CHAPTER 10
Local Procurement and Firm Performance:
Pure-local Inputs and Semi-local Inputs
Kazunobu HAYAKAWA and Tadashi ITO
This chapter should be cited as:
Hayakawa, K. and Ito, T., 2013. “Local Procurement and Firm Performance: Pure-local
Inputs and Semi-local Inputs.” In Deepening of Corporate Global Activities in East Asia,
edited by Kazunobu Hayakawa, BRC Research Report No. 12, Bangkok Research
Report, IDE-JETRO, Bangkok, Thailand.
Chapter 10.
Local Procurement and Firm Performance: Pure-local Inputs and
Semi-local Inputs
Kazunobu HAYAKAWA
Bangkok Research Center, Institute of Developing Economies, Thailand
Tadashi ITO§
Inter-disciplinary Studies Center, Institute of Developing Economies, Japan
Abstract: This paper examines the impacts of local procurement on the performance of
foreign-owned firms. Using a unique survey of Japanese overseas affiliates suitable to this end, we
show that the increase of local procurement improves Japanese affiliates’ performance, but that this
positive impacts are observed only in the case of procuring inputs from other Japanese affiliates in
their host country, not in the case of procurement from indigenous firms. This result has important
policy implications to policymaker in both investing countries and host countries.
Keywords: Foreign direct investment; local procurement, firm level data; performance
JEL Classification: F14
1. Introduction
Policymakers encourage foreign-owned firms to procure inputs produced
domestically in order to induce technology transfer. To do that, particularly in
developing countries, local content requirements (LCRs) had been traditionally imposed
on foreign direct investment (FDI) though LCRs are inconsistent with the national
treatment obligation in Word Trade Organization. Rules of origin, particularly
value-added content criterion, with which firms must comply in exporting under
preferential tariff schemes, may also contribute to raising the local input share in
We would like to thank Yose Rizal Damri, Dionisius Narjoko, Yoshifumi Fukunaga, and seminar
participants in Centre for Strategic and International Studies for their helpful comments.
§
Corresponding author. Tadashi Ito, Institute of Developing Economies, Office D314, 3-2-2 Wakaba,
Mihama-ku, Chiba-shi, Chiba, 261-8545, Japan. Email: Tadashi_Ito@ide.go.jp. Phone: 8143-299-9674.
194
foreign-owned firms. As a result, foreign-owned firms raise the share of local inputs and
contribute technology transfer to indigenous firms to some extent because they
sometimes need to provide trainings to indigenous input suppliers in order to raise the
quality of their products.
The academic literature has paid more attention to the benefits of the existence of
foreign-owned firms to indigenous firms. Such positive benefits are called “spillover
effects”. The survey papers include Gorg and Greenaway (2004), Crespo and Fontoura
(2007), and Smeets (2008). Four paths of spillover effect are suggested in the literature:
imitation, skill acquisition and proliferation, competition, and exports. Imitation is the
method of raising productivity by imitating foreign-owned firms’ superior products and
technology. Skill acquisition and proliferation is the route whereby the foreign-owned
firm’s know-how and technology are directly transferred to indigenous firms, say, by the
shift of labor from foreign-owned firms to indigenous firms. Competition is the
phenomenon whereby the foreign-owned firms exert pressure on indigenous firms to
use existing technology more efficiently. Exports refer to the means of raising
productivity by learning information from foreign-owned firms on penetrating the
export market and starting export activities. Through these various routes, indigenous
firms are expected to be able to obtain positive impacts from foreign-owned firms.
On the other hand, are there any benefits for foreign-owned firms from procuring
inputs produced in their host countries? The foreign-owned firms may benefit through
their procurement of intermediate inputs from indigenous firms, which mostly have
lower input prices particularly in the case of developing host countries. However, inputs
from other kinds of firms may have different impacts on firm performance. In most of
the countries in the recent globalized era, there are a non-negligible number of
foreign-owned firms. As is well known in the literature, foreign firms are on average the
better performers than indigenous firms (e.g., Doms and Jensen, 1998 for the US; Girma
et al., 2002 for the UK; Mayer and Ottaviano, 2007 for EU countries; Kimura and
Kiyota, 2007 for Japan). Thus, the inputs provided by such foreign-owned firms may
yield large benefits to foreign-owned firms. We call such foreign inputs “semi-local
inputs”, while “pure-local inputs” refer to those provided by indigenous firms.
