e-commerce impact on iranian manufacturing smes employment...
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E-commerce Impact on Iranian Manufacturing SMEs Employment
Sarvenaz Hojabr Kiani and Elsadig Musa Ahmed
Faculty of Business, Multimedia University, Malaysia
E-mails: [email protected], [email protected]
Sarvenaz Hojabr Kiani and Elsadig Musa Ahmed
Faculty of Business and Law, Multimedia University, Malaysia
E-mails: [email protected], [email protected]
Abstract
This study examines the impact of E-commerce (EC) on employment of Iranian manufacturing
SMEs by using wage, price of capital and EC as explanatory or independent variables and
employment as dependent variable. Price of capital is calculated to be use in the model (Piva and
Vivarelli, 2002; April and Pather, 2008).This study uses two years panel data (2006-07) from the
secondary data available in Statistical Center of Iran .The Stratified sampling applied as a
sampling method to select optimal sample for the regression analysis using Eviews software. The
model has six EC measurements including; number of employees using computer, number of
employees using internet, using internet to gather and offer information, e-buying and e-selling.
All of the measures of EC had positive impacts on employment indicated by highly significant
coefficients of EC.
Key words: E-commerce, Employment, Panel data, SMEs
INTRODUCTION
Globalization of SMEs through EC and their rapid changes in generating technology make new
opportunities for businesses (Love et al., 2005). This is on the situation that Iranian SMEs also
tried to adopt EC during previous years. Iran’s economy as one of the largest economies in the
Middle East although relies on oil resources, its macroeconomic performance benefits from non-
oil sector during last years’. On the other hand, in labor market, increase in unemployment is
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posing a challenge for many developed and developing countries and Iran is no exception to this
general trend. The job shortage encourages many young skilled Iranians to leave the country
each year in the search for better employment opportunities abroad (ECO, 2009/2010; UNIDO,
2003).Due to the regional strategic importance of Iran in middle-east, adaptation and using EC
could make more benefits for Iranian SMEs and effect their employment.
In developing countries, SMEs increasingly try to use technology as effective factor and
strategy to reach the international markets (Barsauskas et.al, 2008) and EC has a great potential
for growth simulation, cost reduction, and job creation (Singh, 2008). SMEs have critical role in
countries economy including developing countries. SMEs are contributing in economic growth;
social structure and employment so they are becoming important in economical environment.
Moving through globalization and new technologies like internet and EC can create new
opportunities for SMEs (Scupola, 2001).There are several studies who have noted that EC can
bring about advantages such as reduction of cost (Poon & Swatman 1997, Quayle 2002) or even
increase competitiveness (Vescovi, 2000) and reduction of lead-time (Quayle, 2002). Some
researchers claim that EC can reduce inventory overheads and supply real-time to SMEs
(Reynolds, 2000).
According to Mohamad et al., (2009), most of the studies on developing countries are
based on upstream issues which are e-readiness, adoption, and diffusion (e.g. Abbasi, 2007;
Ghorishi, 2009; Sanayei e al., 2009) yet there are limited reported studies and researches on
downstream aspect of EC, which is impact. Although, there are some studies (e.g., Singh, 2008)
based on EC; the lack of concern on quantitative approaches is visible. Therefore, there is a gap
between empirical and theoretical studies on downstream issues on EC in developing countries,
like Iran.
In most of the studies of estimating derived demand for labor to measure the impact of
EC or ICT on employment, one of the independent variables is the price of capital. Usually,
researchers use interest rate as a proxy for this variable but because Iran is one of the Islamic
countries where interest rate is illegal, the government uses savings profit instead. But for the
reason that will become clear, for cross-sectional or short panel studies like the present study,
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this is not a good proxy and may not lead to accurate results. Therefore, this study will try to
estimate the price of capital by using some theoretical issues and information which could be
useful data for both SMEs and government researches.
From the above mentioned problems and backgrounds based on the past studies it has
been found that there is a gap between empirical and theoretical studies on downstream issues
and lack of quantitative and comprehensive analysis of the impact of EC on SMEs contribution
to Iranian employment. Therefore, the purpose of this paper is to study the impact of EC on
employment in Iranian SMEs. The paper organized as follows: next section gives a brief review
of literature. In section 3, methodology and models are explained. In section 4, data collection
and estimation procedures are described. Section 5, includes results and discussion. Finally, the
last section is devoted to the conclusion of the paper.
Literature review
The New Economy which is in its broad concept meant as the spreading of ICT (and its other
subsets like the EC) and especially the Internet, in economic activities, is changing the labor
market. Employment is an agreement between two groups where one of them is employer and
the other is employee. An employee is someone who is in the service of the other over the
contract of express or implied, hire, written or oral. The employee has the authority to manage
the employee and the working way (Balck’s Law Dictionary, Wikipedia).
Development of ICT by providing technological revolution makes new ways of
communication between enterprises and customers. This shift labor demand employees with a
complementary knowledge of technology and looking forward to adopt which may create new
job opportunities (Mokyr, 1999). This new technology by offering lower cost of transferring
information, ease of communication and doing transaction over the Internet cause the process of
searching job and employment activities to shift to network. The new technology is creating a
labor market along side with significant changes such as, permanent increase in labor force
knowledge, employment in service sector and women’s employment, which is much more
different from the industrial labor market shaped in 20th century. Employment and searching job
via Internet have three potential benefits in economy: lowering transactional cost, more rapid
clearance of market and matching the employees searching for job with job opportunities. Most
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of the companies pay more attention to the labor force as source of knowledge instead of
physical labor, which yet stay as a base of social reproduction and economic production
(Alasoini, 2001).
