Does Exporting or Importing Aid in Small Business Growth: A Case Study of Alabama

By Hegji, Charles E.; Gregorowicz, Philip | Journal of Business and Entrepreneurship, March 2000 | Go to article overview

Does Exporting or Importing Aid in Small Business Growth: A Case Study of Alabama


Hegji, Charles E., Gregorowicz, Philip, Journal of Business and Entrepreneurship


ABSTRACT

The paper uses data supplied by the Alabama Development Office to examine whether engaging in exporting or importing is a predictor for firm growth. The paper finds that among small Alabama firms (less than 100 employees) those that either imported or exported experienced significantly larger growth measured in terms of percent increase in employment over 1993-98 than those that did not. No such link between exporting and importing was found for large Alabama firms over the same period.

DOES EXPORTING OR IMPORTING AID IN SMALL BUSINESS GROWTH: A CASE STUDY OF ALABAMA

A topic of interest to business economists is the extent to which small businesses operate in the global marketplace. Popular belief, often reinforced by academic economists, is that small businesses often do not have the resources or knowledge to exert a presence in global markets (Scarborough & Zimmerer, 1996; Burpitt & Rondinelli, 1998). This belief has resulted in numerous proposals to encourage small businesses in global operations, particularly in exporting (Barringer, Wormian & Granger, 1994; Business America, 1995; Hutchinson, 1996; Maynard, 1997; Reynolds, 1996; Ryan 1993/94).

Such arguments are based on the assumption that operating in international markets is generally beneficial to small businesses. We do not disagree with this premise. However, there is currently little information that we know of concerning the impact that operating in global markets has on small businesses. Recent research has documented the characteristics of small business exporters. Abboushi (1991) found that when compared to non-exporting small firms, small firms that export perceive exports to be more profitable and less costly. Moini (1992) found that managerial attitudes differ between exporting and non-exporting small manufacturing firms. However, neither study documents the impact that exporting (or importing) has on small firm performance.

The purpose of the present paper is to begin providing such information. To do this we use reported data for the state of Alabama to analyze whether engaging in importing or exporting activity has an impact on firm employment and sales growth.

Data Set and Regressions

The data consists of information reported to the Alabama Development Office and published in the Alabama Industrial Directory. The Alabama Development Office has graciously provided this information to the authors, and the authors are thankful for this favor.

This data is collected annually, with participation on a voluntary basis. Although voluntary, the sample is representative, containing more than 5000 observations. For our purposes, the data set contains observations on the number of employees for each business establishment, a yes/no response whether or not the business exports, a yes/no response whether or not the business imports, and in some instances an estimate of the business' yearly sales.

Data were obtained for 1993 as well as 1998. These two points in time were used to calculate percentage changes in firm employment and sales over the five-year horizon. Several modifications were made to the data to obtain the required samples for the study. First, the sample was sorted to identify firms reporting in both 1993 and 1998. This resulted in 3096 observations. second, because the data was reported at the plant or location level, total employment and sales was aggregated across plants for multi-plant firms to obtain firm level data. This resulted in 2822 firm level observations. Finally, since this data is reported on a voluntary basis, the majority of the firms did not report sales for one or more of the two years. Only 518 firms reported sales estimates in both 1993 and 1998.

Two sets of linear regressions were estimated. The estimated regressions are:

%ΔEMPLOY = A + B^sub 11^HT^sub j^ + B^sub 12^FOR ^sub j^ + e

%ΔSALES = A + B^sub 21^HT^sub j^ + B^sub 22^FOR^sub j^ + e,

where %ΔEMPLOY is the percent change in employment from 1993 to 1998 and %ΔSALES is the percent change in sales from 1993 to 1998 for the sample of firms under consideration. …

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