under the global crisis The micro evolution of trade and turnover inTurkey Economic Systems

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The

micro

evolution

of

trade

and

turnover

in

Turkey

under

the

global

crisis

Alessia

Lo

Turco

*

,

Daniela

Maggioni

Universita` PolitecnicadelleMarche,DepartmentofEconomicsandSocialSciences,PiazzaleMartelli8, 60122Ancona,Italy

1. Introduction

Therecentglobalfinancialandeconomicdownturnhasbecomeoneofthemaintopicsinacademic debate.Theinitialfinancialsectordownturnpropagatedtotherealeconomyand,inparticular,thedrop inglobaltradeinthefirstquarterof2009wasabout30%onaveragecomparedtothepreviousyear (WTO,2010).The emergingacademic consensusisthatcreditconstraints werenotthemainissue1

EconomicSystems38(2014)397–414

A R T I C L E I N F O Articlehistory: Received2August2012

Receivedinrevisedform3September2013 Accepted20September2013

Availableonline18April2014 JELclassiﬁcation: D22 F10 F14 Keywords: Crisis Exports Imports Turnover Turkey A B S T R A C T

Weprovideevidenceontheeffectsofthe2009crisisonTurkish manufacturing.Theexplorationoffirmandfirm-productextensive andintensivemarginsconfirmstheprevalenceofthelatterinthe fall of export sales and discloses theformer’s relevancein the dramatic import contraction. The analysis of firm and product heterogeneityrevealsthatproductivitydrovethenegative evolu-tion of the export intensive margin to such anextent that it significantly affected trade extensive margins and postponable goods werethemostaffectedproducts. Inaddition,theforeign demandshocksufferedbyexporterspropagatedto theirimport demand.Interestingly,weshowthatthecrisishitproducedexports less than the carry-along ones and that the domestic market cushioned thedownturneffectsespeciallyforlargerfirms.This hintsattheimportanceofdomesticcounter-cyclicalpolicies.

ß2014ElsevierB.V.Allrightsreserved.

*Correspondingauthor.Tel.:+390712207250;fax:+390712207102.

E-mailaddresses:a.loturco@univpm.it(A.LoTurco),d.maggioni@univpm.it(D.Maggioni).

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Onthecontrary,ChorandManova(2012)ﬁndwithU.S.datathatcreditconditionswereanimportantchannelthrough whichthecrisisaffectedtradevolumes.

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(Eatonetal.,2011a;Levchenkoetal.,2010;MoraandPowers,2009)andthatthegreattradecollapsewas mostlycausedbyademandshock,drivenbytheevolutionofcommoditypricesandthefallinthedemand forpostponablegoods(Baldwin,2009).

Amongtheexplanationsoftheglobalcrisis,theroleplayedbyinternationalverticallinkageshas receivedgreatattention.Firmsinvolvedinsupplychainsshouldshowgreaterresilienceduetothe highcostsofdisruptinglong-termrelationships(AltomonteandOttaviano,2009).Atthesametime, though,theycontributedtotheimmediatetransmissionofthedownturnindemandfromthelargest importers(theUS,theEUandJapan)tothemoreperipheralsuppliers.Internationalnetworksof firmsmaythushaveimportantlyfavouredshockpropagationacrosstheworld.Despitethefactthat idiosyncraticshocks at thefirmlevelmay importantly determineaggregate dynamics(Gabaix, 2011),onlyalimitednumberofstudieshavedealtwiththetradeeffectsoftheglobalrecessionat firmlevel.

We thus aim at shedding light on the micro-dynamics that shape the evolution of macro phenomena by providing firm and firm-product level evidence on the crisis impact on trade intensiveandextensivemarginsintheTurkisheconomy.Weespeciallyintendtodissecttheroleof firmsize, efficiencyandinternational exposure indriving thecountry’sresponse tothe recent downturn.

Largerandmoreproductiveﬁrmsmaybelessaffectedbycreditrestrictions(Greenawayetal.,

2007;Muuˆ ls,2008;Manova,2013)andshouldbemoreresilientwhenfacingtoughercompetition

(MelitzandOttaviano,2008)andexternalshocks.Atthesametime,however,theycouldbemore

exposedtothedemandslumpduetotheconcentrationoftheirsalesinthemostseverelyhitmarkets

(Bricongneetal.,2012)andgoods.Exitingtheexportmarketmayhoweverberathercostlyforlarger

andmoreefﬁcientﬁrms(Melitz,2003;Bernardetal.,2003;Arkolakis,2010;Eatonetal.,2011b)and thereforetheymightdecidetoshedonlythelowest-competencevarietiesfromtheirexport/product mixandtofocusontheircoreproducts(NockeandYeaple,2006;EckelandNeary,2010;Bernardetal.,

2011b;Mayeretal.,2011).Aproductextensivemarginadjustmentshouldthereforebeobserved.Also,

underuncertainty,largeﬁrmsmaycontracttheirordersandneverthelessmaintaintheirsalesby makinguseof theirlargerinventory(Alessandria etal.,2010). Thiscouldbefollowed bya drop especiallyintheproductlevelextensivemargin,aslargerinventoriesallowfortheinterruptionof severalmarginalinputs’purchases.

Theinspectionofﬁrms’internationalinvolvementallowsustounderstandwhetherinternational supplychainsfavouredcrisispropagationor,onthecontrary,helpedtocushiontheexternalshock. Wecanexpectthepositiveimpactofimportingonexportingshownintheliterature(Muuˆ lsandPisu,

2009;Aristeietal.,2013;LoTurcoandMaggioni,2013)tobeevenmoreimportantinacrisis:whenthe

exportmarketshrinks,cheaper/higherqualityinputsmayhelptopreservecompetitivenessinthe foreignmarket. However, an opposite result couldemerge if foreign suppliers shut down their operationsanddomesticfirmsfindnodomesticsubstitutesforthemissingimportedinputs.Also,the fallinfirms’exportsmaypropagatetotheirimports.Bythesametoken,despitethefactthat intra-groupfinancialresourcesmaycushionadverseupcomingcreditconditions(Kolasaetal.,2010;Alfaro

andChen,2012),foreignﬁrms’deepinternationalinvolvementmayaboveallexposethemtothe

economicdownturnoriginatinginforeignmarkets.

Therolethatfirmsize,efficiencyandinternationalactivityhadinshapingthetradeeffectsofthe crisisisthereforeambiguousandcallsforanempiricalinvestigation.Also,asthecrisishittrademore thandomesticsales,theimpactoffirmandproductheterogeneityontheintensiveandextensive marginsofoverallfirmturnoverisworthyofinvestigation.Weaimtohighlightwhetherthepatternof exportsalesdrovetheevolutionofoverallsalesor,onthecontrary,inthelightofdomestic counter-cyclicalfiscalpolicyinterventions(MischandSeymen,2012),domesticsalescushionedtheadverse effectsofthenegativeinternationalcontext.Previousevidencehasshownthatlargefirmsaccountfor agreatpartoftheexportcollapse,whileforeignfirmsappeartobegenerallymoreresilient2₍_Wagner,

2012;Bricongneetal.,2012;Aisenetal.,2012;AlfaroandChen,2012;Kolasaetal.,2010).Compared

tothisliteratureweprovidesomeoriginalcontributions.

2_On_the_contrary,_Behrens_et_al.₍₂₀₁₂₎_for_Belgium_and_Godart_et_al.₍₂₀₁₁₎_for_Ireland_ﬁnd_no_difference_between_foreign_and

domesticﬁrmsintradegrowthandexitrates,respectively.

A.LoTurco,D.Maggioni/EconomicSystems38(2014)397–414 398

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First,byinvestigatingboththeextensiveandintensivemarginsatbothfirmandfirm-productlevel wedeliveramoredetailedpictureofmanufacturingfirms’reactionsundershock.Ouranalysismay thereforesuggest whichtailoredpolicyinterventionsshouldbeadoptedin supportoftrade and turnoverduringacrisis.Inparticular,unveilingtheevolutionandrelevanceofthetradeextensive margininthedownturnmayhelptounderstandwhetherthereisroomforpolicyactionsdirectedto easethefirms’searchfornewsourcesordestinationmarkets.Differentlyfrompreviousevidence,3_in

thepresentworkweespeciallytesttherelevanceoffirmandproductheterogeneityinshapingboth firmandfirm-producttradeextensivemargins’responsetothecrisisandshowthatneglectingthe explorationoftheextensivemarginwouldleaveoutpartofthestoryofthe2009tradecollapseinthe Turkisheconomy.