The estimates of Alan Krueger showed that in 2000, eight large employment agencies in
the U.S with 1.8 million job seekers, received $98 on average for finding a job. In contrast, 8
famous newspapers, with 1 million readers on Saturdays, received 3840 for 30 days
advertisement, Monster. Com with 3.9 million visitors in 2000 received $ 138, while at the same
time the New York Times with 1.8 million readers on Saturdays received $4500. Other estimates
showed that the cost of finding a job over Internet is one fifth compared with seeking job in
newspapers. All of these estimates confirm that cost of finding job in new environment is lower.
The result of the research by Peter Kuhn (2001) presents that there is no significant difference
between finding job over Internet and other ways of finding job in US. This may consider as the
low rate of frictional unemployment in the U.S whereas, jobless people can find job more rapidly
(Freeman, 2002).
The ICT revolution makes a phenomenon known as Skill Biased Technological Change
(SBTC), where technological change results in a greater demand for educated and highly skilled
labor. Increasing the relative wages of these workers and shifts in the composition on the
workforce in favor of that workers will be followed (OECD, 2003).
Górriz and Castel (2010) referred to some other authors and noted that; SBTC, analyses
how new technologies cause a bias concerning more skilled workers. It also produces an increase
in the demand for skilled workers, while skilled workers are needed to use the new technologies
perfectly. This study also added that, if the new skills are more costly to obtain rather than the
needed operating by old machinery then a revolution will be biased in favor of skilled workers
(Skill-Biased). It also will favor de-qualification (De-Skilling) on the time that new skills acquire
at a fewer cost than the knowledge or skills related to preexisting technologies.
As a result SBTC believe that technological change favors one class of workers (such as
highly educated workers) at the expense of another class of workers. In knowledge based
companies who struggle to produce product innovations; there is a nonstop demand for
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professional skills come together with international skills (like language skills, digital literacy
and the ability to work in an environment), which needs the use of ICT (Alasoini, 2001).
Kaushlesh (2004) had a research on giant Indian companies and found that by
establishing new technologies like ICT in these companies, the number of educated and expert
employees had a remarkable increase. Moreover, this matter created numbers of indirect jobs
which were depended on the size and the production. Large-scale enterprises in many developing
countries were not able to be successful in job-generating economic growth. Acs et al. (1996)
believes that SMEs are able to hire a large number of human capital and beside being capable for
creating new job opportunities at low cost, they are mostly labor intensive. SMEs could be a
good source of innovation because they are more flexible, dynamic and sensitive to shift of
demand. Regarding economic performance of European Union member countries, approximately
99.8% of enterprises are SMEs with 93% micro enterprises. It is obvious that SMEs’
employment growth is more than large frame. In 2001 EU commission declared that in Germany
and USA, SMEs had same result.
April and Pather (2008) referred to (Lui and Arnett, 2000; Stansfield and Grant, 2003)
who suggest that there is a difference between small and large companies in terms of EC
applications. According to Beck et al. (2003), because SMEs are more labor intensive, their
expansion boots employment growth more than large firm. Empirical evidences reveal that
although small firms have higher innovation rate, larger enterprises presents higher salaries,
stable employment and even non-wage profits. In countries with advanced education and
developed financial sectors, SMEs have higher share of employment. Yet, in countries with
higher inflation, trade and exchange rate distortions, share of employment is lower. SMEs’ share
of employment in total employment is related with higher rates of GDP growth which is their
OLS1 results (Beckinsale et al., 2004).
Theoretically it is very difficult to study the impact of the innovation and technological
changes on employment. Despite the rapid increase of information ICT in most of the developed
countries, however the impact of the ICT changes, on unemployment is ambiguous, and has been
a matter of controversy among economic analysts.
1 Ordinary Least Square
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If ICT or EC take place, process and product innovations, affect employment
(unemployment) through two different ways. On the one hand, the decrease in demand for labor
force i.e. increase unemployment (displacement effects) and on the other hand, the creation of
new employment opportunities and hence need for more labor force (compensation effects) act
in a counteracting way. From the macroeconomic point of view, direct effect of process
innovation on labor saving should be compared with the two effects of product innovation. One
of the effects of product innovation is the labor intensity’s effect of product innovation and the
other is the stabilizer effects and price and income mechanisms that act at firms, sectoral or inter-
industries levels. The latter technological changes lowers prices, increases income (profit and
wage), and decreases unemployment (increases employment). To put in other words, for a given
level of output, process innovations that results on improvement in productivity will decrease
employment which is one of the productive factors. On the other hand, for a given level of output,
improved productivity increases demand and output due to decrease in final goods costs and
prices. The result of increase in demand and output is higher demand for labor. The first effect,
i.e., the negative relation between innovations and employment as a result of process innovation
is called displacement effect. The second effect of process innovation i.e., the positive relation
between innovations and employment is called compensation effect. Overall, since it is not clear
that displacement effect outweighs compensation effect or not, the net impact of process
innovation on employment is uncertain. But product innovation creates new products; therefore,
it has only compensation effect that leads to positive relation between innovation and
employment. For a detailed discussion on the macroeconomic relations refer to (Katsoulacos,
(1984-86); Vivarelli, 1995; Piva and Vivarelli, 2002).
The point that should be considered here is that empirical micro level results can-not
show all the macro effects of the innovation. Therefore, one cannot generalize the econometric
results obtained from micro levels. Micro evidence based on econometrics reveals the direct
effect of labor saving resulted from innovation, but shows only part of the compensation effects,
mentioned above. As a result, it is possible, that the result of empirical studies at micro level
even show a positive effect on unemployment (negative effect on employment). Consequently, it
is possible to obtain a reveres effect, by changing the level of study from micro to macro. As a
matter of fact, in order to separate the sectrol and total impact of the e-commerce as a part of the
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ICT, on unemployment (employment), the studies should be done at different levels of
aggregation, firms, industry, sector and total, both theoretically and empirically.
