Study finds govt’s focus on exporters rightly placed

Exporting firms were found to have 150% higher output, double labour productivity

LAHORE: Developing countries have sought to promote exports as a growth strategy since they are both - a source of higher demand and of coveted foreign exchange. Proponents of trade liberalisation argue that there is a positive relationship between openness of economy and productivity of its firms.

A research conducted by the Lahore School of Economics suggests that this works through the introduction of imports that increases competition and lowers the average cost of production due to the exit of low-productivity firms.

Research showed that the average sales from exports were approximately 51% of total sales in Punjab and that many exporters in Pakistan don’t have a significant domestic presence. Exporting firms have been found to have 29% higher revenues and 150% more output even after controlling for firm level characteristics such as geographical locations and ownership status. The labour productivity of exporting firms was found to be two to three times higher than that of non-exporters and exporters were doing better in terms of larger firm sizes, more employment opportunities, higher compensation and greater productivity.

The researchers found that apparel producers are doing well and exporting nearly 93% of their output. This sector employs on average 400 workers per organisation and offers significantly higher compensation which makes the sector favourable for exports. Therefore, the government’s recent emphasis on developing the readymade garments sector is well placed.

The researchers also found generally that the capital to labour ratio among exporters was twice than that of non-exporters. Exploring some additional dimensions by which the exporting and non-exporting firms differ, it was found that the average exporting firms tended to use a larger share of imported material in their input mixes than non-exporting firms.

Published in The Express Tribune, September 2^nd, 2016.

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