The Size of the Rental Market and Housing Market Fluctuations

The paper investigates whether the size of the rental market affects house prices fluctuations or the volatility of construction sector activity over the business cycle. For that purpose we construct a database of variables describing the housing sector in a group of twelve initial euro area members and ten other OECD countries over the years 1995–2014 and conduct a series of panel regressions. We find that a developed rental market attenuates fluctuations in the housing sector, especially for the common currency area sample. We claim that differences among monetary union countries in terms of rental market developments can be destabilizing as they might lead to heterogeneous response to common shocks.     

Analysis of Productivity Differences among Foreign and Domestic Firms: Evidence from Germany

This paper presents differences in firm-level total factor productivity (TFP) across 22 manufacturing and 17 service industries in Germany over the period 1995–2004. It is an attempt to study whether and to what extent foreign multinational enterprises (MNEs) are more productive relative to German firms. As well as distinguishing between foreign and domestic firms, we also distinguish between German MNEs and domestic firms that do not have any foreign presence. Controlling for endogeneity through semi-parametric techniques, our findings indicate considerable heterogeneity in firm performance across types of firms. The foreign/domestic distinction is not as clear cut as has been suggested elsewhere; multinationality is important in explaining productivity differences rather than foreignness. JEL no. D24, F21, F23     

Foreign Ownership and Firm Innovation: Evidence from Korea

ABSTRACT

This study examines whether foreign equity investment promotes domestic firms’ innovation activities. Using panel data on the Korean firms during the 1999–2013 period, we find that foreign ownership has a positive effect on firms’ innovation activities. Furthermore, we also show that, as compared to non-chaebol firms, chaebol firms’ innovation activity becomes much greater with the increase of foreign ownership. Finally, we investigate industry-level spillover effects of innovation. Specifically, we find that foreign ownership promotes innovation activities via forward linkage, the effect of which is also more pronounced in chaebol firms.     

Export Behavior and Firm Productivity in German Manufacturing: A Firm-Level Analysis

This paper examines the causal relationship between productivity and exporting in German manufacturing. We find a causal link from high productivity to presence in foreign markets, as postulated by a recent literature on international trade with heterogeneous firms. We apply a matching technique in order to analyze whether the presence in international markets enables firms to achieve further productivity improvements, without finding significant evidence for this. We conclude that high-productivity firms self-select themselves into export markets, while exporting itself does not play a significant role for the productivity of German firms. JEL no. F10, F13, F14, D21, L60     

Offshoring and firm performance: self-selection,effects on performance,or both?

This paper uses unique new data for German manufacturing enterprises from matched regular surveys and a special purpose survey to investigate the causal effect of relocation of activities to a foreign country on firm performance. Compared to non-offshoring firms, firms that relocated activities were larger and more productive, and had a higher share of exports in total sales. These differences existed the year before some firms started to relocate, and this points to self-selection of “better” firms into offshoring. To investigate the causal effects of offshoring, six different variants of a matching approach are used. Contrary to what is often argued we find no evidence for a large negative causal effect of offshoring on employment in Germany.     

Taxes and the Financial Structure of German Inward FDI

The paper analyses the financial structure of German inward FDI. Intra-company loans granted by the parent should be all the more strongly preferred over equity the lower the tax rate of the parent and the higher the tax rate of the German affiliate. We find that the corporate tax rate of the foreign parent has no significant impact on the financial structure of a German subsidiary. However, among subsidiaries that are directly held by a foreign investor those firms that on average are profitable react more strongly to changes in the German corporate tax rate than this is the case for less profitable firms. This gives support to the frequent concern that high German taxes are partly responsible for the high levels of intra-company loans. Taxation, however, does not fully explain the high levels of intra-company borrowing. Roughly 60 per cent of the cross-border intra-company loans turn out to be held by firms that are running losses. JEL no. F23, H25     

Business groups,foreign direct investment,and capital goods trade: The import behavior of Japanese affiliates

We examine the impact of buyer–supplier relationships within business groups on capital goods trade by taking into account potential simultaneous effects of business group ties on foreign direct investment. We posit that (1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing home country exports; (2) if the establishment of overseas affiliates by business group firms attracts foreign direct investment by their capital goods suppliers, business group ties are localized and the ‘trade creating’ impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by Japanese multinational firms, combined with information on linkages with machinery suppliers within horizontal and vertical business groups, provides broad support for these predictions. Our findings suggest that it may be incorrect to infer from the absence of a simple relationship between business group ties and trade that such ties are unimportant; instead, intra-group ties may be replicated abroad through foreign direct investment.     

Knowledge spillovers from foreign direct investment in R&D: Evidence from Japanese firm-level data

This study uses firm-level panel data from the Japanese manufacturing industries and examines whether foreign direct investment generates intra-industry knowledge spillovers to domestic firms. The analysis found positive effects of R&D stocks of foreign firms on the productivity of domestic firms, while effects of capital stocks of foreign firms were absent, suggesting that knowledge of foreign firms spills over through their R&D activities, but not through their production activities. In addition, we found that the extent of spillovers from R&D stock of foreign firms is substantially larger than spillovers from R&D stock of domestic firms.     