For the empirical study, usually, labor input demand (employment) is derived from profit
maximization or cost minimization. For especial form of logarithmic translog production
function, which is, a function with Constant Elasticity of Substitution (CES) which is most
common choice in empirical studies on the impact of ICT or EC on employment. (See:Van
Reenen, 1997; Chennells and Van Rennen, 1999; Piva and Vivarelli, 2005), mathematical form
would be:
[ ] 1//1/)1( )()( −−− +=δδδδδδ BKANTVA (1)
Where: K is capital stock, N is labor force, VA is value added as a proxy for output, T is
parameter for neutral technology, A is parameter of technology for labor augmenting technology,
B is capital augmenting technology and δ is the elasticity of substitution. By maximizing the
profit, the labor demand equation (one of the derivatives of profit equation) obtains as below:
LnApWLnLnVALnN )1()( −+−= δδ (2)
Where: W is wage, P is the price of the product, and Ln is the natural logarithm.
However, concerning the effect of ICT or EC on employment some other researchers use
cost minimization (e.g. Matteucci and Sterlacchini, 2003) and derive demand for labor as a
function of interest rate (proxy for price of capital), wage (price of labor), output (or value-added)
and the measure of ICT or EC. It is important to note that if cost minimization is used, the price
of capital will be substituted for the price of output, P, in equation (2).If a disturbance or error
term add to the equation (2), the stochastic regression equation of demand for labor input can be
obtain. One of the main problems arising in such regression model is the correlation between
error term and independent variables. If a firm benefits from a capable manager, then he may use
employees with high knowledge alongside with high quality technology that implies the
correlation mentioned above. In the process of solving such a problem, one has to apply panel
data (Chennells and Reenen, 1999, P.18). One of the reasons for using panel data for Iranian
manufacturing SMEs can be justified by the above fact.
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Measuring technology is another important issue which is very difficult. The traditional
way of solving such problem has been the use of trend variable. The main problem in applying
the trend is that it contains other effects such as changes in prices, changes in demand conditions,
cost shocks and etc.
Analysts presented other measures for technology estimation like the volume of research
and development (R&D) and the diffusion measures such as computer. It seems that the most
acceptable approach is constructing a new variable of capital stock. In connection with
measuring skill; the labor force can be divided in to production and non-production workers.
Another way is to use the knowledge-based measures. Some of the researchers have categorized
the employees in accordance with their functions (Wolff, 1997-2011).
Atrostic and Nguyen (2002) argue that higher amount of skilled labor could cause higher
productivity due to their ability to use, maintain and developed, use advanced technologies. They
believe that employees as well as managers need the right skills to work with modern technology
but there is a risk of their failure to make it. At the theoretical level, EC can reduce different
coordination costs of the different work processes. They improve labor productivity by assisting
enterprises to divide their tasks and simultaneously when the routine tasks automated, EC can
reduce unskilled works as well (Adekolad and Sergi, 2007, 2008).
Greenan and Guellac (1996) found that, at the firm level, process innovation has a strong
negative effect on employment, but this effect is faded away at industry level. Also, the direction
of the production innovation’s effect is acceptable in firm and industry. This study has been
conducted over 15186 French industrial firms. According to Singh (2008), Internet and EC have
essential impact on work, workers and even workplace. It may generate better employment
opportunities particularly for developing countries both through improved labor facilitation and
direct employment. Researchers showed EC activities can increase employment needs for
workers involved in EC systems and website design. Vera (2002) examined EC impact on B2C
on Philippine workers and discovered that EC can create almost twenty percent additional jobs.
Therefore, EC economy has huge potential to create employment.
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There are many empirical studies in connection with the relationship between
employment (unemployment) and technology. A few number of studies based on econometric
methods exist at industry level, but there are various studies conducted at firm level. In general, a
negative (positive) relationship between unemployment (employment) and the proxies of
production innovations measurement is observed. In Entrof and Pohlmeir (1990) study, the
negative effect of production innovation on unemployment (positive effect on employment) has
been obtained, by using the cross sectional data from 2276 West German firms in 1984 and a
dummy variable for innovation. Smolny (1998) verified this result by using panel data from 2276
West German enterprises from 1980 – 1992. Brouwer et al. (1993) found a negative relationship
between total costs of R & D and employment, using the cross-sectional data from 859 East
German industrial firms, while the result had been inversed by using only production innovation
variable.
Doms et al. (1997) found that, in US those industrial factories between (1987-1991) using
high technology have high employment. Klette and Forre (1998) estimated that there is no
relationship between employment and R&D opportunities. This study has used data from 4333
Norwegian manufacturing industries. Blanchflower et al. (1991) have obtained a positive and
significant effect of microelectronic technologies on employment, using data from 948 firms.
Blanchflower and Burgess (1998) have found a positive relationship between employment and
innovation which is measured by dummy variable and with having panel data in British and
Australian firms.
Benavente and Lauterbach (2007) proposed an empirical study at firm level for the period
1998-2001 for Chilean firms. The aim of the study was to consider the impacts of both product
and process innovation. The results of study indicated that, although the product innovation had
positive effect on employment the impact of process innovation was not significant.