Second,asourdataallowustodistinguishproducedandnon-produced(CarryAlongTrade,CAT) exports(Bernardetal.,2011a,2012),weexplorewhetherandhowthecrisisaffectedthetwotypesof activities.CATexportsgenerallystemfromtheactivityof ‘‘indirectexporters’’thatmaybemore exposed toexternal shocks due to their smallersize and their limited ﬁnancial and managerial resources.Also,adirectbuyer-supplierlinkageismissingforCATproductsandthiscouldresultin looserbusinessrelationships,whichcouldbemoreeasilybrokenwhenanexternalshockhitsthe foreignbuyer.

Finally,tothebestofourknowledge,thisworkisoneofthefew(Paravisinietal.,2011;Aisenetal., 2012)toanalysetheresponseofanemergenteconomytothe2009crisisatthefirmlevel.Inourview Turkeyisaninterestingcasesincethecountrywasseriouslyhitbytheglobalrecessiondespiteits sustainedpre-crisisgrowthratesanditsperipheralpositionintheinternationalfinancialsystem.The sharpdeclineinGDP(5%in2009)wasunprecedentedwithrespecttothecountry’sownrecent historyandtoothercountries’experienceinthe2008–09globalturmoil(Uygur,2010).Furthermore, thedemanddropintheEUmeantasignificant24%exportcontractionin2009.Inthesameway, importsdroppedby27%.TheTurkishtradecollapsemaywellreflectacompositionaleffectduetothe predominanceofpostponablegoodsinthecountry’stradepattern.Turkeyoccupiesagrowingrole withintheworldwide supply chains,aswitnessedby itsincreasing weightinworld capital and intermediateexports,4_and_therefore_represents_a_worthwhile_setting_to_analyse_the_propagation_of

therealeffectsofaninternationalcrisisandtheﬁrmlevelresponse.

Thisworkisorganisedasfollows:Section2describesthedataandsomeevidenceofthecrisis impactontheTurkisheconomy. Section3describes ourempiricalstrategy,andSections4and 5

presenttheresultsanddiscusstheﬁndings,respectively.Section6concludes. 2. Dataanddescriptivestatistics

Thesample.OursampleoriginatesfrommergingtheTurkishAnnualIndustrialProductStatistics (AIPS)withtheStructuralBusinessStatistics(SBS)andtheForeignTradeStatistics(FTS)databases. Thesesourcesprovideinformationonsalesandtradebyproductandonseveralﬁrmcharacteristics forallﬁrmswithmorethan20personsemployedinthe2005–2009period.5_In_particular,_we_will_limit

ourstudyonthethree-year2007–2009subsample,thuscomparingﬁrms’2009crisisgrowthrates withthe2008pre-crisisones.

Inthefollowingsectionssoldproductsaredefinedaccordingtothe10digitPRODTRclassification, whileimportandexportproductsaredefinedfollowingthemoredetailed12digitharmonisedGTIP

3

Theadoptioninpreviousstudiesofeithermidpointgrowthrates(Aisenetal.,2012;Bricongneetal.,2012)orthenumberof enteringandcontinuingfirmsexportingagivenvariety(Paravisinietal.,2011)makesitdifficulttoinferhowfirmandproduct heterogeneityactuallyaffectedtradeattheextensivemargin.Kolasaetal.(2010)investigatedfirms’marketexitrates,butthey leftoutthefirm-productmarginandseveraldimensionsoffirmheterogeneityasextensivemargindeterminants.Behrensetal. (2012)ontheotherhandexploreseveralfirmheterogeneitydimensions,buttotallyomittheanalysisoffirmandproductlevel extensivemargindeterminants.

4

Comparedtootheremergentanddevelopingeconomiesinthepre-crisisperiod,Turkeyexperiencedhighercapitaland intermediatetradegrowth.Inparticular,in2007thegrowthofTurkishexports(imports)ofcapitalandintermediategoodswas 31%(21%)vis-a`-visthe13%(19%)exportgrowthrecordedinthesamegoodscategoriesbytheremainderoftheemergingand developingeconomies.

5_The_ﬁrms_in_our_sample_represent_more_than_75%_of_the_Turkish_{manufacturing}_output_and_employment,_and_an_even_higher

fractionoftheoverallexportandimportﬂowsofthecountry.

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classification in the descriptive evidence and the more aggregate 6 digit harmonised GTIP classificationintheregressionanalysis.FurtherdetailsonthedatabasesareavailableinAppendixA. Thecombinationoftradeandproductiondataallowsustodistinguishproducedexports–‘‘regular exports’’intheremainder–fromthebulkoffirmexportsandthusintroducesanimportantnoveltyin theanalysisofcrisiseffects.Recentevidencehasinfactshownthatonlyashareofafirm’sexports correspondstoitsownproductionandonlyafewfirmsexporttheirownproductsonly(Bernardetal.,

2011a,2012).Turkishexportspresentthesamepattern(LoTurcoandMaggioni,2012),andwewill

showthatisolatingregularexportsfromoverallexportsoftendeliversdifferentinsightsontheﬁrm’s responsetothecrisis.

Decomposingtradeandsalesgrowth.Todescribethecontributionoftheextensiveandintensive marginstotheevolutionofTurkishaggregateexports,importsandsalesbeforeandduringthecrisis, westartbyexploringchangesinthenumberoftraded/producedproducts(J)andtheaveragetraded/ producedvaluesbyproduct(V)inthepre-crisisyearsandin2009forallofourvariablesofinterest(Z).

Table1showsthatmostofthedeclineinbothtradeandturnoverwasaccountedforbythereduction

ofaveragevalues.Thedropinthenumberofimportedgoodsactuallyplayedamoresigniﬁcantrole onlyinthecaseofimports.Onthecontrary,inthecaseofsalesanincreaseinthenumberofsold productsisrecorded.Thissimpledecompositionalreadyhighlightsthegeneralintensivemargins’ predominanceinthedynamicsoftradeandsalesandindicatesthepeculiarrelevanceoftheimport extensivemarginsduringtheglobalturmoil.

In order to dig into this evidence, we explore ﬁrm-product extensive and intensive margin dynamicsinthecrisis.FollowingananalogousdecompositionbyGoldbergetal.(2010),letZfptdenote

exports(importsorsales,alternatively)forfirmfinvarietypattimet.Firmfbelongstooneofthe threemutuallyexclusivegroupsdenotedbyB,DandC,whichrepresentthesetofentering,exitingand continuingexporters/importers/sellersrespectively.Then,letPindexthesetofcontinuingproducts, i.e.thosethatthefirmtrades/sellsbothintandt-1,andEthesetofenteringorexitingproducts,i.e. thosetraded/soldonlyintort-1.Now,furtherdecomposingsetEinthesetofproductadditions,A,and droppings,D,andsplittingsetPintothesetsofgrowing,G,andshrinking,S,products,theoverall relativechangeofouroutcomeofinterestintheeconomycanbedefinedas:

D

Zt¼ X i2B

D

Zftþ X f2D

D

Zftþ X f2C X p2A

D

Zfptþ X p2D

D

Zfptþ X p2G

D

Zfptþ X p2S

D

Zfpt 0 @ 1 A (1)

Asisthestandardintradeliterature,avarietypindexesaspeciﬁcproduct-marketcombination.

Table2displayssuchdecompositionforthegrowthofoverall,capital,intermediateandﬁnalgoods

Table1

Numberofproductsandoverallintensivemarginintradeandsales.

Year Z J V D%Z D%J D%V Exports 2007 70,876,137 8822 8034 14.94 1.02 13.79 2008 85,062,462 8743 9729 20.02 0.90 21.10 2009 74,864,340 8683 8622 11.99 0.69 11.30 Imports 2007 99,909,322 10,202 9793 9.79 0.55 9.19 2008 114,280,517 10,162 11,246 14.38 0.39 14.83 2009 93,799,635 9876 9498 17.92 2.81 15.54 Sales 2007 302,060,931 3117 96,908 12.21 1.14 13.50 2008 332,323,644 3158 105,232 10.02 1.32 8.59 2009 308,193,496 3216 95,831 7.26 1.84 8.93

OurelaborationsarefromAIPS,SBSandFTSdata.TradeandsalesvaluesareinthousandsofTurkishliras.Dstandsforthe percentagechangeoftherelevantvariablebetweentandt 1.

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exportsandimports6andfornominalsalesgrowth.However,regardingsales,wearenotabletotake firmentry/exitintoaccountsincewecannotbesurethatexitandentrydynamicsinthedatabase actuallyrevealtruefirmbirthsanddeaths.7_Thus,_focusing_on_continuing_firms,_the_{decomposition}

correspondstothethirdtermofEq.(1),wherevarietypinthiscasejustindexesasoldproduct.The Table2

Decompositionofﬁrmtradegrowth.

