Xavier Cirera 4th ESRC Research Methods Festival, Oxford, 8 th of July 2010 Firm Behaviour and the Introduction of New Products: Evidence using a Firm Micro Data Set in Brazil

The issue Export diversification is a core objective of most developing country policies and donor assistance programmes. Evidence supports the idea that until relatively high levels of per capita income are reached, economic development is associated with diversification of production, and export diversification is correlated with positive growth. However, while the benefits of diversification are clear, it is less evident how to achieve it; and there are indications that breaking into new export markets is becoming increasingly difficult, especially for LDCs.

Objectives of the project The overall and longer-term aim of this project is to examine the experience of a BRIC, Brazil, in order to contribute to knowledge about: (i)Understanding the micro determinants of export diversification and the introduction of new products (ii)the interaction between structural change and diversification of the economy; (iii)micro-level learning and innovation, and about how this interaction contributes to sustained growth in developing and emerging economies. (iv)To familiarise other researchers in the UK and Brazil with the new datasets and the possible ways in which they might be used.

The Research Team Interdisciplinary research network – Brazil/UK – with expertise on trade, business, innovation and value chain literature Xavier Cirera, IDS, University of Sussex. Anabel Marin, SPRU, University of Sussex. Paulo Figueiredo, Escola Brasileira de Administração Pública e de Empresas, EBAPE, Fundação Getulio Vargas. Ricardo Markwald, FUNCEX, Fundação Centro de Estudos do Comércio Exterior

Theoretical Background There are different approaches to understand diversification at the firm level. Trade and heterogeneous firms models (Melitz, 2003) that emphasise the role that trade costs and productivity thresholds Product “discovery” literature (Hausmann and Rodrik, 2003), which focuses on the role of entrepreneurship and information costs for early entrants and the relationship of these costs with existing production Learning by exporting literature (Clerides et al. 1998) that stresses the role of externalities arising from exporting other products or by proximity to export clusters. Innovation studies (Bell, 2006).2 Innovation studies have emphasised the importance of firm efforts to develop capabilities including R&D, training, design and engineering efforts, organisational changes, investments in skills or licences and machineries. Global value chains literature (Gereffi et al., 2005). This literature stresses the role of intra-firm linkages in explaining the process of acquiring capabilities and upgrading for firm diversification. Objective: To test with micro data some of the hypothesis arising from these approaches

Research Questions Which are the firm level behaviours that precede the introduction of new products according to the data? Is there any evidence of preparation by increasing technological and learning efforts, learning by exporting, location in clusters, isolated discovery or participation in value chains? Do regional and sectoral externalities play any role? Do co-operations with other firms and science and technology institutions play a role? Do different types of firms - e.g. national vs. subsidiaries - follow different patterns of diversification and preparation? How frequently the introductions of new products for domestic market precede exports? How different and how related are both processes? How different or related are new products to existing ones? What type of firm introduces new products? Are only the more productive firms? Is it different for exports than for the domestic market? Overall, what are the firm and system level determinants of introducing new exports at the firm level and how they vary by sectors and geographical location? Is innovation a key component in the process of introduction of a new product?

Methodology Stage 1. Linking three datasets: PIA –produto e empresa – annual dataset with information for a large number of firms on sales, firm characteristics, production, unit values and labour force. PINTEC – rich dataset characterizing innovation for around 10,000 Brazilian firms in 2001, 2003 and SECEX – Annual export data at the firm level – value, product, destination Firm panel

Methodology Stage 2. Identification and characterization of episodes of introduction of new products for the domestic and export market. This stage will involve a statistical description of these episodes with a focus on the predictions of the different approaches described above : how frequent are these episodes, on what sectors and locations are more frequent and what type of firms tend to introduce new exports and new products, whether firms that introduce new products are more productive, how different is the process of introducing products for domestic production vs export.

Methodology Stage 3. Econometric analysis of the determinants of introducing new products for export This stage will use the panel dataset to estimate the likelihood of introducing a new product for the domestic market and for export, based on the main hypothesis suggested by the different stands of the literature.

Challenges Project has just started but some challenges arising: Still unclear the level of disaggregation of the firm export dataset Overlapping of different samples for PIA and PINTEC, and also with population of trade data- need for inference of firm innovation data – propensity score methods? Changes in access to data – more restricted time, more expensive, SAS compulsory?

Audiences and Dissemination Academic audience Presentations at internal Seminars - Economics Department at Sussex, SPRU and FGV International conference The results will also be communicated through the ESRC Research Network on Development Economics Policy Audience FUNCEX - an institution that is the interface between private and public sector regarding international trade – to facilitate meetings with Brazilian Government DFID/BIS Trade Policy Unit (TPU) – AfT agenda IDS Policy Brief “Globalisation in Focus” disseminated to IDS subscribers - NGOs, Development Agencies, Government units and embassies, academic institutions in the South, university libraries and individual development practitioners.

Final remarks We are also currently developing a project proposal for a Phase 2 that will contribute to the emerging literature on the micro-dynamics of firm product and export diversification, including primary data collection.

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