Total factor productivity in Kenyan manufacturing firms: The role of ISO certification and direct vs indirect export intensity

Abstract

Using the World Bank panel enterprise data for Kenya for the period 2007–2013–2018, we examined the role of ISO certification and export intensity in explaining the total factor productivity (TFP) of Kenyan manufacturing firms. Contrary to previous studies that largely focus on export propensity, this paper distinguished between the effects of direct and indirect export intensity. To address the endogeneity problem, we instrumented both direct and indirect export intensity variables with imported input supplies dummy. Further, we controlled for heterogeneity in our models by incorporating the year and industry fixed effects as well as the unobserved time‐varying firm characteristics. We found opposite effects of exporting on TFP. While direct export intensity significantly increased TFP, indirect export intensity significantly curtailed TFP. This suggested that direct exporters vis‐à‐vis indirect exporters were more likely to efficiently exploit the productive capacity of foreign technology and knowledge spillover effects that accrue from learning‐by‐exporting. Second, ISO certification significantly increased TFP for indirect exporting firms only denoting a stronger compensating effect for these intermediary‐dependent exporting enterprises. It also affirmed the need by manufacturing firms to attain Internationally Recognized Quality Certification standards. This will increase the competitiveness of their products, hence boosting their chances of breaking into the international markets.