conditional to the firms’ capabilities, hence, these countries should allocate more resources to the education and encourage firms to invest in trainings, management capabilities and internal R&D effort. Economic globalization has put pressure on firms for competitiveness in domestic as well as international market. Certainly, innovation and continuous upgradation of product is an important driver for international competitiveness. Third essay uncover the effects of global linkages of firms on innovations decision using the cross-sectional data of manufacturing firms operating in four largest South Asian economies. Moreover, this study also explores the moderating role of institutional quality in interlinked relationship between global engagement and firm-level innovations. To this end, we construct a composite index of institutional quality by using its three different dimensions the regulatory quality, rule of law and control of corruption. The overall results substantiate the claim that firms’ global linkages strongly affect their innovation decisions. The probe further reveals that institutional environment in which firms are embedded positively moderates the effects of global linkages on firms’ level innovations. These results are robust across the different estimation techniques. These results suggest that selected South Asian countries can magnify the gain from global linkages of firms by improving their institutional quality. Supervisor:- Dr. Karim Khan Co-Supervisor:- Dr. Mirajul Haq

Meta Data

Supervisor: Karim Khan
Cosupervisor: Mirajul Haq

Related Thesis​