The trade literature has long been discussing the positive effect of imported inputs
on firm performance. Its main sources are the learning, variety, and quality effects
through imported inputs. Firms can improve their productivity by learning from
imported inputs which embody new technologies. They can also raise their productivity
from imported inputs through variety effects as in product-variety models first
introduced by Ethier (1979, 1982), in which the increase of imported varieties in the
195
finished good production lowers the production costs through the internal economies of
scale or the “love-of-(input) variety” nature in the context of production. Quality effects
improve firm productivity as in quality-ladder models first proposed by Aghion and
Howitt (1992) or Grossman and Helpman (1991), in which imported inputs with higher
quality have lower quality-adjusted prices and thus enable firms to reduce their
production costs. There are a larger number of papers on these; Amiti and Konings
(2007), Bas (2012), Goldberg, Khandelwal, Pavcnik and Topalova (2010), Halpern,
Koren, and Szeidl (2005), Kasahara and Rodrigue (2008), Kugler and Verhoogen (2009),
Luong (2011), Nataraj (2011), Topalova and Khandelwal (2011), Schor (2004), and
Vogel and Wagner (2010). These studies show that the increase of imported inputs or
the reduction of input tariff rates enhances firm productivity.
Semi-local inputs seem to share some advantages with imported inputs. The
inputs produced by local foreign-owned firms are usually of higher quality than those
from indigenous firms. Also, the increase of input varieties by local foreign-owned
firms fosters the love-of-variety effects in the production. In particular, the
same-nationality obviously facilitates the learning because of the sharing of the same
language and culture. Thus, for foreign-owned firms, the inputs from other local
foreign-owned firms, particularly those with the same nationality may greatly improve
their performance. In sum, foreign-owned firms seem to benefit from procuring local
inputs, particularly semi-local inputs.
In this paper, by using a unique firm level survey of Japanese FDIs in Asian
countries, we empirically investigate the effect of local input sources on overseas
affiliates’ performance. The survey includes the questionnaires on input procurement
sources by origin country/region and the nationalities of local suppliers. With this
survey, we examine whether or not the impacts on affiliate performance are different
between pure-local inputs (inputs from local indigenous firms) and semi-local inputs
(inputs from Japanese overseas affiliates). If we find positive impacts from pure-local
inputs on foreign-owned firms’ performance, it implies that the beneficial impacts are
bi-directional between foreign-owned firms and indigenous firms rather than
uni-directional. What we study in this paper can be interpreted as this benefit on the side
of foreign-owned firms. In addition, while the bulk of the previous studies found that a
share of imported inputs is positively associated with firm performance, our study
re-examines this finding in the previous studies by differentiating input sources at a
more detailed-level (i.e., pure-local inputs versus semi-local inputs).
The rest of this paper is organized as follows. The next section provides our
empirical framework to examine the relationship between affiliate performance and
196
sources of inputs. Section 3 reports our estimation results, and Section 4 concludes.
2. Empirical Framework
This section first introduces our main data source of the JETRO (Japan External
Trade Organization) survey. Then, we specify estimation equations and variables to be
used for analysis, in addition to showing descriptive statistics.
2.1. The JETRO Survey
In order to highlight the impacts of semi-local inputs on firm performance, we
examine those impacts on foreign plants’ performance, specifically performance of
Japanese overseas affiliates. 1 The main data source in this paper is “Survey of
Japanese-Affiliated Firms in ASEAN, India, and Oceania”, a unique confidential data
set compiled by JETRO. The survey data at our hand covers three years from 2008 to
2010. In each year of this period, questionnaires were sent to around 5,000 Japanese
affiliates operating in those regions, receiving more than 2,000 valid responses. Namely,
this survey conducted by the semi-governmental organization, JETRO, has a
sufficiently high response rate of more than 40%, despite the fact that answering to this
survey is not mandatory. In 2009, for example, 1,109 were from Japanese affiliates in
the manufacturing industry. Of these, 915 were from ASEAN7 countries (Thailand,
Malaysia, Singapore, Indonesia, the Philippines, Vietnam, and Myanmar), 128 from
South Asia (India, Bangladesh, Pakistan, and Sri Lanka), and 66 from Oceania
(Australia and New Zealand).
