Guest Post: Diagnostics of Turkey’s Exports at Firm-Level

Along with several other ambitious economic targets, Turkey set a 500 billion USD exports target for the year 2023, the 100th anniversary of the modern Turkish Republic. In policy documents prepared to this end, number of exporters and export destinations are often cited as main dimensions to focus on[1]. However, a cross country comparison reveals that it is the average size of exporters that might be restraining Turkey’s export volume rather than the number of exporters or export destinations.

Utilizing firm-level export data of 10 developed and 35 developing countries, the World Bank’s Exporter Dynamics Database[2] allows us to examine associations between export volume of countries and several components of exports at firm-level.

i. Number of Exporters: There is a very strong positive correlation (0.93) between export volume of a country and its number of exporters. Standing well above the regression line in the Figure, Turkey is among those countries having a number of exporters higher than what their export volume correspond.

ii. Average Number of Destinations per Firm (NDF): The correlation between NDF and total export volume of that country is 0.63. With an NDF of almost 4, Turkish firms export to a slightly higher number of destinations than the total export volume of the country implies.

iii. Average Number of Products per Firm (NPF): A Turkish exporter, on average, exports almost 10 different products, defined at HS6 level[3]. As Turkey is well above the regression line, we conclude that there is not a problem with product diversification at firm-level.

iv. Average Exporter Size: Here comes the dimension in which Turkey underperforms.  Size of average Turkish exporter (e.g. average export volume per exporter) is very low relative to total export volume of Turkey.

v. Firm Concentration of Exports: In contrast to the conventional wisdom, concentration of a country’s exports among a small number of large firms (compared to a more equal distribution) does not necessarily have a negative implication for total exports of that country. In fact, we observe a positive, though not very strong, correlation between share of top 1% exporters in total exports and total exports of countries. With a 60% top 1% exporter share, Turkey lags behind its total exports in this measure.

Using a simple methodology, this Note argues that small exporter size in Turkey might be a serious problem preventing the country from exporting more. There are 2 main mechanisms underlying this argument:

1- Sunk costs associated with exporting (such as market research and shipping costs) pose a higher burden for firms exporting smaller amounts.

2- Market power and hence the ability to determine prices and other conditions of trading are lower for smaller transactions.

Unfortunately, increasing exporter size might be a more difficult task for Turkey than it initially looks. This is because not only the average exporter size but also the average firm size (measured by employment or total sales) in Turkey is very low relative to many other countries[4]. This implies that effective export policies should be based on overall structure of the economy and not stand-alone.