In summary, in most cases, a negative (positive) relationship between unemployment
(employment) and the proxies of production innovations measurement is observed (e.g. Koenig
and et al., 1995; Entrof and pohlmeir, 1991 on German firms; Leo and Steiner, 1994 on
Australian firms; Van Reener , 1997 on British firms). The results on the process innovations are
ambiguous (See: Blanch flower and Burgess (1997) on Australian and British factories,
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Blechinger et al. (1998) on all German firms). To summarize the results of empirical studies, it
can be said that, there are no any quite clear empirical evidence on the relationship between
technology and unemployment (employment).
Methodology and Models
Concerning the model, dependent variable is employment and value-added, wage, price of
capital and EC measures (number of employees using Internet, number of employees using
computer, using Internet to gather information, using Internet to offer information, e-buying, e-
selling) are independent variables.
As it was mentioned before, using either cost-minimization or profit-maximization by
employing Constant Elasticity of Substitution (CES) or any other production function labor
demand could be derived. Since in cost-minimization approach perfect competition is not
required (but is required in profit-maximization) and also due to availability data for variables at
firm-level, i.e. Iranian SMEs, this study takes this approach. Following Matteucci and
Sterlacchini (2003), the final version of labor demand for estimation, in logarithmic form would
in two forms of numerical and dummy variables.
When EC is numerical measure, appears in logarithmic form:
lnLit = α0 + α1lnVAit + α2lnWit + α3lnRit + α4 ln ECit + Uit (3)
i=1, 2… 378 t=1, 2 Where: L is Employment VA is Value-Added W is Wage R is Price of Capital EC is numerical measure of EC (number of employee using Internet, number
of employee using computer) Ln is natural logarithm U is error term (i.e. disturbance)
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α1,α2,α3,α4 are elasticities
When EC is dummy variable, does not appear in logarithmic form:
lnLit = α0 + α1lnVAit + α2lnWit + α3lnRit + α4ECit + Uit
(4)
i= 1, 2… 378 t= 1, 2
Where:
L is Employment VA is Value-Added W is Wage R is Price of Capital EC is dummy variable Takes value 1 for the firms using Internet to gather information Takes value 0 for the firms do not use Internet to gather information Takes value 1 for the firms using Internet to offer information Takes value 0 for the firms do not use Internet to offer information Takes value 1 for the firms having e-buying
Takes value 0 for the firms not having e-buying Takes value 1 for the firms having e-selling Takes value 1 for the firms not having e-selling α1,α2,α3 are elastisities and α4 is coefficient of dummy variable
It is important to note that, the coefficients of qualitative (i.e. Dummy) variables
measures of EC, like the quantitative variables measures in the above models, show the impacts
of EC on employment. To clarify this point, the interpretation of dummy variable coefficient
explained in almost all of the econometrics text books including Baltagi (2011, pp.81-84),
Gujarati and Porter (2009, pp. 277-290) and Woolridge (2006, pp.230-270) can be refer.
Calculation of Price of Capital
As it was mentioned earlier, the price of capital at firm level is not estimated in many countries
including Iran. One of the novelties of this paper is that of calculating the price of capital for
Iranian SMEs. To do this, the present study assumes that production function is Cobb-Douglas
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and exhibits constant returns to scale i.e. . Accordingly, the shares of capital and
labor from output (in a perfect competition environment) are equal to corresponding elasticities,
α and (1-α), that is:
WLQ
= α (5)
𝑅𝐾𝑄
= 1 − 𝛼 (6)
Since the data for WL the payments to L (the labor) and Q (the output) for SMEs are
available, using (5), α can be calculated. On the other hand, with known α, Q and K that is not
estimated for Iranian SMEs and will be estimated using method explained in the following
section, price of capital can be estimated using (6) as follows:
R = (1−α )QK
(7)
Estimation of Capital Stock
According to the investment theories the equation is as below:
IG = IN + D (8)
Where: IG is Gross Investment IN is Net investment D is Depreciation
In most of the developing countries like Iran IG is anticipated but not D. Mostly
calculation of depreciation and the rate of depreciation (rate of the loss of investment) is too
difficult due to lack of relevant data. Therefore, facing unknown item D, calculation of the net
investment is impossible. As a result, since the investment theories are based on net investment
and depreciation, they are not applicable for calculating capital stock (K) in this paper.
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There are approaches like, Hojabr Kiani and Boghozian (1997) or PIM (Perpetual
Inventory Method) in Iran that are used to estimate capital stock in aggregate levels such as the
whole country, main sectors or small group industries. But the necessary information or data for
PIM method do not exist at firm-level and Hojabr Kiani and Boghozian approach is based on
search method and many functional forms thus requires intolerable calculations for enormous
numbers of firms. For these reasons there are serious problems in calculation of K for Iranian
SMEs or firms, using these approaches. The following is a suggested new approach for rough
estimation of capital stock at firm level for Iranian SMEs, which can be used for other
developing countries as well. According to the acceleration theory of investment:
IG = ∆Kt + λKt−1 (9)
Where, IG is Gross Investment, ∆Kt is growth of capital stock which is equal to net
investment,IN and λ is the rate of depreciation (i.e. depreciation, D, is equal toλKt-1).
If for a period of time gross investment,IG does not fluctuate much (i.e. the condition of
relatively stable period), there is an assumption that the capital output ratio is fixed. This
assumption is one of the basic assumptions in economic growth theories, which it seems to be
fairly reasonable in this study, because at least for short period in past the trend of gross
investment in Iranian SMEs have been relatively stable. Therefore, the capital-output ratio,KQ
assume to be constant α. Given this assumption, and substituting for K in equation (9) we have:
IG = αQt − αQt−1 + α λQt−1 (10)
Or:
IG = αQt + α(λ − 1)Qt−1 (11)
If equation (11) estimate as a multiple regression equation without the intercept, the estimated
value of α can be used to calculate series of,Kt the capital stock of Iranian SMEs using
𝐾𝑡𝑄𝑡
= 𝛼.