We exclude Singapore, Australia, and New Zealand from our study because one
of the focuses of our study is the distinction between Japanese overseas affiliates and
local indigenous firms under the implicit assumption of lower technology level of the
indigenous firms. Local indigenous firms in these three countries are very likely to have
the almost same level of technology with Japanese overseas affiliates. As a result, the
host countries in our sample are ASEAN developing countries in addition to South
Asian countries. Particularly for ASEAN countries, Japan can be seen as a
representative FDI source country because Japan is the largest investors (10.1% in net
inflow values for 2008-2010) for ASEAN countries (ASEAN Foreign Direct Investment
Statistics Database).
1
Another simple reason for our focus on the impacts on foreign plants’ performance is the data
limitation. Namely, we do not have data that include not only foreign plants but also indigenous
plants and have information on the detailed sources of inputs.
197
The JETRO survey is considered to have captured well the information of
Japanese affiliates particularly in ASEAN countries. According to the “Basic Survey of
Japanese Business Structure and Activities” by the Ministry of Economy, Trade and
Industry (METI), there were around 2,000 Japanese manufacturing affiliates in
ASEAN7 countries in 2009, meaning that the JETRO survey includes around half of
Japanese affiliates in the case of ASEAN7 covered by the METI data. Furthermore,
affiliates included in the JETRO survey are not qualitatively different from those
included in the METI data. For example, the two groups of affiliates in ASEAN4
countries (Thailand, Malaysia, Indonesia, and the Philippines) in 2009 have almost the
same mean values of employment (669 for the JETRO and 601 for the METI) and the
share of exports in total sales (45% for the JETRO and 48% for the METI). The
countries in this survey also well represent Japanese FDIs because this group of
countries has the largest share of 25 percent of the total Japanese overseas affiliates’
numbers in the world (Basic Survey of Japanese Business Structure and Activities
2010).
We make use of the information unique to this survey. This survey includes
questions on procurement sources by region/country, indigenous firms/Japanese
affiliates/other foreign-owned firms, etc. There are two other major firm level data on
Japanese overseas affiliates’ activity. The one is “Basic Survey of Overseas Business
Activity” annually compiled by METI, and the other is “Overseas Japanese Companies
Data” compiled by a private company, Toyo Keizai INC. The former contains the rich
information on Japanese overseas affiliates’ characteristics, such as affiliates’ sales,
profit, and cost structure while the latter has a virtue of having some other information.
However, these two data sets do not provide us with the detailed information on
Japanese affiliates’ procurement sources. Thus, we make use of this unique feature of
the JETRO survey.
2.2. Specification
We estimate two models. For both models, we use the number of employees for
the dependent variable. We use the number of employees as a proxy for firm
performance, say, productivity. The survey does not include data on sales values,
value-added, intermediate inputs costs, and capital stock. Therefore, we also could not
compute value-added per worker or the total factor productivity. However, as Melitz
(2003) argues theoretically and subsequent numerous studies show its empirical
relevance, high productivity firms are large firms in terms of revenues, profits and
number of employees. Thus, we follow suit of many other economists and use the
198
number of employees as a proxy for a representative variable of firm performance.
Two models to be estimated are as follows. The first equation is:
ln Employeeict = Į1 Localictí1 + Xict ȕ + İict,
(1)
where Employeeict is the number of employees. Subscripts i, c, and t represent Japanese
overseas affiliate, country, and year, respectively. Local is a local procurement share as
a whole without distinguishing its detailed sources such as indigenous firms. X is a
vector of various control variables, details of which are explained below. While the
above model investigates the impact of local inputs as a whole, the next model
decomposes the local input share into a share of procurement from local indigenous
firms and that from other Japanese overseas affiliates. Namely,
ln Employeeict = Į2 Japaneseictí1 + Į3 Indigenousictí1 + Xict ȕ + İict,
(2)
where Japaneseictí1 represents an input procurement share from other Japanese overseas
affiliates and Indigenousictí1 is an input procurement share from local indigenous firms.
The sum of these two variables is not equal to a variable of Local because Local also
includes input procurement from the other foreign-owned firms. However, the shares of
other foreign-owned firms are negligible as is shown below. The variables for
procurement shares are lagged by a year to avoid simultaneity bias.
