Policy Update 089

Export trade fairs and Coronavirus

MAKIOKA Ryo
Fellow (Policy Economist), RIETI

This short article introduces my recent studies on export trade fairs. The coronavirus 2019 (COVID-19) pandemic has had enormous impacts on many industries, and the trade fair industry is no exception. According to the Japan Exhibition Association (2020), approximately 450 trade fairs have been cancelled or postponed since the COVID-19 pandemic began to expand in late February. Losses due to such cancellations or postponements affect a wide range of stakeholders from trade fair sponsors, site operators and support companies, to product exhibitors and other trade-fair participants.

Trade fairs are defined as events that is held for the purpose of allowing corporations and individuals to have business talks with buyers for the purpose of selling their products and to collect and exchange information including future market trends. Such trade fairs enable buyers and sellers to hold efficient meetings and therefore vitalize their business. Communicating face-to-face in trade fairs also inspires the creation of new innovations and explore market needs.

I have studied the effects of export trade fairs on firms' export behaviors. In this note, I introduce two studies to explain that the rampant COVID-19 pandemic restricts face-to-face communication in export trade fairs and therefore can cause business stagnation. Finally, I discuss the possibility that increased promotion of online business communication could mitigate the stagnation.

Effects of participation in export trade fairs and business meetings

Makioka (2020) analyzes the effects of attending trade fairs on exports and other business activities. It uses data by compiling a list of firms attending export trade fairs, provided by the Japan External Trade Organization (JETRO), and the Basic Survey of Japanese Business Structure and Activities by the Ministry of Economy, Trade and Industry. Two approaches are used for deriving the causal effects of trade fairs. First, I use a matching difference-in-differences (DID) estimation approach where the treatment and control groups are matched based on rich firm characteristics. The second approach uses a linear estimation with the fixed effects, utilizing information on trade fair-hosting and export destination countries.

The results show the following three points. First, attending export trade fairs raises firms' export probability by 11.2 points (Figure 1), and the effect tends to be larger for small and medium-sized firms (SMEs). Second, the effect of attending export trade fairs is not observed in China or other Asian countries that are geographically and culturally close to Japan, but is observed at a statistically significant level in Europe and the U.S. Third, firms that participate in trade fairs also expand market-research outsourcing.

These findings suggest that attending export trade fairs increases export participation by reducing information barriers and costs regarding contracting and uncertainties. The fact that the effects on exports is particularly large for SMEs and Western markets is consistent with the story of information barriers. My findings also seem to be more reliable than those in earlier studies, given that the analysis controls for a wider range of firm characteristics, including firms' past export records and the share of employees in the international business division within firms.

Figure 1: Effects of Trade-fair Participation on Export Probability
Figure 1: Effects of Trade-fair Participation on Export Probability
Note: This figure is constructed by the results with a difference-in-differences matching estimation approach used in Makioka (2020). The estimated effect, i.e., 11.2 percentage points, is statistically significant at 1%. The similar result can be obtained by other matching methods.

Impact of SARS on effects of export trade fairs

To address the self-selection problem (Note 1). regarding attending trade fairs, Makioka (2020) derives the causal effects of attending trade fairs on exports by controlling observable variables. However, the study cannot completely control for all unobservable changes (such as demand shocks for products of some firms in some overseas markets) that may coincide with the use of trade fairs, thus leaving an endogeneity problem. To further tackle such endogeneity concern, our ongoing study analyzes the effects of Chinese firms' participation in the biannual Guangzhou Trade Fair, called the Canton fair, on their exports, using the severe acute respiratory syndrome (SARS) outbreak in China in the spring of 2003 as a natural experiment (Note 2). The Canton trade fair, which takes place every spring and fall in Guangzhou, is one of the world's largest trade fairs (export deals worth approximately $30 billion) and is therefore suitable for analyzing the effects on firms' exports. The same Guangdong province also saw the first SARS case in November 2002. As indicated in Figure 2, the number of buyers participating in the spring 2003 Canton fair declined substantially due to the SARS pandemic. This study uses the decline in the number of buyers to analyze the effects of the trade fair on the number of export destination countries for exporters attending the Canton fair.

Figure 2: Number of Buyer Companies Participating in Guangzhou Trade Fair and SARS' Impact
Figure 2: Number of Buyer Companies Participating in Guangzhou Trade Fair and SARS' Impact
Note: The figure is constructed from information on the website of the Guangzhou Trade Fair. The vertical dashed line represents spring 2003, when an advisory against travelling to China was issued due to SARS. Among data I use for this analysis, the number of seller companies participating in the spring 2003 Guangzhou Trade Fair does not deviate from the long-term trend, although this point is not reflected in the figure.

The following are preliminary findings. Figure 3 compares the average number of export destination countries for exporting firms attending each Canton fair and that for non-attending exporting firms. The average number of export destination countries in the next year for exporting firms attending the spring 2003 Canton fair is lower compared to that for exporters attending the spring 2002 Canton fair, while the number for non-attending exporters does not decrease to the same extent. It is true, as seen in Figure 2, that the number of firms attending the Canton fair have been rising annually in general, implying that relatively small firms have begun to attend the trade fair. As a result, the average number of export destination countries for the Canton fair attendees might have followed a downtrend even in the absence of SARS. To mitigate the concern, Figure 4 shows the residual of the number of export destination countries after regressing it on year/season-province/region fixed effects, firm fixed effects, year/season-main export product fixed effects, and year/season-ownership fixed effects. Plotting the average residual allows us to check the difference between the average numbers of export destination countries for exporters attending the Canton fair and that for non-attending firms after controlling for these fixed effects. Like Figure 3, Figure 4 shows that the average number of export destination countries for those attending the spring 2003 Canton fair is smaller than that for fair-attendees in other year/season and that for non-attending firms.