Data collection and estimation procedure
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The data used in this study are secondary data developed by Statistical Center of Iran (SCI)
based on survey conducted by this department for the period of 2006 and 20072. In this study
population is Iranian Small and Medium Enterprises (SMEs) among manufacturing industry
firms. Following the definition of Statistical Center of Iran (SCI), firms among 10 – 100
employees are the target SMEs of this research. Since the questionnaires among approximately
12,000 firms have been distributed by statistical center of Iran and the raw data is available for
two years, this study used appropriate sampling method to select the sample. This data consist of
Gross Value of Output, total number of employed persons as well as number of skilled and
unskilled labor which is considered to be a good measure of human capital as the fact is that
most of those workers in these companies are family owners who do not receive regular salaries.
This data also includes total number of SMEs, EC facilities, wages and salaries.
Although a panel of two years is a short panel, the following studies could justify the
usage of such a short panel (Atrostic and Nguyen (2002, 2 years panel), Maliranta and Rouvinen
(2003, 3 years panel), Maliranta and Rouvinen (2006, 2 years panel), Criscuolo and Waldron
(2003, 2 years panel), Farooqui (2005, 4 years panel), Gujarati and Porter (2009, 2 years panel),
Wooldridge (2002, 2006,2 years panel)).
This study uses one of the probability type sampling methods which is Stratified
Sampling. In a stratified random sample, first the population divides into subpopulations, which
is called strata. Then, one sample is selected from each of these strata. The collection of all
samples from all strata gives the stratified random sample. (Mann, 1998)
One type of panel model has constant coefficients, referring to both intercepts and slopes.
If, in this research, there are neither significant SME effects nor time effects, we can pool all of
the data and run an Ordinary Least Squares (OLS) regression model. This model is called pooled
regression or common effects model.
Another type of panel model would have constant slopes but intercepts that differ
according to the cross-sectional (group) unit- for example, the SMEs. While the intercept in
cross-section (group) specific, for example, form SME to SME in this study differs, it may or
2 Note that only this two year data for EC measures is available from SCI.
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may not differ over time. These models are called Fixed Effects Models (FEM), due to the fact
that the differences are fixed and not random. Still there exists another type of fixed effects
model which could have constant slopes but intercepts vary over time. In this case, the model
would have no significant SME differences but might have different time effects. There is
another fixed effects panel model where the slope coefficients are constant, but the intercept
varies over SME as well as time. Another type of fixed effects model has differential intercepts
and slopes. This kind of model has intercepts and slopes that both vary according to the SME.
There is also fixed effects panel model in which both intercepts and slopes might vary according
to SME and time.
All of the fixed effects models can be formulated using dummy variables. For this reason
the models of this kind are called Least Squares Dummy Variable (LSDV) model. The number
of dummy variables should be one less than the number of cross-sectional units, i.e., n-1, “to
avoid falling into the dummy-variable trap (i.e., the situation of perfect collinearity)”. (Gujarati
and porter, 2009, p.597)
The first step in estimating panel data models is to choose between pooled and fixed
effects models. To do this restricted F (i.e. Leamer F statistics) test is used. (Gujarati and porter,
2009; Baltagi, 2005; Greene, 2003; Gujarati, 2003)
𝐹 = 𝑅𝑅𝑆𝑆−𝑈𝑅𝑆𝑆
𝑁−1�𝑈𝑆𝑆𝑅
𝑁𝑇−𝑁−𝐾� (12)
“This is a simple Chow test with the restricted residual sum of squares (RRSS) being that of OLS
on the pooled model and the unrestricted residual sum of squares (URSS) being that of the
LSDV regression” (Baltagi, 2005, p. 13) .In (12), N is the number of cross-sectional units, T is
number of times and K is number of independent variables.
One problem with LSDV approach arises when we have too many cross- sectional units,
which is the case in this study due to the large number of SMEs. In this case, model would have
too many dummy variables which will produce multicollinearity and also degree of freedom of
model will be reduced significantly. To overcome this problem, one can eliminate dummy
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variables by differencing sample observations around their sample means. This approach
produces what is called within group estimators. (Gujarati and Porter, 2009; Greene, 2003;
Baltagi 2005, 2008) Another approach is to use the first difference of variables in both sides of
regression equation. This is called first difference method. Since in this research we have a short
panel with only two time periods, it is very important to state the following:
“It may be pointed out that the first difference and fixed effects estimators are the same
when we have only two time periods, but if there are more than two periods, these estimators
differ” (Gujarati and Porter, 2009, p.602) .To support the above statement, Gujarati and Porter
(2009) claim that “the reasons for this are rather involved” and refer to Wooldridge (2002).
There is another model called random effect model (REM). Here, the difference in
intercepts 3(or slopes), are random rather than being fixed. As mentioned before, the first step in
panel data regression analysis is to choose between pooled regression model and FEM using
Leamer F statistic. Now if one chose FEM, the second step is to select between FEM and REM.
Hausman test, which is very popular and explained in detail in many econometrics text books
including Greene (2003), Davidson and Mackinnon (2004), Baltagi(2005,2008), could be used to
choose between FEM and REM. To use a time series for prediction, assumption of stationary for
variables is required. A variable is stationary if it’s mean, variance and covariance does not
change over time, and i.e. the main characteristics are stable. If variables of time series model
are non-stationary i.e. have unit-root, then the usual t, F and 𝑅2 are not valid. In this case
probability of having spurious (non-sense) regression is high i.e. we may conclude there is
relation between unrelated variables. But there are some cases where there is a valid regression
results among non-stationary variables. In this case it is said that the variables are cointegrated.
