Determinants of Exports Behaviour of India’s Agro-processing Firms: Role of Technology, Imported Raw Materials and Logistics Infrastructure

Abstract

Despite accounting for a sizeable share in the overall output and employment of the manufacturing sector, the export potential of India’s Agro-processing firms has received less attention. This article investigates the determinants of export propensity and intensity of relatively labour-intensive agro-processing firms in India with a focus on the role of technology adopted, the proportion of imported raw materials used and status of the logistics infrastructure at the location of the firm. The article makes use of the CMIE-PROWESS dataset to obtain a cross-section of agro-processing firms for the year 2016–2017 and the Logistic Ease Across Different States (LEADS) database. The empirical strategy involves the Heckman two-step process to address the sample selection bias originating in modelling export behaviour. The article finds that the likelihood of an agro-processing firm to enter the exporting market increases with an increase in technology enhancing investment in terms of expenditure on research and development and import of capital goods. Moreover, a better level of logistics infrastructure enhances the likelihood of exporting. The likelihood of a firm to export also increases with the increase in the use of imported raw materials, firm size, age and superior managerial quality. However, the paper finds only the expenditure on imported capital goods and imported raw materials to be positively and significantly associated with the export intensity of the exporting firms.