Figure 3: Comparing Numbers of Export Destination Countries for Canton-Fair Attendees and Non-Attendees
Figure 3: Comparing Numbers of Export Destination Countries for Canton-Fair Attendees and Non-Attendees
Note: The figure compares the average number of export destination countries for firms participating in the Canton fair (solid line) with that for non-participating firms (dotted line). For example, the dots in 2002h2 represent the average numbers of export destination countries in the first half of 2003 for firms participating in the fall 2002 Canton fair and non-participating companies. The vertical line indicates the spring 2003 Canton fair, in which the number of participating buyers declined due to SARS.
Figure 4: Comparing the Residualized Numbers of Export Destination Countries for Canton-Fair Attendees and Non-Attendees
Figure 4: Comparing the Residualized Numbers of Export Destination Countries for Canton-Fair Attendees and Non-Attendees
Note: The figure compares the average residuals from estimating the number of export destination countries in period t+1 on multiple fixed effects for firms participating in the Canton (solid line) and non-participating firms (dotted line). For example, the dots in 2002h2 represent the average numbers of export destination countries in the first half of 2003 for firms participating in the fall 2002 Canton and non-participating firms. The vertical line indicates the spring 2003 Canton fair, in which the number of participating buyers declined due to SARS.

Table 1 shows the estimates from a difference-in-differences estimation. The first column shows the estimate using aforementioned multiple fixed effects. The second to fifth columns provide the estimates controlling linear trends for the treatment and control groups (column 2), focusing on firms exporting from spring 2002 through fall 2003 (column 3), using the control group selected by the propensity score matching to address the downtrend in the number of export destination countries (column 4), and doing altogether (column 5). The average number of export destination countries for exporters attending the Canton fair is 5-7% less than that for non-attending exporters due to a decline in the number of buyers participating in the Canton fair under the SARS outbreak. In other words, the number of export destination countries for those attending the Canton fair is less than that for non-attending firms, because sellers in the trade fair are prevented from conducting face-to-face business negotiations and information sharing with buyers that refrained from attending the trade fair due to the SARS outbreak. This result is consistent with my earlier study using JETRO data and provides very similar estimates.

Table 1: Impact of SARS on Canton Fair Effects
Table 1: Impact of SARS on Canton Fair Effects
Note: This is results focusing on toys and game goods. "SARS" represents a dummy variable for the first half of 2003. Standard errors in parentheses are clustered at the firm level. *** is for the significance level at 1%, ** at 5% and * at 10%.

A related study is conducted by Fernandes and Tang (2020), which analyze the impact of the SARS outbreak on Chinese firms' exports and imports. They implement a DID regression with firm-level data, where the treatment group is firms in 10 Chinese provinces and regions affected by the SARS outbreak, as reported by the World Health Organization, and the control group is those in the other Chinese provinces and regions. Our estimation results compared with Fernandes and Tang (2020) can be interpreted as the impact of the infectious disease outbreak on firms' exports through a loss of face-to-face contact opportunities, because we control for time-varying regional supply and demand shocks (Note 3). In addition, compared with my previous study, the current study solves the problem of self-selection regarding the participation in the trade fair by using the DID approach and the SARS shock. The method allows us to cancel out factors determining the self-selection, to the extent that the factors remain unchanged throughout our sample period.

Conclusion

My second study suggests that the average number of export destination countries declines by 5-7%, as face-to-face business negotiation opportunities are lost due to the infectious disease outbreak. However, with the development of communications systems that allow for business deals to be made over the Internet, online trade fairs and business meetings are being increasingly promoted. For example, Japan's first supplementary budget for FY2020 provides 4 billion yen (approximately $37 million) for the projects of non-face-to-face remote overseas business expansion support to develop online business meetings using electronic commerce and digital platforms, and other overseas expansion support systems that operate without the movement of people. Such support may bolster firms' overseas expansion under and after the COVID-19 outbreak, by supplementing face-to-face trade fairs and business meetings. Studies on such supplementary effects should be important future research.

Acknowledgement

Footnote(s)
  1. ^ The self-selection problem is, for example, whether a positive correlation between a firm's participation in trade fairs and its export status indicates a causal effect of attending trade fairs on exports, or a reverse causality in which firms with export ambitions can easily use export trade fairs.
  2. ^ This study is an ongoing study with Xue Bai (Brock University), Kala Krishna (Pennsylvania State University) and Hong Ma (Tsinghua University). However, all errors are my own at this point. Detailed findings of this study will be reported in a discussion paper.
  3. ^ My study provides a comparison between firms attending trade fairs and non-attending firms by controlling for the time-varying regional fixed effects as well as time-varying main-product fixed effects. If these fixed effects control for supply and demand shocks for each region and each main export product, the estimation results in my study can be interpreted in this way.
Reference(s)

October 13, 2020

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