Year D% D%Extensive–Firm D%ContinuingFirmsD% Exten-sive–Variety

D%Intensive–Variety

Total Net Entry Exit Net Additions Droppings Net Growing Shrinking

Exports AllGoods 2007 1494 0.14 1.16 1.02 5.41 1700 11.59 9.39 29.42 20.02 2008 20.02 0.41 1.09 1.50 7.64 18.63 10.99 12.79 32.62 19.84 2009 11.99 0.04 1.09 1.13 0.41 14.54 14.13 12.35 20.62 32.97 CapitalGoods 2007 29.78 1.90 3.87 1.97 7.01 21.47 14.45 20.87 32.85 11.97 2008 23.59 0.25 2.22 1.97 8.61 22.05 13.44 14.73 29.14 14.41 2009 25.40 0.88 2.20 3.08 1.51 14.57 16.08 23.01 12.25 35.26 FinalGoods 2007 8.00 0.23 1.48 1.71 3.02 11.13 8.11 5.20 27.36 22.16 2008 7.06 0.34 1.35 1.69 3.46 11.14 7.69 3.95 27.46 23.51 2009 3.78 0.70 2.15 1.45 4.53 12.78 8.25 1.45 27.55 29.01 Intermediates 2007 15.97 0.20 1.09 0.88 6.59 19.61 13.02 9.17 30.02 20.85 2008 29.38 0.40 1.24 1.63 10.39 22.74 12.35 19.39 38.26 18.87 2009 17.83 0.32 0.58 0.90 1.63 15.12 16.75 15.87 18.97 34.85 Imports AllGoods 2007 9.79 0.35 0.79 0.44 3.27 18.86 15.59 6.17 28.14 21.96 2008 14.38 0.00 0.53 0.53 2.29 16.61 14.32 12.10 32.14 20.04 2009 17.92 0.85 0.18 1.03 2.09 14.51 16.60 14.98 17.50 32.47 CapitalGoods 2007 1.37 0.83 3.60 2.78 1.57 32.38 30.82 1.03 23.21 24.23 2008 0.33 1.01 3.54 2.53 3.10 28.36 31.46 2.42 24.96 22.54 2009 14.97 1.28 2.02 3.30 6.70 24.31 31.01 6.99 19.81 26.80 FinalGoods 2007 2.09 0.61 1.39 0.79 4.52 13.43 8.92 7.22 16.80 24.01 2008 14.04 0.07 1.26 1.33 2.52 12.90 10.38 11.59 29.99 18.40 2009 8.90 0.94 0.75 1.69 6.69 15.58 8.89 3.15 25.28 22.13 Intermediates 2007 12.30 0.31 0.75 0.43 3.50 16.74 13.24 8.49 29.91 21.43 2008 16.46 0.21 0.33 0.55 3.13 14.66 11.53 13.54 33.49 19.94 2009 20.95 0.91 0.17 1.08 2.17 12.76 14.93 17.87 16.47 34.35 Sales AllGoods 2007 11.90 – – – 0.68 5.73 5.05 11.22 18.83 7.61 2008 10.41 – – – 0.62 3.69 3.07 9.79 18.76 8.97 2009 7.61 – – – 0.72 3.07 2.35 8.33 10.67 19.00

OurelaborationsfromAIPS,SBSandFTSdata.ThisdecompositionfollowsfromEq(1).Dataonbirthsanddeathsofﬁrmsarenot available,asaconsequencetheﬁrmextensivemarginsaremissing.

6

WedeﬁneasintermediatesthoseproductsbelongingtotheBroadEconomicCategory(BEC)codes111,121,21,22,31,322, 42,53.CapitalgoodsareproductsincludedintheBECcodes41and521.Theremainingcodesdenoteﬁnalgoods.Itisworth notingthataccordingtothissplit,theso-calledpostponablegoodsmayfallunderboththeintermediateandcapitalgood categories.

7_In_the_AIPS_a_ﬁrm’s_exit_from_the_database_could_stem_from_a_change_in_the_ﬁrm_sector_of_activity_or_a_decline_in_the_number

ofemployedpersonsthatdetermineaﬁrm’sexitfromthesamplingthreshold.

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tableshowsthattheintensivemargincontributionintheevolutionoftradeandsalesincreasedduring therecessionand,inparticular,wassolelyresponsiblefortheoverallexportscontractionin2009

(Behrensetal.,2012;Bricongneetal.,2012;Aisenetal.,2012;BarbaNavarettietal.,2011;Wagner,

2012). Differentevidenceisunveiledinsteadforthepositiveevolutionoffinalgoodsexportsand importsandthecontractionofcapitalgoodsimportsthatwereimportantlydrivenbytheentry/exitof firmsfromforeignmarketsand bytheadding/dropping ofsometraded varieties.The tablealso deliversanothergeneralfeatureoftheextensivemarginoftrade:withinafirm,productchurningis morepronouncedthanthefirmentryandexitprocess,butitsroleisgreatlyreducedduringthecrisis. An exception is represented by imports of capital goods, for which product droppings gained importanceduringthecrisis(Baldwin,2009;Levchenkoetal.,2010;Kolasaetal.,2010).

Exploringtheroleoffirmheterogeneity.Tounderstandiffirmandproductheterogeneityplayeda differentroleduringtherecessioncomparedtothepre-crisisperiod,wecomputethechangesofeach intensivemarginbetween2009and2008andadopttheKolmogorov-Smirnovtestofequalityoftheir distributionsamongfirmandproductgroups.8_In_the_present_work,_extensive_margins_are_defined_as

thefirmexport/importentryandexitratesandtheprobabilitytostopexporting/importing/sellinga goodatfirm-productlevel.Intensivemarginsareinsteadmeasuredastheannualgrowthoffirmand firm-productexports/imports/sales.Herewefocusontheintensivemarginsonly,asthecomputation ofanyextensivemarginchangeovertimelacksanykindofmeaning.

TableB2showsthatexportersexperiencedasigniﬁcantlylargercontractionbetween2008and

2009inbothfirmandfirm-productsalesgrowthcomparedtonon-exporters,andthesameistruefor non-importers,domesticownedandsmallsizedfirmswhencomparedtoimporters,foreignowned and large firms, respectively. Also, firm trade growth between 2008 and 2009 contracted significantly more for larger, more productive firms, importers and foreign firms. The latter, however,wentthroughalowercontractionofimportgrowthbetween2008and2009withrespectto domesticfirms.Thisevidencehintsatarelevantroleoffirmandproductheterogeneityinthecrisis, butitdoesnotallowustoidentifytheimpactofeachfirmandproductcharacteristic,ceterisparibus Regressionanalysismaybemoresuitableforthisaimandpresentsalargerscopeofimplementation, asitpermitstoexplorethesignificanceoffirmandproductheterogeneityintheevolutionofthe extensivemarginsaswell.Intheremainderoftheworkourempiricalstrategywillthusreston regressionmodelestimates.

3. Empiricalstrategy

Toassesstheimpactofthecrisisatthemicrolevel,wefollowastraightforwardapproachand exploretheabovedefinedextensiveandintensivemarginsatfirmandfirm-productlevelforexports, importsandsales.Wethenregresseachmarginonabunchoffirmcharacteristicsinthepreviousyear, onadummyindicatorforthecrisisandontheirinteractioninordertoassesstheoveralleffectofthe crisisandtotestwhetherandtowhatextentthecrisishadaheterogeneousimpactontheeconomic performanceofdifferenttypesoffirmsandgoods.Inthisrespect,ourapproachisveryclosetothat adoptedbyBehrensetal.(2012)andconsistsofasortofdifference-in-differencesanalysiswherethe crisisisthetreatmentdummywhoseinteractionwithfirmandproductcharacteristicsallowsforthe dissectionofthedifferentialtreatmenteffectforsomegroupsofobservationsvis-a`-vistheexperience ofthecounterfactualgroups.Asaconsequence,wedonotincludefirmfixedeffectsintheempirical modelsbelow,asthiswouldcausealossofidentificationoftheroleoffirmheteroeneityinthecrisis. Then,bysimpleOLS,9_we_estimate_the_two_following_models_for_the_firm_and_{firm-product}_margins,

8_A_detailed_deﬁnition_of_the_margins_is_included_in_the_upper_panel_of_Table_B1_in_Appendix_B_. 9

Fortheextensivemarginswechosetoestimatealinearprobabilitymodelinsteadofaprobitmodel,sincetheformerallows fortheinclusionofseveraldummyvariablesandtheirrespectiveinteractions.TheSTATAcommandinteffthatcalculatesthe interactioneffectandthecorrespondingstandarderrorandz-statisticinlogitandprobitmodelshasaverylongcomputation timeandonlytreatsoneinteractionatatime.Havingmorethanoneinteractionandourcomputationtimebeingconstrained, weprefertotackleourempiricalmodelbymeansofthemoreﬂexiblelinearprobabilitymodel.However,theadoptionofprobit modelsfortherestrictedmodelwithouttheinteractiontermsdeliversthesameinsightsandtherelativeresultsareavailable uponrequest.