(Gujarati-Porter, 2009 and Enders, 2010)
Although; Unit-Root and Cointegration test has become very popular but the tests for
them are for time-series not for Cross-sectional series. For short panel like this research with
only two time dimension Unit-Root and Cointegration tests are not required (Baltagi 2005, p.237,
p.247). Moreover, for large N and very small T (i.e. large cross-section and very small time, like
3 In panel data regression analysis, assuming different intercepts is much more popular than assuming different slopes. Concerning this research due to the lack of data there are a limited number of studies in the literature who have used panel data approaches (i.e. FEM or REM). However all of these models are constructed to have different intercepts.
17
the case of this study) usual panel procedure ignoring unit-root and cointegration is
recommended (Gujarati-Porter, 2009 and Enders, 2010).
Results and Discussion
Following procedure that was explained earlier, equation 3 estimated and according to the results
of measure of EC defined as number of employees using Internet, Leamer F statistic is 8.311
with prob (p-value) 0.00 which indicates rejection of the common effects model in favor of the
Fixed Effects Model (FEM). Hausman chi-squared test has value 27.021 with prob 0.000 which
indicates rejection of the Random Effects Model (REM) in favor of the FEM. Finally, White test
indicates that estimated equation faces heteroskedasticity problem. According to econometrics
knowledge, if there is heteroskedasticity or autocorrelation (also called spherical errors) in panel
data models, one should use Generalized Least Square (GLS). Table 1 of appendix summarizes
the final results of this part using Estimated Generalized Least Squares (EGLS) method.
Taking a close look at table 1 of appendix, it can be seen that all of the coefficients are
highly significant and EC (number of employees using Internet) has positive impact on
employment of manufacturing SMEs in Iran. Also output has positive impact and wage and price
of capital have negative impacts on employment of Iranian manufacturing SME. These results
are perfectly consistent with related theories.
The results can be interpreted as follows: one percent increase in the value-added would
increase employment by 0.047 percent. One percent increase in wage would decrease
employment by 0.149 percent. One percent increase in price of capital would decrease
employment by 0.161 percent. The most important and promising result is the impact of EC
(number of employees using Internet), which indicates that, one percent increase in one of the
EC measures (i.e. the number of employees using Internet) would increase employment of
Iranian manufacturing SMEs, by 0.041 percent, in other words, increase of number of employees
using Internet would increase employment.
Again, following the procedure used in previous section, equation 3 estimated employing
another measure of EC. Based on the results of measure of EC defined as number of employees
18
using computer, Leamer F statistic is 7.949 with prob (P-value) 0.00 which indicates rejection of
the common effects model in favor of Fixed Effects Model (FEM). Hausman chi-squared test has
value 36.799 with prob 0.00 which indicates rejection of the Random Effects Model (REM) in
favor of FEM. White test indicates that estimated equation faces heteroskedasticity. Therefore,
Estimated Generalized Least Square (EGLS) method is used. Table 2 of appendix summarizes
final results of this part.
Looking at the results of table 2 of appendix, it can be seen that all of the coefficients are
highly significant with p-value 0.000. These results indicate that number of employees using
computer has a positive impact on employment of Iranian manufacturing SMEs. Also, output has
positive impact; wage and price of capital have negative impacts on employment. These results
are perfectly consistent with related theories.
The results can be interpreted as follows: one percent increase in the value added would
increase employment by 0.143 percent. One percent increase in wage would decrease
employment by 0.602 percent. One percent increase in price of capital would decrease
employment by 0.227 percent. Finally, EC measured, as number of employees using computer
would increase employment of Iranian manufacturing SMEs by 0.067 percent.
Following the procedure used in previous sections, equation 4 estimated with probably
most accurate and reliable measure of EC (i.e. e-selling). The reported results show that, Leamer
F statistic is 8.883 with prob (p-value) 0.00 which indicates rejection of the common effects
model in favor of Fixed Effects Model (FEM). Hausman chi-squared test has value 13.710 with
prob 0.00 which indicates rejection of Random Effects Model (REM) in favor of FEM. Model
selection criterions also like Hausman test selected FEM. White test indicates that estimated
equation faces heteroskedasticity. Therefore, this research used Estimated Generalized Least
Squares (EGLS) method. Table 3 summarizes final results of this part, i.e., EGLS results of FEM
of equation 4.
Looking at the results reported in table 3, it can be seen that all of the coefficients are
highly significant (with prob 0.000). These results are proof that EC (e-selling) has positive
19
impact and value-added has positive impact on employment of Iranian manufacturing SMEs.
Also, wage and price of capital have negative impact on employment. These results are perfectly
consistent with both related theories and empirical findings.
The results can be interpreted as follows: one percent increases in value-added would
increase employment by 0.058 percent. One percent increase in wage would decrease
employment by 0.029 percent. One percent increase in price of capital would decrease
employment by 0.010 percent. As it was mentioned earlier, perhaps e-selling could be
considered as one of the best, accurate and reliable measures of EC. Table 3 shows that the
coefficient of EC variable is positive; which indicates that manufacturing SMEs using Internet
for selling electronically have higher employment in average. The coefficient of EC when is
dummy variable can be used to calculate the rate of growth of dependent variable in level (which
is rate of growth of employment here) and calculate the impact of EC on employment. To do this:
Rate of growth of employment due to e-selling= 𝑒0.013 − 1 = 1.013 − 1 = 0.013
Therefore, SMEs having e-selling could raise their employment by 0.013.