Variables in X are Export ratio and Age. Export ratio is computed as export sales
value divided by total sales value of Japanese affiliate i in country c at time t. We
include this variable because exporters tend to be larger firms. Age, which is the years
passed since the establishment of the affiliate, is included because overseas affiliates
may increase the number of employees as they learn about local suppliers. We take logs
for all the dependent and independent variables except input share variables and an
export ratio. Input share variables are not in log-form because we deem it appropriate to
leave it in levels. For example, the difference between 0.1 and 0.2 should be treated as
identical with the difference between 0.8 and 0.9. In both cases, the differences are 0.1.
If it is transformed into logarithms, the difference between 0.1 and 0.2 is far larger than
that between 0.8 and 0.9.
There are two potential problems which may render the estimators biased. One is
the reverse causality, which comes from self-selection, and the other is simultaneity bias.
The first problem arises because firms with a large number of employees may opt to
purchase from local suppliers. A good choice of instrumental variables (IVs) is almost
always a hard task, but fortunately we have good candidates: effective exchange rates
and effective tariff rates, which are calculated as the imports-weighted averages of
exchange rates and tariff rates, respectively. These variables satisfy two conditions for
good instrumental variables, namely they are correlated with the variable instrumented
199
and uncorrelated with the error term. Effective exchange rates are probably correlated
with local input shares (the variable instrumented) because highly depreciated local
currencies induce firms to shun procurement by imports and to favour local
procurement. Also, high tariff rates work against imports in favour of local procurement.
The second problem arises because firms may often make simultaneous decisions on
employment and on procurement. To address this, we use one-period lagged local
procurement for explanatory variable.
2.3. Descriptive Statistics
This section shows descriptive statistics. Table 1 shows a local input share, an
input share from other Japanese affiliates, and an input share from local indigenous
firms for each country under study. The mean for a local input share is 51%, which is
composed of 25% from Japanese FDI local affiliates and 24% from indigenous firms.
The remaining 2% is supplied by other foreign-owned firms. The highest local input
share is observed for Thailand, followed by Indonesia, India, and Malaysia. It appears
that in general large countries in terms of GDP have higher local input shares. It also
appears that countries where Japanese firms have a long history of production activity
such as Thailand, Malaysia, and Indonesia tend to have higher local input shares. The
local input share is decomposed into the input share from other Japanese affiliates, the
input share from indigenous firms, and the input share from other foreign-owned firms.
Thailand registers the highest rate again. 33% out of 59% is supplied by other Japanese
affiliates and 24% is supplied by indigenous firms. The remaining 2% is supplied by
other foreign-owned affiliates.
=== Table 1 ===
Table 2 shows the local input share and its decomposition as above by industry
instead of by country. Paper industry and Food industry have high local input shares,
76% and 75% respectively. Precision machinery has the lowest number of 27%. Local
suppliers for Paper industry and Food industry are almost all indigenous firms, while for
Precision machinery industry the input share from other Japanese affiliates is much
higher than that from indigenous firms. It appears that affiliates in industries which
require sophisticated technology tend to procure from other Japanese affiliates.
=== Table 2 ===
200
3. Estimation Results
Table 3 shows descriptive statistics. Table 4 shows our baseline results. The
columns (I) and (II) report the results of IV estimation on the above equation (1). The
coefficient estimates of Local input share variable are highly significant. Specifically,
the rise of a local input share by ten percent points leads to the 0.3% rise of productivity
(remember that our variable of Local lies in the unit interval). This finding of positive
effects of the local input share on performance is novel in the literature where only the
positive effects of imports on productivity have been studied. In other words, firms can
improve their performance even through lowering their import share. In the next
estimation, i.e. the estimation of the above equation (2), we explore more closely the
source of those positive effects of local inputs by differentiating between pure-local
inputs and semi-local inputs.
=== Tables 3 & 4 ===
The results in the other variables are as follows. The control variables of Export
ratio and Age both have statistically significant positive coefficient estimates as we have
expected. Namely, as is well known, exporters are the better performer and/or are larger
in terms of employment. The negative contribution of the export ratio to the local input
share might show the complimentary effects between exporting and importing. Indeed,
Aristei et al. (2011) found the positive interdependence at firm-level between those two
kinds of international activities in a group of 27 Eastern European and Central Asian
countries. Also, due to the more knowledge on the local market/suppliers, the older
affiliates have the higher local input share and the better performance. As to the IVs,
although effective exchange rates are not showing clear positive correlation with local
input shares, effective tariff rates are positively correlated with local input shares. Thus,
the higher tariff rates encourage firms to raise the local input share through the relative
expensiveness of imported inputs.