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respectively:

qft¼

a

þ

b

0Crisisþ

b

0

1Wft1Crisisþ

g

0Wft1þ2ft (2)

qfpt¼

a

þ

b

0Crisisþ

b

01Wft1Crisisþ

g

0Wft1þ

b

02Xfpt1Crisisþ

f

0Xfpt1þ

d

p

þ2fpt (3)

Intheaboveequation,qftmeasuresﬁrmextensiveorintensivemarginsforﬁrmiinyeart,whileqfpt

denotestheﬁrm-productmarginsforﬁrmfandproductp10_in_year_t,_with_{t = 2008,}_2009,_as_described

above.Crisisisthecrisisdummytakingthevalue1in2009andzerootherwise,andWinbothmodels isavectorofone-yearlaggedfirmcharacteristics11whichalsoincludesafullsetoftwo-digitsector dummies.ThelowerpanelofTableB1inAppendixBdescribesourright-handsidevariables,which arethefirm’ssize,productivity,exportandimportstatus andforeignownership.TableB3inthe Appendixdisplaysthesummarydescriptivestatisticsforourregressors.Intheestimationofthe firm-productmargins,Xincludestwodummiesidentifyingtheeconomiccategoryofexported/imported/ soldgood–capitalorintermediates,withfinalgoodstreatedasreferencegroup–anditsweightinthe firm’s total export/import/turnover value. The definition of the latter regressor depends on the exploredoutcome:whenthefirmproductsalemarginsareestimated,theregressorwillmeasurethe weightofthatproductinthefirm’stotalproduction,whileitwillmeasuretheweightofthatproduct inthefirmexportsorimportswhenweinvestigatetheexportandimportmarginsatfirm-product level. Finally,

d

p represents product fixed effects, while 2ft and 2fpt are firm and firm-product

idiosyncraticshocks.

Inthefollowingsection,theupperpanel–panelA–ofeachtablewillalsoshowtheresultsfrom the estimation of models 2 and 3 when therestriction

b

1=

b

2= 0 is imposed, thus assuminga

homogeneouseffectofthecrisisacrossfirmsinordertodeliverafirstoverviewofitsaverageimpact acrossfirmsandfirm-productpairs.12_In_panel_B,_on_the_other_hand,_we_let_the_crisis_{heterogeneously}

affectﬁrmsandproductsaccordingtotheircharacteristics. 4. Results

Exportsandsales.Table3showstheevolutionandthedeterminantsofexportmarginsatﬁrmand ﬁrm-productlevel.Columns1–5displaytheresultsfortotalexports,whilecolumns6–10referto regularexports.Also,inordertocomparetheevolutionofexportsandturnover,wereporttheresults fortotalsalesinthelastthreecolumns.

FrompanelAitemergesthat,aftercontrollingforfirmandproductlevelcovariates,theglobal economic slowdown in 2009 didnot reduceeither overall or regular exports through the firm extensive margin. Indeed, during the crisis the probability of entry in foreign markets did not significantlychangewithrespecttothepreviousperiodand,whentotalexportsareconsidered,the firmprobabilitytostopexportinginfactdecreased.Inaddition,inlinewiththeexistingevidenceon thepositiveassociationbetweenfirmimportingandexporting(KasaharaandLapham,2008;Muuˆ ls

andPisu,2009;Aristeietal.,2013;LoTurcoandMaggioni,2013)whichmayprovemoreimportant

undertheeconomicdownturn(Behrensetal.,2012),frompanelBitemergesthatimporterswere actuallymorelikelytostartexportingintherecession.Thelikelinessofthedropofaproductfromthe firmexportbasketwashoweverincreasedbythecrisis,thuscontributingtoexplaintheexportslump, evenifthisresultisnotconfirmedforregularexports.PanelBrevealsthatthecontractioninthe overall export scope is mainlyconcentrated in intermediategoods, especially in firms’ marginal productvarieties,andismainlyattributabletolargerfirms.Thelatteralsodisplayahigherprobability

10

Aspreviouslystated,inthisanalysistradeproductsaredefinedwiththe6-digitharmonisedGTIPclassification,whilesold productsarestilldefinedwiththe10-digitPRODTRclassification.

11

Intheanalysisofexportandimportmarginswedroppedtheﬁrmexportandimportdummiesrespectivelyamongthe explanatoryvariables.

12

Inordertodisplaythedifferentaveragefirm-productextensiveandintensivemarginsforintermediatesandcapitalgoods, productfixedeffectsarenotincludedinthespecificationsofpanelA.However,theirinclusiondoesnotleadtosensitively differentresults.

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Table 3

Extensive and intensive margins of exports.

Total exports Regular exports Sales

Extensive margins Intensive margins Extensive margins Intensive margins Extensive margins Intensive margins

Startx Stopx Dropx Dxf Dxfp Startx reg Sto pxreg Dro pxreg Dxreg f Dx reg f p Drop y Dyf Dyfp (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) Panel A Crisis 0.002 0.011** 0.014*** 0.167*** 0.116*** 0.003 0.011 0.01 0.070** 0.083*** 0.022*** 0.198*** 0.162*** [0.006] [0.005] [0.005] [0.024] [0.019] [0.004] [0.007] [0.008] [0.035] [0.031] [0.004] [0.008] [0.012] sizet 1 0.031*** [0.004] 0.023*** [0.002] 0.031*** [0.003] 0.008 [0.011] 0.016* [0.009] 0.011*** [0.003] 0.028*** [0.004] 0.042*** [0.004] 0.01 [0.015] 0.028** [0.013] 0.032*** [0.002] 0.025*** [0.005] 0.001 [0.006] lpt 1 0.015*** [0.004] 0.025*** [0.003] 0.021*** [0.004] 0.001 [0.016] 0.007 [0.011] 0.004 [0.003] 0.022*** [0.005] 0.029*** [0.006] 0.019 [0.024] 0.023 [0.018] 0.010*** [0.002] 0.008 [0.006] 0.009 [0.008] expt 1 0.008* [0.004] 0.036*** [0.009] 0.024* [0.014] impt 1 0.137*** [0.008] 0.066*** [0.008] 0.073*** [0.010] 0.044 [0.030] 0.047* [0.027] 0.065*** [0.005] 0.094*** [0.012] 0.082*** [0.013] 0.084* [0.046] 0.077* [0.041] 0.008* [0.005] 0.014 [0.010] 0.033** [0.014] foreignt 1 0.050 [0.033] 0.023*** [0.007] 0.025* [0.013] 0.055 [0.039] 0.022 [0.033] 0.004 [0.017] 0.041*** [0.012] 0.038** [0.016] 0.076 [0.058] 0.009 [0.055] 0.016* [0.009] 0.015 [0.016] 0.014 [0.026] sharet 1 0.490*** [0.007] 0.457*** [0.021] 0.162*** [0.011] 0.251*** [0.038] 0.189*** [0.004] 0.195*** [0.014] intermt 1 0.079*** [0.006] 0.024 [0.017] 0.005 [0.009] 0.056* [0.029] 0.005 [0.004] 0.002 [0.011] capitalt 1 0.175*** [0.008] 0.01 [0.024] 0.042*** [0.014] 0.051 [0.047] 0.013** [0.007] 0.057*** [0.017] R2 0.072 0.037 0.069 0.006 0.007 0.032 0.037 0.047 0.004 0.005 0.06 0.031 0.011 Panel B Crisis 0.108 0.011 0.128** 0.754** 0.552** 0.017 0.07 0.014 0.659 0.963** 0.055 0.317*** 0.075 [0.076] [0.065] [0.060] [0.341] [0.230] [0.052] [0.096] [0.093] [0.490] [0.413] [0.045] [0.117] [0.157] sizet 1 0.035*** [0.007] 0.028*** [0.003] 0.042*** [0.004] 0.022 [0.015] 0.006 [0.013] 0.015*** [0.004] 0.033*** [0.005] 0.047*** [0.007] 0.004 [0.022] 0.034 [0.022] 0.028*** [0.003] 0.001 [0.006] 0.01 [0.010] sizet 1 C 0.01 [0.009] 0.009* [0.005] 0.011** [0.005] 0.026 [0.024] 0.021 [0.018] 0.008 [0.005] 0.01 [0.007] 0.001 [0.007] 0.028 [0.035] 0.012 [0.031] 0.006 [0.004] 0.043*** [0.010] 0.02 [0.013] lpt 1 0.019*** [0.006] 0.022*** [0.005] 0.031*** [0.005] 0.043* [0.022] 0.006 [0.017] 0.003 [0.004] 0.016** [0.007] 0.035*** [0.009] 0.068* [0.036] 0.041 [0.033] 0.010** [0.004] 0.015* [0.008] 0.01 [0.013] lpt 1 C 0.006 [0.007] 0.006 [0.007] 0.009 [0.007] 0.083** [0.035] 0.051** [0.024] 0.002 [0.005] 0.013 [0.010] 0.002 [0.010] 0.091* [0.051] 0.093** [0.042] 0.005 [0.005] 0.01 [0.013] 0.012 [0.016] expt 1 0.008 [0.006] 0.040*** [0.012] 0.032 [0.021] expt 1 C 0.014* [0.008] 0.007 [0.019] 0.009 [0.029] A. Lo Turco, D. Maggioni / Economic Systems 38 (2014) 397–414 404

