In the last two decades, many LICs implemented a range of trade reforms that resulted in tariffs substantially declining on intermediate and final products and increasingly flexible exchange rates. The broad expectation is that the exchange rate policy and trade reforms can stimulate trade performance and spur economic growth. A growing volume of literature in international trade document a high rate of entry, exit and churning of firms participating in trade in LICs that is closely linked to external shocks. Sadly, the evidence linking real exchange rates and tariff changes at the product level to the observed patterns of extensive and intensive trade margins among exports and import at firm level is scanty among LICs. Yet, the effect of external exposure makes them susceptible to these changes. This study examines the influence of tariff reforms and exchange rate shocks on features of firms' export and import entry and exit behaviour; and aggregate trade volatility on non-traditional products defined as goods that fall outside base metals - natural resources.
It is a stylized fact that trade among LICs is volatile and susceptible to external shocks. While several attempts to explain this pattern adopt a macroeconomic approach, this masks much of the variation at the firm, product and destination levels. Beyond characterizing the features of entry, exit and survival, the methodology adopted in this study enables the researchers to also explicitly identify the role of exchange rate movements and tariff cuts specific to products or markets as a result of enforcing multilateral or bilateral agreements. The data for this study is a combination of firm-level customs data on trade (imports and exports) and national tariff rates (tariff book) data both for the period 2000 to 2015. This data will allow the research team to construct firm-level measures of exports and imports and categorise firms into exporters only, both importer and exporter, and importers only.
The effect of exchange rate fluctuations and changes in tariffs on firm entry, exit and survival is of great interest to policy makers in liberalized developing countries. The economies of emerging landlocked countries like Zambia are susceptible to external shocks threatening the survival of the few established firms and entry of new ones. Findings will further inform and influence the ongoing debate on Zambia’s trade oriented industrialization that is seeking to diversify the economy away from dependence on natural resources and also to build resilience towards external shocks
