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Are Smaller Firms More Export Competitive? A Study of Brazilian Firms

April 1, 2018 • GLOBAL ECONOMY, BUSINESS & INNOVATION

By Roque Zin, Paulo Barcellos and Syed Akhter

This article analyses the export performance of Brazilian firms from 2002 to 2010, when the Brazilian currency became stronger.  Firms were classified according to their size (micro, small, midsize and large) and to exports volume in American dollars (USD). The Revealed Comparative Advantage Index (Balassa, 1965) was used to analyse the effects of currency fluctuations on export performance.1 Results indicate that despite unfavourable conditions caused by currency appreciation, smaller firms increased exports volume and improved competitiveness more than large firms.

 

1. Brazilian exports and exchange rate fluctuations

From 2002 to 2010, Brazilian products became more expensive in foreign markets due to the Real (Brazilian currency) appreciation from approximately USD 0.28 to 0.60.  This was due to global economic developments, changes in Brazilian economic policy, and an increase in the inflow of foreign direct investments.

In 2002, 2,639 export companies were located in RS state representing 13.64% of the total of Brazilian export companies. In 2010, the number of RS export firms dropped to 2,531 or 11.54% of the total. Over the same period, RS state exports increased 139.46%, but that growth was well below the national increase of 234.51%. 

Smaller companies are subject to greater financial restrictions and, therefore, have limited access to capital markets to seek protection mechanisms to mitigate exchange rate effects.

Considering that the number of export companies declined in RS and exports increased at a lower rate than the national average, it could be argued that RS firms lost export competitiveness.  Based on these preliminary data, the question that guided this study was whether competitiveness loss was due to the exchange rate.  Also, has it affected firms of all sizes equally or have smaller (micro, small, midsize) firms experienced greater adverse effects compared to large ones?

Smaller companies are subject to greater financial restrictions and, therefore, have limited access to capital markets to seek protection mechanisms to mitigate exchange rate effects.  Another issue to be considered is the exported product. In general, smaller firms do not export commodities whose quotation is established by the international market, and the price increase may offset the loss of exported volume due to an adverse exchange rate. Having in mind the territorial dimension of Brazil and the large variety of firms, the study was concentrated in RS state, which is not a big commodities producer and even so has representativeness in the country exports volume.

 
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About the Authors

Roque A. Zin is a Faculty member at the Graduate Program in Production Engineering at the University of Caxias do Sul, in Brazil. He also acts as a finance advisor for business firms. 

 

Paulo F. P. Barcellos is a full Professor at the University of Caxias do Sul Graduate Program in Business Administration. He is the author of the book Coal/Natural Gas: an energy strategy for Mercosur in the 21st century, published in Portuguese. 

Syed H. Akhter is a full Professor and former Department of Marketing Chair at Marquette University, in the USA. He is a Fulbright scholar and is the author of two books: Global Marketing and Strategic Marketing.

 

References

1. Balassa, B. (1965).Trade and Revealed Comparative Advantage. Washington, D.C.: The World Bank.

2. Thirlwall, A. P. (2011). Balance of Payments Constrained Growth Models: History and Overview, PSL Quarterly Review,64 (259), 307-351.

3. Williamson, J. (2005). The Choice of Exchange Rate Regime: The Relevance of International Experience to China´s Decision, China & World Economy, 13 (3), 17-33.

4. Rodrik, D. (2008). The real exchange rate and economic growth: theory and evidence. Brooking Papers on Economic Activity.In: http://www.brookings.edu/~/media/Files/Programs/ES/BPEA/2008_fall_bpea_papers/2008b_bpea_rodrik.pdf.

5. Deardorff, A. (2005). How Robust is Comparative Advantage? Review of International Economics, 13 (5), 1004–1016.

6. Benedictis, L. (2005). Three Decades of Italian Comparative Advantages. Oxford, UK: Blackwell Publishing.

7. Baldone, S.; Sdogati, F.; Tajoli, L. (2007). On Some Effects of International Fragmentation of Production on Comparative Advantages Trade Flows and the Income of Countries, The World Economy 2007, Oxford, UK.

8. SECEX (2012), Ministério do Desenvolvimento, Indústria e Comércio Exterior, Brazilian Government. In:

• http://www.desenvolvimento.gov.br/sitio/interna/interna.php?area=5HYPERLINK

• “http://www.desenvolvimento.gov.br/sitio/interna/interna.php?area=5&menu=3287&refr=608″&HYPERLINK

• “http://www.desenvolvimento.gov.br/sitio/interna/interna.php?area=5&menu=3287&refr=608″menu=3287HYPERLINK

• “http://www.desenvolvimento.gov.br/sitio/interna/interna.php?area=5&menu=3287&refr=608″&HYPERLINK

• “http://www.desenvolvimento.gov.br/sitio/interna/interna.php?area=5&menu=3287&refr=608″refr=608

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