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impt 1 0.114*** [0.011] 0.065*** [0.011] 0.069*** [0.012] 0.001 [0.044] 0.070* [0.040] 0.054*** [0.007] 0.092*** [0.017] 0.081*** [0.018] 0.079 [0.069] 0.075 [0.068] 0.002 [0.007] 0.007 [0.013] 0.051** [0.023] impt 1 C 0.048*** [0.016] 0.003 [0.015] 0.005 [0.014] 0.085 [0.067] 0.049 [0.060] 0.023** [0.010] 0.002 [0.023] 0.011 [0.023] 0.005 [0.100] 0.034 [0.096] 0.005 [0.009] 0.043** [0.021] 0.072** [0.032] foreignt 1 0.062 [0.046] 0.023** [0.010] 0.003 [0.014] 0.029 [0.057] 0.066 [0.053] 0.01 [0.024] 0.053*** [0.017] 0.008 [0.025] 0.150* [0.091] 0.002 [0.109] 0.007 [0.013] 0.035* [0.020] 0.06 [0.041] foreignt 1 C 0.02 [0.060] 0.001 [0.013] 0.028* [0.016] 0.057 [0.086] 0.046 [0.072] 0.013 [0.033] 0.025 [0.023] 0.013 [0.026] 0.136 [0.127] 0.021 [0.126] 0.001 [0.015] 0.042 [0.034] 0.075 [0.053] sharet 1 0.443*** [0.009] 0.546*** [0.031] 0.134*** [0.017] 0.409*** [0.071] 0.198*** [0.007] 0.272*** [0.024] sharet 1 C 0.031*** [0.011] 0.058 [0.044] 0.018 [0.021] 0.017 [0.092] 0 [0.008] 0.019 [0.031] intermt 1 C 0.020** [0.009] 0.180*** [0.039] 0.036** [0.016] 0.277*** [0.071] 0.013** [0.007] 0.185*** [0.025] capitalt 1 C 0.008 [0.011] 0.194*** [0.058] 0.074*** [0.026] 0.384*** [0.116] 0.023** [0.011] 0.204*** [0.041] R2 0.076 0.038 0.133 0.011 0.047 0.034 0.04 0.212 0.011 0.137 0.143 0.04 0.064 Obs. 12,788 16,617 157,525 15,618 83,649 19,339 9,874 15,192 8200 11,361 58,144 29,405 50,885 * Signiﬁcant at 10% level;** signiﬁcant at 5% level;***

significant at 1% level. Robust Standard errors are in brackets. All regressors are one year lags of the variables. ‘‘ C’’ denotes the interaction of a variable with the Crisis dummy. All estimations for both extensive and intensive margins are obtained by OLS. Regressions in columns 3, 5, 8, 10 in Panel B include 6 digit GTIP product fixed effects, while columns 11 and 13 in Panel B include 10 digit PRODTR product fixed effects.

A. Lo Turco, D. Maggioni / Economic Systems 38 (2014) 397–414 405

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toleavetheexportmarketintheturmoil,evenifthecoefficientontheinteractionofthecrisisdummy andfirmsizeisbarelysignificantanditssignificancefadesawaywhenregularexportsareconsidered. Thiscontrastingfindingforregularexportshintsatthepossibilitythattheworseperformanceof largerfirmsintheoverall exportintensivemarginsismostlydrivenbytheirroleof carry-along-tradersandbythecontractionoftheirtradeintermediaryactivity.Ourdataalsoshowslightevidence ofagreaterresilienceofforeign-ownedfirmsinpreservingtheirpositioninspecificproductmarkets abroad.

Intensivemarginsof exportshavebeenmoreseriouslyhitbythecrisisthanextensiveones. However,comparingthecrisis coefficientsfortotalandregularexportsinpanelAitis evident thattheturmoil wasmuchlessdetrimentalforregularexportsthanfor thetotalones.Overall exportgrowth decreased by17%at firmlevel(12% at firm-productlevel)comparedtoregular exportswhich recorda fall of 7% (8%).CAT activity thusplayed an important rolein shaping theintensivemarginresponseofexportsfortheTurkisheconomy.Theoverallnegativeshockon the intensive margin, from panel B, seems to originate from the bad performance of more productivefirms and heavily involvescapital andintermediategoods, especiallywhenregular exportsareconsidered.

Afterhavinginvestigatedtheevolutionofexportturnover,thelastthreecolumnsofTable3explore whetheroverallsalesfollowedthesamenegativeevolutionexperiencedbyexportswithineachﬁrm andproductgroupingandtowhichextentthedomesticmarketwasabletocushiontheshocksuffered inforeignmarkets.

PanelAdeliverscontrarymessagesfortheextensiveandintensivemarginsofsales.Duringthe crisis,whilebothfirmandfirm-productsalesgrowthfell,firmsweresurprisinglylesslikelytodrop productsfromtheirproductscope.Thisfindingbringstomindthenon-significantaverageimpact ofthecrisisonthedroppingofregularexportsandwasexpectedfromtheabovedecompositionof sales(seeTable2).Firmsmayindeedhaveinitiatedaprocessofproductdiversificationinorderto copewith the changing foreignscenario. Thiscould reflect the need toredirect sales towards different destination markets located in geographical areas less affected by the crisis and characterised by better growth perspectives (Uygur, 2010). In addition, panel B shows that intermediateandcapitalgoodswerelessdamagedand,turningtofirmheterogeneity,largerfirms and importers exhibited a greater resilience to the crisis, since they expanded their sales. Comparingthisevidencetothatonexportsfromthepreviouscolumns,itturnsoutthatdomestic salesdrovethebetterperformanceoflargefirmsandlimitedthedropinintermediateandcapital goodsdemand.Thiscouldhintatthepositiveimpactofsomepolicyinterventionsontheinternal market,such as the temporary consumption tax cuts on durables–usually produced by larger firms–thatwereimplementedbytheTurkishgovernmentstartingfromthesecondquarterof2009

(Misch andSeymen,2012).Theevidencealsoshowsthatexportersmore frequentlydroppeda

productfromtheproductmixduringthecrisis;however,theirtotalsaleswerenomorenegatively affectedthanthoseofnon-exporters.Thissupportsthehypothesisthatthecrisishasbroughtabout animportantchurningactivityintheproductscopeofexportersandprobablyintheirdestination marketsaswell.

Imports.Turningtotheevidenceonimports,frompanelAofTable4itemergesthatimportswere hitmoreseriouslythanexportsatthefirmextensivemargin.Asamatteroffact,inlinewithour decompositionexerciseinSection2,thecrisisreducedtheprobabilitytostartimportingby1.7%and increasedtheprobabilitytostopimportingby1.9%.Bythesametoken,comparedtothefindingson exports,panelAofthetabledisplaysahigherelasticityofthedropprobabilityofimportproductswith respecttothecrisis(4%comparedtothe1.4%estimatedforexports).Attheintensivemargin,the reductioninfirmandfirm-productimportgrowthwasalsosignificantandlargerthanthatrecorded forexports(26%and19%comparedto17%and12%).

