Reorganise, Replace or Expand? The role of the supply-chain in first-time exporting

Spray, J.

Modern trade theory models exporting as paying a fixed-cost in order to access a larger market. This simplification ignores an essential component of the export process: how does the decision to export cause firms to alter their supply-chains? In this paper I demonstrate that first-time exporting not only leads to growth in exporter output and productivity, but also influences the supply-chain in three main ways depending on the exporters size. First, new exporters replace unproductive suppliers with more productive domestic suppliers. Second, new exporters replace existing suppliers with imported alternatives. Third, exporting leads to pecuniary spillovers passed onto domestic suppliers, observed in higher revenue productivity. I use a unique, high-frequency Government of Uganda value-added tax administrative dataset motivated by a simple matching model to provide the first evidence on these effects. The model is identified by exploiting a natural experiment of a reduction in international transportation costs.