Finally, following procedure that was explained earlier, equation 4 estimated and
according to the results of the measure of EC (i.e. e-buying); Leamer F statistic is 8.835 with
prob (p-value) 0.00 which indicates rejection of the common effects model in favor of the Fixed
Effects Model (FEM). Hausman chi-squared test has value 14.905 with prob 0.00 which
indicates rejection of the Random Effects Model (REM) in favor of FEM. Finally, White test
indicates that estimated equation faces heteroskedasticity problem. According to econometrics
knowledge, if there is heteroskedasticity or autocorrelation (also called spherical errors) in panel
data models, one should use Generalized Least Square (GLS). Table 4 summarizes the final
results of this part using Estimated Generalized Least Squares (EGLS) method.
Taking a close look at the table 4, it can be seen that all of the coefficients are highly
significant. These results show that EC (e-buying) has positive impact on employment of
manufacturing SMEs in Iran. On the other hand, value-added has positive impact and wage and
price of capital have negative impacts on employment. The results can be interpreted as follows:
20
One percent increases in value-added would increase employment by 0.389 percent. One percent
increase in wage would decrease employment by 0.879 percent. One percent increase in price of
capital would decrease employment by 0.579 percent. Following the method of calculation in
previous section the impact of EC on employment is:
Rate of growth of employment due to e-buying = 𝑒0.235 − 1 = 1.265 − 1 = 0.265
Therefore, SMEs having e-buying could raise their employment by 0.265.
Following the procedure used in previous sections, equation 4 estimated with another
measure of EC, using Internet to offer information and the reported results show that, Leamer F
statistic is 9.173 with prob (p-value) 0.00 which indicates rejection of the common effects model
in favor of Fixed Effects Model (FEM). Hausman chi-square test has value 9.493 with prob 0.00
which indicates rejection of Random Effects Model (REM) in favor of FEM. Model selection
criterions also like Hausman test selected FEM. White test indicates that estimated equation
faces heteroskedasticity. Therefore, Estimated Generalized Least Squares (EGLS) method is
used. Table 5 summarizes final results of this part, i.e., EGLS results of FEM of equation 4 using
the above EC measure.
Looking at the results reported in table 5, it can be seen that all of the coefficients are
significant. These results show that EC (using Internet to offer information) has positive impact
on employment of manufacturing SMEs in Iran. Moreover, value-added has positive impact and
wage and price of capital have negative impacts on employment. These results are perfectly
consistent with both related theories and empirical findings.
The results can be interpreted as follows: One percent increase in the value-added would
increase employment by 0.016 percent. One percent increase in wage would decrease
employment by 0.090 percent. One percent increase in price of capital would decrease
employment by 0.158 percent. As mentioned earlier using Internet to offer information like e-
selling, could be considered as one of the best, accurate and reliable measures of EC. Table 5
shows that the coefficient of EC variable is positive; which indicates that manufacturing SMEs
using Internet to offer information have higher employment in average. The coefficient of EC
21
when is dummy variable can be used to calculate the rate of growth of dependent variable in
level (which is rate of growth of employment here) and calculate the impact of EC on
employment. To do this:
Rate of growth of employment due to using Internet to offer information =
𝑒0.080 − 1 = 1.083 − 1 = 0.083
Therefore, SMEs using Internet to offer information could raise their employment by 0.083.
Following procedure that was explained earlier, equation 4 estimated and according to
the results of this measure of EC (i.e. using Internet to gather information), Leamer F statistic is
8.338 with prob (p-value) 0.00 which indicates rejection of the common effects model in favor of
the Fixed Effects Model (FEM). Hausman chi-squared test has value 27.019 with prob 0.00
which indicates rejection of the Random Effects Model (REM) in favor of FEM. Also, based on
the model selection criterion, Fixed Effects Model (FEM) is selected. Finally, White test
indicates that estimated equation faces heteroskedasticity problem. According to econometrics
knowledge, if there is heteroskedasticity or autocorrelation (also called spherical errors) in panel
data models, one should use Generalized Least Square (GLS). Table 6 summarizes the final
results of this part using Estimated Generalized Least Squares (EGLS) method.
Taking a close look at the table 6, it can be seen that all of the coefficients are highly
significant. These results show that EC (using Internet to gather information) has positive impact
on employment of manufacturing SMEs in Iran. On the other hand value-added has positive
impact and wage and price of capital have negative impacts on employment of Iranian
manufacturing SMEs, are valid with very high confidence. The results can be interpreted as
follows: one percent increases in value-added would increase employment by 0.136 percent. One
percent increase in the wages would decrease employment by 0.487 percent. One percent
increase in the price of capital would decrease employment by 0.237 percent. The coefficient of
EC variable is positive; which indicates that manufacturing SMEs using Internet for gathering
information have higher employment in average. The coefficient of EC when is dummy variable
can be used to calculate the rate of growth of dependent variable in level (which is rate of growth
of employment here) and calculate the impact of EC on employment. To do so:
22
Rate of growth of employment due to using Internet to gather information =
𝑒0.454 − 1 = 1.574 − 1 = 0.574
Therefore, SMEs using Internet to gather information could raise their employment by 0.574.
This result is consistent with the results of positive impact of EC on employment confirmed by
most of others studies.
