Letter IEDI n. 1221—Exports and technology diffusion: evidence for Brazil
Today's Letter IEDI follows a series of releases from the Institute that emphasize the importance of greater integration of Brazil into international trade. Some recent examples on the topic are Letters n. 1157 “More and better global integration” of Aug'22, n. 1188 “Complexity of Brazilian exports and competition from China” of Feb'23, and n. 1219 “Overview of Brazilian Exporting Companies” of Aug'23, among others.
In this edition, we address the study “Exporting and Technology Adoption in Brazil”, authored by Xavier Cirera, Marcio Cruz, Kyung Min Lee, Antonio Martins-Neto, researchers from the World Bank, and Diego Comin from the University of Dortmund, which aims to investigate the role of entry into export markets in facilitating the diffusion and adoption of new technologies by developing countries' companies.
With an unprecedented dataset obtained through the Firm-level Adoption of Technology (FAT) survey, developed by the World Bank's Finance, Competitiveness and Innovation (FCI) team, the authors examined the impact of exporting on the adoption by Brazilian companies of more sophisticated technologies in different business functions.
The FAT survey covers nearly 300 technologies divided into nearly 60 business functions, including general business functions (GBF) that apply to all companies, regardless of industry, and sector-specific business functions (SBF).
In addition to detailed information on the technology used for each general business function, including the year of adoption of advanced technologies, the FAT survey also provides information on various characteristics of firms, such as the educational training of managers and workers, the use of formal incentives and performance indicators and innovation practices, among others.
For the application of the survey in Brazil, the authors used an original sample of about 1,500 formal establishments, located in the states of Ceara, Parana and Sao Paulo, with at least five employees, in agriculture, manufacturing and services.
This unique and innovative database was combined with information on the companies' export status, based on MDIC data available for the period from 1994 to 2020. Likewise, information from the Annual Social Information Report (Rais) on formal employment, such as size and average salary at the establishment level, was used.
In a first approximation to explore the relationship between exporting and adoption of advanced technologies, the authors sought to identify the main differences between Brazilian exporting and non-exporting companies, based on the correlations between trade status (exporter versus non-exporter) and the technological sophistication index. The positive correlations obtained indicate that exporters use more sophisticated technologies than non-exporters.
The analysis of the average technological sophistication measures by sector revealed that the differences between the groups of exporters and non-exporters in the sample of Brazilian companies are greater in the agri-food industry, agriculture and the automobile industry, with exporting firms in this sector being the only ones in the sample at the frontier of technological sophistication.
To more accurately identify the causality of the effect of entering international markets on the adoption of advanced technologies, the authors used the “event study” methodology and applied the difference-in-differences (DiD) method with multiple periods. In summary, the use of this statistical method makes it possible to compare the adoption rates of new technologies of treated firms over the short and medium term with the adoption rate that would have occurred if they had not started to export.
As a dependent variable, the authors focused on the adoption of advanced technologies for eight general business functions: business administration, production planning, supply chain management, marketing, sales, payment, quality control, and fabrication. The latter available only to manufacturing firms.
The results found show a positive and significant impact of entering the international market on the adoption of more sophisticated technologies for most business functions, with particularly high coefficients for business administration, production planning, supply chain management and quality control.
After starting to export, establishments tend to be 13.7% more likely to adopt specialized enterprise resource planning (ERP) software for company administration, compared to those that do not export. In addition, in the case of quality control, the export status is associated with an 8.9% higher probability of adopting statistical process control with software monitoring and data management or automated systems for inspection.
Positive and significant effects on the likelihood of adoption of advanced technology found also in production planning and supply chain management are, according to the authors, consistent with models that suggest that exporting increases the complexity of tasks and processes within the firm, which requires better technologies.
These results are in line with other studies analyzed by the Institute, such as the MDIC document "Profile of Brazilian Exporting Firms: an Overview", addressed in Letter IEDI n. 1219. The importance for the productivity of Brazilian companies to export more, obtaining new knowledge and skills, had already been emphasized by economist João Emilio Gonçalves in the study “Uncertainties about Trade Opening”, carried out at the request of the IEDI.