The estimation results on the above equation (2) are presented in columns
(III)-(V). Here, a local input share is decomposed into an input share from other
Japanese affiliates (semi-local input share) and an input share from indigenous firms
(pure-local input share). In column (V), the result of IV regression shows a statistically
significant positive coefficient for the input share from other Japanese affiliates while
the coefficient estimate for the input share from indigenous firms is not statistically
significant.Namely, the procurement from local suppliers is positively associated with
201
performance improvement but only in the case of semi-local inputs. Specifically, the
rise of a local input share by ten percentage points leads to the 0.7% rise of productivity.
The control variables have statistically significant coefficient estimates with expected
signs. Namely, firms with the higher export ratio or the more experience of overseas
activities are the better performers.
There are some noteworthy results in equations for inputs from other Japanese
and indigenous firms, which are reported in columns (III) and (IV). First, the export
ratio is positively related to the input share from indigenous firms, but not to that from
other Japanese firms. The higher export ratio in overseas affiliates implies that their
motivation of FDI is low costs such as cheap labor costs in host countries. Thus, such
firms may prefer cheaper inputs, which are obtainable from indigenous firms, to higher
quality inputs, i.e. semi-local inputs. Second, older firms lower the input share from
other Japanese firms but do not in the case of the input share from indigenous firms.
This result may be a weak evidence on that the older overseas affiliates have the more
knowledge on local market/suppliers. Last, the effective exchange rates have a
significantly positive coefficient in the case of the input share from indigenous firms,
indicating that the depreciation of local currency encourages firms to raise the input
share from indigenous firms.
As a robustness check, we re-estimate our models by controlling for industry
characteristics. Specifically, we include labour intensity, which is a share of wage
payment in value-added. Although it may differ both among countries/regions and
across years, we use the labour intensity data of Thailand as a representative case of the
countries in our sample since the data for each of the other countries are not available.
Given that Thailand is almost in the middle of the development stage of all the sample
countries, we believe that this choice is appropriate. The data necessary for this
calculation are taken from the 2007 Industrial Census – Whole Kingdom by National
Statistical Office, Kingdom of Thailand. Labour intensive industries are expected to hire
a larger number of workers. The regression result is in Table 5. Here we focus on the
case of equation (2). While there does not appear a statistically significant correlation of
Labour intensity with the input share from other Japanese affiliates (III) and
employment (V), a highly significant correlation can be observed for the input share
from local indigenous firms (IV). The other results are qualitatively equivalent to the
previous results in Table 5. As a result, we conclude that the procurement from local
suppliers is positively associated with performance improvement but only in the case of
semi-local inputs.
202
=== Table 5 ===
4. Concluding Remarks
This paper examines the impacts of local procurement on the performance of
foreign-owned firms. Using a unique survey of Japanese overseas affiliates suitable to
this end, we find that the increase of local procurement improves Japanese affiliates’ the
affiliates’ performance, but that this positive impacts are observed only in the case of
procuring inputs from other Japanese affiliates in their host country, not in the case of
procurement from indigenous firms. Some policy implications can be drawn from these
findings. From the investing country point of view, firms’ FDIs contribute to improving
not only their performance per se but also the performance of forerunner firms with the
same nationality through supplying the better inputs to those firms. Thus, policymakers
may facilitate further development of their firms’ ongoing overseas operation by
supporting new firms’ investment abroad. From the host country point of view, on the
other hand, the skill/quality upgrading of indigenous firms is crucial to raise the quality
of their products to the level of foreign firms’ products. If, due to such upgrading,
indigenous firms succeed in yielding positive effects for foreign firms in terms of their
performance, more foreign firms will invest, resulting in larger spillover effects from
foreign firms to indigenous ones. In sum, it is important for host countries to create and
develop such “virtuous circle” between foreign firms and indigenous firms.