WhenthecrisisdummyisinteractedwiththefirmlevelvariablesinpanelBofTable4,wefindthat theoverallslumpinthefirmextensivemarginisattributabletolargerfirmsandexporters.Under uncertainty,largefirmsmaycontracttheirordersandneverthelessmaintaintheirsalesmakinguseof theirlargerinventory(Alessandriaet al., 2010). The resulton exporters insteadreveals that the adverse foreign demand shock which affected them propagated to their demand for imports. Furthermore,ceterisparibus,moreproductivefirmswerelesslikelytoleavetheimportmarketinthe

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crisiseveniftheirimportactivitywasnegativelyaffectedatboththeﬁrmandﬁrm-productintensive margin.

Itfollowsthatevenifmoreefficientfirmsdidnotbreaktheirbusinessrelationshipswithforeign suppliers,probablyduetothedifficultyoffindinganinputsubstituteinthedomesticmarketfortheir highqualityproduction,theyreducedtheeconomicimportanceoftheirinternationalpurchases. Table4

Extensiveandintensivemarginsofimports.

Extensivemargins Intensivemargins

Startm _Stopm _Dropm _~m

f Dmfp (1) (2) (3) (4) (5) PanelA Crisis 0.017*** 0.019*** 0.043*** 0.260*** 0.191*** [0.006] [0.005] [0.003] [0.026] [0.014] sizet 1 0.050*** [0.005] 0.064*** [0.002] 0.038*** [0.002] 0.024** [0.010] 0.036*** [0.006] lpt 1 0.037*** [0.004] 0.048*** [0.003] 0.044*** [0.003] 0.019 [0.015] 0.000 [0.007] expt 1 0.138*** [0.008] 0.100*** [0.007] 0.066*** [0.007] 0.032 [0.031] 0.104*** [0.019] foreignt 1 0.061 [0.038] 0.021*** [0.007] 0.076*** [0.007] 0.028 [0.033] 0.002 [0.019] rel_sht 1 0.345*** [0.008] 0.754*** [0.022] intermt 1 0.097*** [0.008] 0.060** [0.024] capitalt 1 0.088*** [0.009] 0.109*** [0.027] R2 0.076 0.096 0.057 0.011 0.011 PanelB Crisis 0.116 0.116* 0.049 0.399 0.371* [0.081] [0.070] [0.043] [0.342] [0.191] sizet 1 0.066*** [0.008] 0.068*** [0.003] 0.047*** [0.002] 0.025* [0.015] 0.027*** [0.008] sizet 1 C 0.026*** [0.010] 0.007* [0.004] 0.002 [0.002] 0.006 [0.024] 0.018* [0.011] lpt 1 0.039*** [0.006] 0.037*** [0.005] 0.042*** [0.004] 0.053** [0.021] 0.007 [0.012] lpt 1 C 0.004 [0.008] 0.022*** [0.007] 0.001 [0.004] 0.067** [0.032] 0.036* [0.019] expt 1 0.132*** [0.011] 0.114*** [0.010] 0.067*** [0.009] 0.022 [0.046] 0.063** [0.025] expt 1 C 0.012 [0.015] 0.031** [0.014] 0.002 [0.010] 0.106 [0.071] 0.117*** [0.041] foreignt 1 0.102** [0.052] 0.012 [0.009] 0.069*** [0.009] 0.064 [0.049] 0.006 [0.028] foreignt 1 C 0.074 [0.067] 0.016 [0.011] 0.011 [0.008] 0.069 [0.075] 0.041 [0.038] sharet 1 0.278*** [0.011] 0.865*** [0.035] sharet 1 C 0.016 [0.012] 0.184*** [0.045] intermt 1 C 0.002 [0.009] 0.043 [0.047] capitalt 1 C 0.008 [0.010] 0.014 [0.056] R2 0.08 0.1 0.131 0.016 0.036 Obs. 12,067 17,338 278,717 15,954 154,210 * Signiﬁcantat10%level;** signiﬁcantat5%level;***

signiﬁcantat1%level.RobustStandarderrorsareinbrackets.Allregressors areoneyearlagsofthevariables.AllestimationsforbothextensiveandintensivemarginsareobtainedbyOLS.Regressionsin columns3and5inPanelBinclude6digitGTIPproductﬁxedeffects

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In linewiththeinventoryexplanation,foreigninputsaccountingforthehighestshareintotal foreignpurchasesexperiencedthelowestgrowth.Theeconomicdestinationoftheimportedgoods didnotcontributetoexplainingtheevolutionofimportproductseitheratextensiveorintensive margins.The latterresultis surprisingandcouldbedrivenby thevery smallnumber ofimport productsinthereferencecategory–consumergoods–whichcouldaffectthesigniﬁcanceoftheshift parametersforintermediateandcapitalgoods.

5. Summaryoftheﬁndingsanddiscussion

Themainquestionweaddressedinourworkistheroleplayedbyfirmandproductheterogeneity intheTurkishmanufacturingresponsetothecrisis.Mostofourresultsfulfilsomeofthehypotheses outlinedandreflecttheexistingempiricalevidencediscussedintheintroduction.Nevertheless,some importantdifferenceshaveemergedandsomenewinsightsmaybegatheredfromthebulkofour evidence.Inthissectionweintendtopresentanoverviewofourmainfindingsandtodiscusstheir mainimplications.

Firmheterogeneity.

- Sizeandefficiency.Inlinewithmostofthefirmlevelevidencewefindthatfirmsizedidplayarolein shapingthefirms’responsestothecrisis(Wagner,2012;Bricongneetal.,2012;Aisenetal.,2012;

Behrensetal.,2012).However,ourevidenceshowsthat,undertheglobaldownturn,largeﬁrms

significantly contractedtheextensivemargin ofexportsonly.Asdiscussed intheintroduction, althoughonemightexpectabetterperformanceoflargefirmsinthecrisis,theyaremorelikelyto tradethoseproductsthataremoreexposedtothecrisis,suchascapitalandotherpostponablegoods whichimplytheexploitationofscaleeconomies.Yetlargerfirmsmayhavealargerexportbasket and maythen importantlyadjusttheir exportproductscope inordertocopewiththeadverse externalshocks.Fromanotherperspective,thelackofanyevidenceofamoredetrimentalshockto largerfirms’regularexportspointstotherelevanceoftheirroleastradeintermediariesforother manufacturing firms.The dropof someexport products may simplyreveal indirectexporters’ inabilitytoselltheirproductsduringthecrisisortheworseningoftheireconomicperformance.The evidenceonmoreproductivefirmsexperiencingaworseperformancethanlessproductiveonesin thecrisismimicsthefindingonBelgianfirmsbyBehrensetal.(2012)andrevealsthattheyare responsibleforpartoftheexportintensivemarginslump.Moreproductivefirmstendtoexportto highincomemarkets(Crino` andEpifani,2012),whichwerehitmostinthecrisis.Asaconsequence, moreefficientfirmsmayhavebeenmoreaffectedbytheinwardshiftofhighincomepartners,which impliesareductionoftheirexportsales.

- International exposure of firms. Surprisingly enough, we find no relevant role of foreign ownershipintheevolutionoftradeandturnoverin thecrisis.Thisfinding isincontrastwith evidenceprovidedbyKolasaetal.(2010)andAlfaroandChen(2012),whileitisveryclosetothe

workofBehrensetal.(2012).Asfarasﬁrmaccesstoimportmarketsisconcernedweshowthat

importing,asexpected,favoursexportactivityinthecrisis.Importedinputsmayfosterexport activity thanks to the existence of common sunk costs and/or the enhancement of competitivenessoccurringthroughcostsavingortechnologytransfer(KasaharaandLapham,

2008;Muuˆ lsandPisu,2009;Aristeietal.,2013;LoTurcoandMaggioni,2013).Weshowthatthis

linkageisstrengthenedduringthecrisis.Indeed,thecrisisrepresentsareductionintheflowof expected profits, andif firms sourcing inputs abroad face lower sunkand/or marginal costs compared to non-importers, they may still find exporting a rewarding activity. The positive relationshipbetweenimportingandexportinginthecrisisbringstomindthefindingbyBehrens

etal.(2012);however,thelatterstudyindicatesasigniﬁcantimpactofimportontheintensive

margin,whilewefindthisbeneficialeffectonlyfortheextensivemargin.Finally,wefindthat, possiblyduetotheslumpinthedemandforexports,exporterstendtowithdrawfromtheimport marketandcontracttheirsales.Thisresultisinlinewithourexpectationofapropagationofthe crisisfromtheexportslumptoimportdemand.

Productheterogeneity.Apartfromproductivity,furtherﬁrmcharacteristicsdonotappeartohave shapedthecrisisimpactonexportgrowthattheintensivemargin.AshighlightedbyBehrensetal.