Conclusion
According to the results of estimation, all of the measures of EC, namely, number of employees
using Internet, number of employees using computer, e-selling, e-buying, using Internet to offer
information and using Internet to gather information, all have positive impacts on employment
indicated by highly significant coefficients of EC. Table 1 show that the coefficient of EC
(measured by number of employees using Internet) is highly significant. This is an indication of
EC impact as; one percent increase in number of employees using Internet would increase
employment by 0.041 percent. Table 2 shows that the coefficient of EC (measured by number of
employees using computer) is highly significant. This is an indication of EC impact as, one
percent increase in number of employees using computer would increase employment by 0.067
percent. Table 3 shows that the coefficient of EC (measured by e-selling) is positive, which
indicates that Iranian manufacturing SMEs using Internet for selling electronically have higher
employment in average. The rate of growth of employment due to e-selling is equal to 0.013
percent. Therefore, Iranian SMES having e-selling could raise their employment by 0.013
percent. Table 4 shows that the coefficient of EC (measured by e-buying) is positive, which
indicates that Iranian manufacturing SMEs using Internet for buying electronically have higher
employment in average. The rate of growth of employment due to e-buying is equal to 0.265
percent. Therefore, Iranian SMEs having e-buying could raise their employment by 0.265
percent. Table 5 shows that the coefficient of EC (measured by using Internet to offer
information) is positive, which indicates that Iranian manufacturing SMEs using Internet for
offering information have higher employment in average. The rate of growth of employment due
to offering information by using Internet is equal to 0.083 percent. Therefore, Iranian SMEs
using Internet for offering information could raise their employment by 0.083 percent. Table 6
shows that the coefficient of EC (measured by using Internet to gather information) is positive,
23
which indicates that Iranian manufacturing SMEs using Internet to gather information have
higher employment in average. The rate of growth of employment due to gathering information
by using Internet is equal to 0.574 percent. Therefore, Iranian SMEs using Internet for gathering
information could raise their employment by 0.574 percent. The coefficients of value-added,
price of capital and wage are all highly significant in all of the regression equations. These
results indicate that value-added has positive impact and wage and price of capital have negative
impacts on employment. The above findings are perfectly consistent with related theories.
In summary, econometrics findings analyzed in this paper are perfectly consistent with
underlying theories. The results show that EC impact on employment with different measures of
e-commerce) are positive.
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Appendix Table 1: Estimation results of the impact of EC (Number of employees using Internet) on Employment
Independent Variable
Fixed Effects- Estimated Generalized Least Squares (EGLS)
Coefficient Standard Error t-Statistics Prob
Constant ln VA lnW lnR lnEC Leamer F Hausman chi-squared
5.361 0.535 10.023 0.000 0.047 0.012 3.786 0.000 -0.149 0.032 - 5.018 0.000 -0.161 0.015 -10.102 0.000 0.041 0.001 52.547 0.000 8.311 0.000 27.021 0.000
Source: Estimated by using equation No. 3 Table 2: Estimation results of the impact of EC (Number of employees using computer) on Employment
Independent Variable
Fixed Effects- Estimated Generalized Least Squares (EGLS) Coefficient Standard Error t-Statistics Prob
28
Constant ln VA lnW lnR lnEC Leamer F Hausman chi-squared
11.030 1.220 9.040 0.000 0.143 0.015 9.720 0.000 - 0.602 0.072 - 8.363 0.000 - 0.227 0.016 - 14.431 0.000 0.067 0.009 7.738 0.000 7.949 0.000 3.799 0.000
Source: Estimated by using equation No.3 Table 3: Estimation results of the impact of EC (E-selling) on Employment
Independent Variable
Fixed Effects- Estimated Generalized Least Squares (EGLS) Coefficient Standard Error t-Statistics Prob
Constant ln VA lnW lnR EC Leamer F Hausman chi-squared
1.678 0.084 20.012 0.000 0.058 0.001 37.137 0.000 - 0.029 0.004 - 7.222 0.000 -0.010 0.002 - 4.032 0.000 0.013 0.001 9.738 0.000 8.883 0.000 13.710 0.000
Source: Estimated by using equation No. 4
Table 4: Estimation results of the impact of EC (E-buying) on Employment
Independent
Variable Fixed Effects- Estimated Generalized Least Squares
(EGLS) Coefficient Standard Error t-Statistics Prob
29
Constant ln VA lnW lnR EC Leamer F Hausman chi-squared
11.508 1.548 7.434 0.000 0.389 0.010 38.057 0.000 - 0.879 0.087 -10.066 0.000 - 0.579 0.016 -36.580 0.000 0.235 0.030 7.848 0.000 8.835 0.000 14.905 0.000
Source: Estimated by using equation No. 4 Table 5: Estimation results of the impact of EC (Using Internet to offer information) on Employment
Independent Variable
Fixed Effects- Estimated Generalized Least Squares (EGLS)
Coefficient Standard Error t-Statistics Prob Constant ln VA lnW lnR EC Leamer F Hausman chi-squared
4.828 0.772 6.255 0.000 0.016 0.009 1.786 0.074 - 0.090 0.043 - 2.107 0.035 - 0.158 0.005 -29.243 0.000 0.080 0.038 2.072 0.040 9.173 0.000 9.493 0.000
Source: Estimated by using equation No. 4 Table 6 Estimation results of the impact of EC (Using Internet to gather information) on Employment
Independent Variable
Fixed Effects- Estimated Generalized Least Squares (EGLS)
Coefficient Standard Error t-Statistics Prob
30
Constant ln VA lnW lnR EC Leamer F Hausman chi-squared
8.832 0.918 9.622 0.000 0.136 0.013 10.032 0.000 - 0.487 0.055 -8.789 0.000 - 0.237 0.016 - 15.093 0.000 0.454 0.019 23.687 0.000 8.338 0.000 27.019 0.000
Source: Estimated by using equation No. 4