203
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205
Table 2. Input Shares by Country
Local input
Bangladesh
Indonesia
India
Sri Lanka
Myanmar
Malaysia
Pakistan
Philippines
Thailand
Viet Nam
Total
38%
50%
49%
28%
35%
49%
39%
37%
59%
30%
51%
Japanese firms
4%
24%
5%
1%
0%
18%
1%
24%
33%
12%
25%
Indigenous firms
34%
23%
41%
27%
35%
27%
37%
12%
24%
14%
24%
Source: Survey of Japanese-Affiliated Firms in ASEAN, India, and Oceania (JETRO)
206
Table 3. Input Shares by Industry
Local input
Chemical
Cloth
Electric
Ferrous metal
Food
Furniture
General machinery
Medicine
Metal
Non-ferrous metal
Others
Paper
Plastic
Pottery
Precision machinery
Rubber
Textile
Transport equipment
Wood
Total
Japanese firms
14%
10%
24%
22%
7%
10%
24%
0%
34%
15%
19%
8%
37%
20%
16%
20%
35%
35%
9%
25%
45%
48%
40%
38%
75%
68%
56%
40%
52%
32%
55%
76%
57%
51%
27%
42%
59%
54%
57%
51%
Indigenous firms
28%
36%
13%
15%
66%
58%
30%
40%
16%
15%
32%
68%
18%
30%
9%
19%
22%
17%
47%
24%
Source: Survey of Japanese-Affiliated Firms in ASEAN, India, and Oceania (JETRO)
207
208
Obs
1,211
1,211
1,211
1,211
1,211
1,211
1,211
1,211
1,211
Mean
759.643
0.501
0.247
0.231
0.477
15.428
0.242
4,649
0.092
Std. Dev.
1775.418
0.316
0.273
0.269
0.392
9.944
0.114
105,514
0.068
Min
2
0.010
0
0
0
1
0.126
0
0.001
Max
32,067
1
1
1
1
52
0.497
2,590,435
0.406
Note: We introduce into estimation equations, variables of Employment, Age, Effective exchange rates, and Effective tariff rates after taking those logs.
Employee
Local (Share of local inputs)
Indigenous (Share of inputs from indigenous firms)
Japanese (Share of inputs from other Japanese firms)
Export ratio
Age
Labor intensity
Effective exchange rates
Effective tariff rates
Table 4. Summary Statistics for All the Variables
209
-0.089***
[0.024]
0.055***
[0.013]
0.009
[0.008]
0.063***
[0.010]
YES
YES
1,211
YES
YES
1,211
0.936***
[0.144]
0.722***
[0.080]
Equation (1)
Local input
Employment
share
(I)
(II)
2.885***
[0.805]
0.016
[0.011]
-0.116***
[0.021]
-0.007
[0.008]
0.034***
[0.009]
YES
YES
1,211
0.038***
[0.011]
0.032
[0.022]
0.016*
[0.009]
0.034***
[0.010]
YES
YES
1,211
YES
YES
1,211
6.624**
[2.905]
-0.352
[2.461]
0.786***
[0.108]
1.453***
[0.438]
Equation (2)
Input share from Input share from Employment
Japanese firms Indigenous firms
(III)
(IV)
(V)
We introduce year dummy and country dummy.
Notes: In the parenthesis is the robust standard error. *** and ** indicate 1% and 5% significance, respectively. All independent variables are one-year lagged.
Year
Country
Observations
Effective tariff rates
Effective exchange rates
Age
Export ratio
Indigenous
Japanese
Local
Table 4. Baseline Results
210
0.055***
[0.013]
-0.097***
[0.024]
0.257***
[0.077]
0.01
[0.008]
0.056***
[0.010]
YES
YES
1,211
YES
YES
1,211
0.646***
[0.097]
1.204***
[0.183]
-3.982***
[0.568]
0.016
[0.011]
-0.112***
[0.022]
-0.112
[0.069]
-0.008
[0.008]
0.037***
[0.009]
YES
YES
1,211
0.038***
[0.011]
0.021
[0.022]
0.334***
[0.071]
0.017*
[0.009]
0.025**
[0.010]
YES
YES
1,211
YES
YES
1,211
7.967***
[2.662]
-0.058
[2.927]
0.756***
[0.132]
1.668***
[0.396]
-2.031
[1.274]
Equation (2)
Input share from Input share from Employment
Japanese firms Indigenous firms
(III)
(IV)
(V)
We introduce year dummy and country dummy.
Notes: In the parenthesis is the robust standard error. *** and ** indicate 1% and 5% significance, respectively. All independent variables are one-year lagged.
Year
Country
Observations
Effective tariff rates
Effective exchange rates
Labor intensity
Age
Export ratio
Indigenous
Japanese
Local
Equation (1)
Local input
Employment
Share
(I)
(II)
4.370***
[1.086]
Table 5. Robustness Check: Controlling for Labour Intensity