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(2012)fortheBelgiancase,thissuggeststhatsupplysidefactorswerepossiblysecondarycompared totheroleplayedbytheglobaldemandcollapseintheevolutionofTurkishmanufacturingbetween 2008and2009.Inthisdirection,especiallyforregularexports,ourevidenceshowsthatmostofthe exportgrowthslowdowninthecrisisisabsorbedbycapitalandintermediategoods,recallingthe ﬁndingsontherelevantroleofinternationalverticallinkages(Levchenkoetal.,2010)whichhelped thepropagationofthefallinthedemandforpostponablegoods.Ourevidencecorroboratesthis viewfortheTurkisheconomyandisinlinewithalltheexistingabovementionedﬁrmlevelevidence onthe2009crisis.

Someimportant andoriginal implicationsemerge from all thisevidence. First,our detailed analysisof extensivemargindeterminantsrevealssome importantfeatures oftherelevance of sunkcostsandtheirasymmetricimportanceonthesupplyofexportsandthedemandforimports. Fromourfindings,wecaninferthattheexitfromforeigndestinationmarketsentailsthelossofthe export sunk costs already borne by the firm. Firms could then work towardsdefending their marketpositionabroadandavoidfacingfurtherburdensomecostsinthefuture.Onthecontrary, exportersmayadjusttheirexportbasketsanddropsomeproducts,especiallyiftheyaremarginal varieties and/or originate from intermediary activity. However, as documented by our decompositions above,whiletheextensive marginsplayed a limitedrole in theexport slump, theyemergedasanimportantdriverofthecontractioninimportdemand.Ononehand,thismay indicatethatarelevantrestructuringprocessoccurredinTurkishimportswithareductioninthe numberofimportersintotalandin eachproduct-marketcombination.Ontheotherhand,and morelikelyinourview,itmayonlyrevealthatunderuncertaintyfirmshingemoreoninventories andlessonforeign purchases.Allthis,however,impliesanasymmetry ininternational buyer-supplierrelationshipswheretheburdenof internationaltie buildingseems tobebornebythe sellermorethanthebuyer.Thisinterpretationisinlinewithsomerecentempiricalandtheoretical worksontheprocessofexportmarketentryandpenetration (RauchandWatson,2003;Eaton

etal.,2008,2011b;Arkolakis,2010).Ifforeignsourceanddestinationmarketsarecharacterisedby

a high degree of competition, itis rather likely that firms may find itharder to acquire new customers than to find new intermediate suppliers. The only exception emerges for high productivityfirmswhoseproductionislikelytoberatherhighqualityandwhosesuppliers,asa consequence,couldbemore difficulttosubstitute.

Secondly, the roleof CAT activity in the Turkish export collapse seems tohave been quite important.Regularexportflowswerenotnegativelyaffectedatextensivemarginsandunderwent lower contractions at intensive margins compared to CAT flows. Comparing the evidence for regularexportstothatonoverallexports,italsoemergesthatlargerfirmsweremorelikelytodrop anexportproductandleavetheexportmarketduringthecrisisbecausetheystoppedorreduced their activity as trade intermediaries. Also, from the comparison of the coefficients on the economicdestinationofgoods,theexportcollapseofCATactivitiesseemstoberelativelymore relatedtothetradingoffinalgoods,whileregularexportsdroppedessentiallyinintermediateand capitalgoods.AllthiscallsforafurtherinspectionoftheroleplayedbyCATactivityintheexport collapseofothercountriesaswell.

Finally,whatfurthermessagecanwegatherfromthespecificexperienceofTurkeyinthe2009 crisis? Sinceourresults suggestthatthe domesticmarket contributedtocushionthenegative shocksufferedbyTurkishfirmsinforeignmarkets,ourworkprovidesaninterestingimplicationin timesof austerity. As a matterof fact,exporters didnot face anyreduction in theirintensive marginsofoverallsalesduringthecrisis.Also,largerfirmsandimportersseemtohavebenefitedin particularbydomesticdemand,actuallydisplayingabetteroverallsalesgrowth,butthereisno significantdifferenceintheirexportswithrespecttosmaller firmsandnon-importers.Allthis, togetherwiththecountry’srapidrecoveryafter2009,couldbeinterpretedasanindirectproofof the positiveeffect of the fiscalstimulus providedby the Turkishgovernment inthe form ofa temporaryconsumptiontaxcutondurableswhichwasimplementedfromthesecondquarterof

2009(MischandSeymen,2012).TheTurkishexperiencethereforeprovidesanimportantlessonfor

developing and emerging economies whose development strategies rest heavily on deep integrationintheglobaleconomy,asithighlightsthatinordertoberesilientintheoccurrence A.LoTurco,D.Maggioni/EconomicSystems38(2014)397–414 409

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ofadramaticnegativeexternalshockcountriesneedtopreservesomescopeforanautonomous domesticpolicy.

6. Concludingremarks

Thepresentworkcontributestothenewandstilllimitedﬁrmlevelliteratureontherecentcrisisby providingevidenceontheresponseofTurkishmanufacturingﬁrms.

Theseparateanalysisoftrademarginsunveiledtheexistenceofimportantasymmetriesinthe reactionofexportsandimportstoanexternalshock.Asa matteroffact,firmandfirm-product levelextensivemarginshadaratherrelevantroleinshapingthedramaticslumpinimportsthat characterisedtheTurkisheconomyin2009.Also,theinvestigationofthefirmleveldriversofsuch adropshowedthatthepositionofTurkeyintheinternationalsupplychainsmaywellhaveplayed a role: the sudden drop in foreign demand propagated the contraction of the exporters’ intermediate purchasesabroad and the most affected good categories were intermediate and capitalgoods.

The analysis of the export evolution also revealed someimportant findings. First of all, the contractionofforeignsaleswascounteractedbytheextensivemargin,whichwasprominentlydriven bythefirm import activity,which became morerelevant whenthemarket sizeshrank and the competitivepressurebecametougher.Secondly,theintensivemarginwaspartiallyshapedbythe performanceofmoreproductivefirms’salesabroad,possiblyduetotheirfocusonthemostaffected product-marketsegments.Also,postponablegoodsweresubjectedtothelargestfall.Finally,butmore importantly, ourwork delivers unprecedented evidenceon theevolution of produced and non-producedexportsintheaftermathoftheglobalturmoil.Regularexportersweremoreresilientthan CATones.Thisfindingcalls,ingeneral,foramorethoroughunderstandingoffirmexportactivityand, inparticular,hintsattheneedtoassesstowhatextenttheglobaltradecollapsewasdrivenbythe pervasivenessofCATactivitywhich,inthecaseoftheTurkishandothereconomies,representsan importantfractionoftotalexports.

Moreover, ourinvestigationsuggests that the internal market cushionedthe drop in foreign demandforpostponablegoods:largerﬁrmsindeedshowedgreaterresilienceintheiroverallturnover in2009comparedtothecontractionoftheirexportactivity.Thishintsattheeffectivenessofthe country’stemporary ﬁscalpolicy measuresand at theimportantrole ofdomestic institutionsin curbinganegativeforeigndemandshock.

Inconclusion,theanalysisofTurkishmanufacturingduringthecrisismaybeconsideredasa naturalexperiment thatprovides thechance toobserveifandhow firmheterogeneitymatters whentheeconomyisunderstress.Also,the2009contractionofTurkishmanufacturingappears to be deeply rooted in the position of this economy in international production networks. Althoughwe show how such supply chainscontributed tothe spur of the demand downturn fromthe largestimportingcountries tothe more peripheralsuppliers,the observedresilience oflargerfirms intheirdomestic salesandtheoverallquickrecoveryoftheTurkish realsector after2009 suggest thatdomestic demand sidepoliciesmaystill playa fundamental role.This should call fora deep reflection on the recent widespread adoption of austerity measures in Europe.

Acknowledgments

ThedatausedinthisworkarefromForeignTradaData,AnnualBusinessStatisticsandProduction SurveysprovidedbytheTurkishStatisticalOfﬁce(TurkStat).Allelaborationshavebeenconductedat theMicrodataResearchCentreofTurkStatrespectingthelawonstatisticsecretsandpersonaldata protection.Theresultsandopinionsexpressedinthisarticlearetheexclusiveresponsibilityofthe authorsandbynomeansrepresentofﬁcialstatistics.We aregratefultoBu¨lentTungul,Mahamut Ozgur,KenanOrhanandErdalYildirimfromTurkStatfortheirhelpwithforeigntradedata.Wealso thankVedatMetin,UlkuUnsalandOguzhanTurkoglufromtheDisseminationDepartment.Finally, theauthorsareextremelygratefultotheSabanciUniversityandthejurycommittee(ProfessorIzak

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Atiyas,ProfessorHasanErsel,ProfessorJeffreyNugent,ProfessorZiyaO¨ nisandProfessorDaniRodrik) forhavinggrantedthispaperthesecondplaceatthe2012SakipSabanciInternationalResearchAwards. AppendixA. Datasources

Wemakeuseofthreedifferentdatasourcestobuildupoursample.

