Determinants of firm-level export performance: a case study of Indian textile garments and apparel industry

Abstract

Drawing on international trade and industrial organisation theories, this paper identifies variables affecting (a) the export decision function, i.e. to export or sell in domestic market, and (b) the export performance function, i.e. the share of exports in output. These functions are estimated for Garment and Apparel producing units in Delhi. The form of business organisation, reflecting access to capital, turns out to be a key determinant in both functions. The estimated marginal impact of identified variables (scale and share of sales expenses) on the probability of exporting in an estimated Probit model declines sharply when moving from single proprietorship to partnership and on to limited companies. On the other hand, every single determinant (scale, share of wages, share of sales expenses and technical efficiency) has been found to have an increasing marginal impact on export performance in an estimated Tobit model when moving across the three forms of business organisation. Empirical results suggest two policy changes to boost export performance. First, given the importance of scale for exports, the existing policy of reserving garments and apparel for exclusive production in small-scale units needs to be scrapped. Simultaneously, it is also necessary to amend current labour legislation applicable to large-scale factory units, as it introduces labour market inflexibility and hence serves as an impediment to the expansion of existing units and the entry of new units.