Export transitions, productivity, and the supply chain
- This project assessed the consequences of Uganda’s trade policy in terms of the impact on firm exports, productivity, and most interestingly, the wider supply chain. I also examine how this has important lessons for the ‘Buy Uganda, Build Uganda’ (BUBU) policy.
- I observed that Ugandan export and domestic trade performance is impressive and has been driven by the Government of Uganda policy.
- In addition, Ugandan exporters have driven output and productivity growth directly and indirectly through their supply chain. The key to the success of BUBU is to deepen domestic supply chains in order to increase export competitiveness.
- I recommend three policy interventions as part of the BUBU policy. First, establish a Local Content Unit to target information gaps between large firms and smaller supplier firms. Second, utilise innovations from big data to establish a supplier database. Third, target export support sectors as a key area to support local supply chain development.
Transitioning from selling goods domestically to exporting for the first time is probably the biggest change any firm is likely to undertake. Research suggests that new exporters, when faced with international competitive pressures and with new demand for higher quality and larger markets, grow, become more productive, and invest in higher quality products (De Loecker, 2007; Bernard and Jensen, 1999; Van Biesebroeck, 2005; Bustos, 2011; Pavcnik, 2002; Kugler and Verhoogen, 2012; Lileeva and Trefler, 2010).
The Government of Uganda through its participation in the East African Community (EAC) and the Northern Corridor Transit and Transport Coordination Authority has substantially reduced trade barriers through a significant reduction in transport costs. This has made it substantially easier for firms to export goods and to export different types of goods.
Although there is substantial government and donor interest, no research project has yet been able to assess the consequences of this policy intervention in terms of the impact on firm exports, productivity, and most interestingly, the wider supply chain. This type of project will allow policymakers to assess the success of their current intervention and to identify future areas to target.
The governments of the EAC have expended a substantial amount of political capital in reducing trade barriers with the goal of creating export-led growth. Despite this, the trade balance has deteriorated. Understanding the degree to which current policy has been successful is a vital component of formulating upcoming trade promotion policy. This has been discussed and supported by stakeholders in Uganda and Rwanda.
In this study:
- I looked at the impact of the reduction in transportation costs on Ugandan export performance and found a strong association between the the reduction in transportation costs and the recent growth in export volumes, the number of exporters, and the diversification of export products in Uganda.
- I then looked at what makes exporters special in terms of their productivity, and their connection to domestic firms. Consistent with other research, I found that exporters have higher productivity, are larger, and employ more people than non-exporting firms.
- I also found that exporters are more interconnected than non-exporters and have higher productivity suppliers than non-exporters.
- I then pulled together these effects to consider the direct and indirect causal impact of firms exporting.