StructuralBusinessStatistics(SBS).TheAnnualIndustryandServiceStatisticscollectinformationon firmincomes,inputcosts,employment,investmentactivity,theprimary4digitNACE(rev1.1)sector of activity and the region of location over the period 2003–2008 which deliver the firm level characteristicsusedascontrolsinourestimations.Thesedatacoverthewholepopulationoffirms withmorethan20employeesandarepresentativesampleoffirmswithlessthan20employees.The economicactivitiesthatareincludedinthesurveyarethoseintheNACEsectionsfromCtoKandfrom MtoO.Also,thedatacoverallfirmswithmorethanonelocalunitregardless ofthenumberof employeesandallfirmsinthefollowingsectors:C,EandI.

ForeignTradeStatistics(FTS).ForeigntradeflowsatfirmlevelprovidedbyTurkStataresourcedfrom customsdeclarationsandareavailableforthe2002–2009timespan.Theimportandexportflowsare collectedfortheuniverseoftheimportersandexportersofgoodsat12-digitGTIPclassification:13_the

first8digitscorrespondtotheCNclassification,andthelast4digitsarenational.Additionally,the informationontheorigin/destinationcountriesoftradeflowsisavailable.

AnnualIndustrialProductStatistics(AIPS).TheTurkStatAnnualIndustrialProductStatisticscontain information on thetype and number of producedgoods, their volume and value of production togetherwiththetotalquantityandvalueoftotalsalesfromgoodsproducedwithinthereferenceyear orprecedingyears.Productdataareavailablefortheyears2005–2009andarecollectedat10-digit PRODTRlevel,14_a_national_product_{classiﬁcation}_with_the_ﬁrst₈_digits_{corresponding}_to_the_PRODCOM

classification.Productiondataareavailableforfirmswithmorethan20personsemployedandwhose primaryorsecondaryactivityiseitherinCsection(Mining&Quarrying)orDsection(Manufacturing) ofNACERev1.1.Thisdatabaseallowsustoidentifythefirmproductscope,salesandexportsofgoods thatthefirminfactproduces.

AppendixB. Additionaltablesandﬁgures

SeeTablesB1–B3.

TableB1

Variablesdeﬁnitionanddescription.

q Description

Extensivemargin

Startx _Probability_to_start_exporting_measured_as_a_dummy_taking_value₁_if_the_ﬁrm_exports_in_t_and

didnotexportint 1 Startxreg

Probabilitytostartexportingownproductsmeasuredasadummytakingvalue1iftheﬁrm exportsownproductsintanddidnotexportint 1

Startm

Probabilitytostartimportingmeasuredasadummytakingvalue1iftheﬁrmimportsint anddidnotimportint 1

Stopx

Probabilitytostopexportingmeasuredasadummytakingvalue1iftheﬁrmstopstoexport intandexportedint 1

Stopxreg

Probabilitytostopexportingownproductsmeasuredasadummytakingvalue1iftheﬁrm stopstoexportownproductsintandexportedownproductsint 1

13

Thisclassiﬁcationundergoessomechangeseveryyearandhasbeenharmonisedovertimefollowingtheprocedure suggestedinPierceandSchott(2009).

14_The_PRODTR_{classiﬁcation}_is_the₂₀₀₆_one,_thus_it_is_homogeneous_across_the_years_and_does_not_require_any_{harmonisation}

procedure.

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TableB1(Continued)

q Description

Stopm

Probabilitytostopimportingmeasuredasadummytakingvalue1iftheﬁrmstopstoimport intandimportedint 1

Dropx _Probability_to_drop_an_export_product_measured_as_a_dummy_taking_value₁_if_the_ﬁrm_drops

theproductexportintandwasexportingitint 1 Dropxreg

Probabilitytodropaproducedexportproductmeasuredasadummytakingvalue1ifthe ﬁrmdropstheownproductexportintandwasexportingitint 1

Dropy

Probabilitytodropaproductfromtheproductmixmeasuredasadummytakingvalue1if theﬁrmdropstheproductintandwasproducingitint 1

Dropm

Probabilitytodropanimportproductmeasuredasadummytakingvalue1iftheﬁrmdrops theproductimportintandwasimportingitint 1

Intensivemargin

Dxf/fp Annualgrowthofﬁrmorﬁrm-productlevelexportsmeasuredasthelogchangeinexport

sales

Dxreg_f=fp Annualgrowthofﬁrmorﬁrm-productlevelproducedexportsmeasuredasthelogchangein

producedexportsales

Dyf/fp Annualgrowthofﬁrmorﬁrm-productlevelsalesmeasuredasthelogchangeintotalsales

Dmf/fp Annualgrowthofﬁrmorﬁrm-productlevelimportsmeasuredasthelogchangeinimported

purchases

W Description

Crisis/C Dummytakingvalue1inyear2009and0otherwise size Firmsizemeasuredasthelogofthenumberofemployees

lp Labourproductivitymeasuredasthelogofrealvalueaddedperworker exp Exporterdummyequalto1iftheﬁrmexportsinthatyearand0otherwise. imp Importerdummyequalto1iftheﬁrmimportsand0otherwise

foreign Foreignownershipdummyequalto1iftheﬁrmisforeignowned

X Description

interm Dummy equalto 1ifa productisan intermediategood and0otherwise. Wedeﬁne intermediatesthoseproductsincludedintheBECcodes111,121,21,22,31,322,42,53 capital Dummyequalto1ifaproductisacapitalgoodand0otherwise,Wedeﬁnecapitalgoods

thoseproductsincludedintheBECcodes41and521

share Shareoftheproductinthetotalﬁrmoutput/exports/producedexports/imports

TableB2

Kolmogorow–SmirnovTestonthechangeofintensivemarginsbetween2009and2008. Firmlevelmargins

2009/2008changein Dxf Dxreg_f Dyf Dmf Allfirms 0.333 0.245 0.236 0.380 Largefirm 0.404 0.282 0.202 0.413 Smallfirm 0.298 0.224 0.247 0.359 P-value 0.000 0.008 0.000 0.000 Highproductivity 0.373 0.277 0.255 0.428 Lowproductivity 0.280 0.199 0.227 0.300 P-value 0.000 0.001 0.000 0.000 Exporter – – 0.239 0.420 Nonexporter – – 0.233 0.226 P-value – – 0.000 0.000 Importer 0.364 0.247 0.223 – Nonimporter 0.195 0.234 0.256 – P-value 0.000 0.151 0.000 –

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TableB2(Continued)

Firmlevelmargins 2009/2008changein

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Firm-productlevelmargins 2009/2008changein Dxfp Dxreg_f_p Dyfp Dmfp Allfirms 0.413 0.279 0.250 0.400 Largefirm 0.448 0.274 0.225 0.431 Smallfirm 0.371 0.282 0.260 0.319 P-value 0.074 0.035 0.000 0.000 Highproductivity 0.464 0.327 0.285 0.423 Lowproductivity 0.338 0.216 0.218 0.366 P-value 0.000 0.000 0.000 0.000 Exporter – – 0.253 0.412 Nonexporter – – 0.246 0.243 P-value – – 0.000 0.000 Importer 0.414 0.271 0.242 – Nonimporter 0.404 0.330 0.265 – P-value 0.713 0.040 0.000 – Foreign 0.423 0.341 0.180 0.429 Domestic 0.411 0.273 0.253 0.389 P-value 0.397 0.028 0.000 0.000 Capital 0.473 0.552 0.334 0.496 Interm/final 0.406 0.246 0.237 0.396 P-value 0.000 0.002 0.000 0.000

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Variable Observations Mean S.E. Min Max

sizet 1 30,943 3.974 0.968 2.995 9.615

lpt 1 29,872 9.558 0.848 2.372 14.631

expt 1 31,006 0.553 0.497 0 1

impt 1 31,006 0.578 0.494 0 1

foreignt 1 30,500 0.039 0.193 0 1

Thetablereportstheaverage(Mean),standarddeviation(S.E.),minimum(Min)andmaximum(Max)valuesoftheone-yearlags ofﬁrmvariables.

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