DIRECT VIS-À-VIS INDIRECT MODE OF EXPORT IN SUB SAHARAN AFRICA: THEORETICAL AND EMPIRICAL INVESTIGATION

Author

Seifu Gebrehanna, Southern Illinois University CarbondaleFollow

Date of Award

5-1-2012

Degree Name

Doctor of Philosophy

Department

Economics

First Advisor

Lahiri, Sajal

Abstract

This research examines direct and indirect mode of export in sub-Saharan Africa through a combination of theoretical and empirical analysis. We use firm-level data from 38 sub-Saharan Africa countries to test the theoretical findings. The first chapter analyzes a manufacturing firm that chose to export but faced with the discrete decision of choosing a mode of export. The firm weighs between exporting directly and indirectly. We investigate the factors that affect a firm's decision and compare the payoff in each scenarios viz., direct and indirect exports. We formulate a theoretical model for a single firm that can successfully choose from either export channels under various circumstances. Further, we compare the profits under either modes of export. We find that the profit of using direct export mode improves as a firm becomes more efficient, in which case the difference between the profits from using direct and indirect mode gets larger. Our empirical findings show similar relationships. The results also indicate that factors such as size of the firm, being a subsidiary of a multi-plant firm and access to information technology affect the choice to become direct exporter positively. On the other hand, a firm's increased perceptions of obstacles to current operation in the forms of lack of access to finance and corruption are associated with decreased probability of becoming direct-exporter. The second chapter's primary goal is to investigate the oligopolistic interdependence between direct and indirect exporters in the presence of government subsidy. It makes one main assumption that is government subsidy provision targets only direct exporters. In our analysis, we present the effects of pre-determined subsidy and subsidy as a function of levels of inefficiency of both mode exporters and competition between direct exporters. We find that the socially optimal subsidy is negative implying that the chosen policy instrument is a tax on the direct exporters. For both pre-determined and endogenous subsidy, we find that the level of efficiency of the firm affects export decision positively in either direct or indirect-mode exporters' cases. While, the efficiency level of one type mode exporter negatively affects the output of the other mode exporter. We also find that the indirect exporter's level of inefficiency positively affects optimal subsidy provision to the direct exporters, if the indirect exporter has a large market share. We find empirical evidence that support our theoretical findings. In the last chapter, we investigate the interdependence between the direct and indirect export modes of exporters by including domestic sales. Both our theoretical and empirical results indicate that level of exports and domestic sales are directly related to level of efficiency (or inversely related to inefficiency of the firm). However, level of cross-efficiency affects export and domestic sales negatively for both direct and indirect exporters. The empirical test also reveals that domestic sales and either forms of export sales are substitutes; change in domestic sales has a negative effect on both direct export and indirect export sales.