Financial constraints and foreign direct investment: firm-level evidence

Low productivity is an important barrier to the cross-border expansion of firms. But firms may also need external finance to shoulder the costs of entering foreign markets. We develop a model of multinational firms facing real and financial barriers to foreign direct investment (FDI), and we analyze their impact on the FDI decision. Theoretically, we show that financial constraints can affect highly productive firms more than firms with low productivity because the former are more likely to expand abroad. We provide empirical evidence based on a detailed dataset of German domestic and multinational firms which contains information on parent-level financial constraints as well as on the location the foreign affiliates. We find that financial factors constrain firms’ foreign investment decisions, an effect felt in particular by firms most likely to consider investing abroad. The locational information in our dataset allows exploiting cross-country differences in contract enforcement. Consistent with theory, we find that poor contract enforcement in the host country has a negative impact on FDI decisions.     

Trust and contracting with foreign banks: Evidence from China

We empirically investigate whether firms doing business in regions characterized as having high social trust receive preferential treatment on loan contractual terms by foreign banks. Tracing cross-border syndicated lending activities in China, we document that firms located in provinces with higher social trust scores obtain significantly low costs of bank loans and experience less stringent collateral requirement. To address the potential endogeneity issues, we adopt an instrumental variable approach and a two-sided matching model, and report consistent results. We also estimate a system of three equations through three-stage-least square estimator to accommodate the joint determination of price and non-price terms in loan contracts. In addition, we find that the effect of social trust on cost of bank loans is more prominent for firms located in provinces with relatively less developed formal institutions.     

SMALL AND MEDIUM ENTERPRISE DYNAMICS IN INDONESIA

This paper discusses the development of small and medium enterprises (SMEs) in Indonesia before and during the crisis. It argues that SME productivity has risen substantially, at rates not far from those of larger firms. Case studies indicate that various mechanisms are at work, such as technology diffusion through foreign buyers and subcontracting. The prevalence of SME clusters suggests that they benefit small and medium enterprise development. SMEs are found to have been weathering the crisis better than larger companies, though many have been hit hard too. Being less reliant on formal markets and formal credit, SMEs are able to respond more quickly and flexibly than their larger counterparts to sudden shocks. The paper argues that, rather than providing direct assistance to smaller firms, government should concentrate on creating a business environment conducive to small and medium business growth, and promoting provision of business development services by the private sector.     

外资银行进入对中国不同类型企业资源获取影响差异的经验证据——以上海为例

外资银行进入发展中国家以后,有助于东道国外资企业信贷获取增加和产出增加,不利于东道国本地企业信贷获取增加和产出增加。我们的经验研究进一步提供了中国方面的证据:外资银行进入中国上海以后,对上海的外资企业年度产值增加有积极影响,并超过对其他类型企业的影响。     

Innovation Dynamics in OECD Countries: Challenges for German Enterprises

This paper considers the innovation dynamics in OECD countries since the beginning of the 1990s. Special attention is given to German firms that had the exceptional opportunity and burden to develop an innovative regime in the former GDR. The economic slump in the new decade had everywhere a negative impact on the propensity of companies to invest in new innovative products and processes. Among the OECD countries leading in innovation, Europe is loosing strength, although R&D has doubtlessly become more important in the innovation process of the manufacturing sector, but in particular in the service sector. The EU and some member countries have recognized this and formulated an ambitious objective: R&D expenditure is to be increased to 3% of GDP by 2010. Despite this joint target, countries differ in many respects. Export-oriented countries in high technology products suffer less from a weak economic momentum in their domestic markets. A further distinction needs to be made between the industry and the service sector. Industrial innovators focus more on the world market. After the trade diversion of West German high technology from international markets to the absorbing East German markets was over, in the second half of the 1990s, Germany has managed to get slightly ahead of Japan as an exporter of R&D-intensive goods and in international patent activities. However, the foreign trade success that the German technology sector enjoyed is mainly based on the automobile sector. Increasing problems in the long term are the decline in the number of qualified manpower entering the labour market. It will exacerbate the shortage of qualified staff in innovating companies.This is an updated and completely revised version of an earlier contribution to the Symposium on Entrepreneurship – Innovation – Marketing, Benchmarking the Technological Competitiveness of German Enterprises in Times of low Growth, Karlsruhe, October 2003.     

Are FDI spillovers regional? Firm-level evidence from China

This paper examines whether spillovers from FDI occur at the national or regional level, using firm-level census data for the Chinese manufacturing industry between 2000 and 2003. We find that FDI provides significant positive spillovers for the productivity of firms in the same industry, but these spillovers are likely to be regional; that is, domestic firms benefit more from the presence of foreign firms in the same sector within the same region. The backward and forward linkage effects of FDI are negative with significant regional disparity. The geographic distribution of FDI also influences spillovers, with an increase in FDI inflow to the top FDI recipient provinces increasing the forward linkage spillovers. Our empirical results also suggest that domestic firms differ significantly in the extent to which they benefit from FDI, though domestic firms with high absorptive capacity are more likely to benefit from FDI.     

Information Technology, Organizational Transformation and Productivity Growth: An Examination of the Brynjolfsson–Hitt Proposition

This study investigates what happened to productivity growth during the Information Technology (IT) revolution in an IT-driven economy, Korea. To this end, we have decomposed the source of productivity growth into technological change, technical efficiency and scale economies using a stochastic frontier function and examined how the composition of productivity growth has changed with different phases of IT developments. We have used panel data that is comprised of 4022 firms from 1996 to 2000. We have found that Korean firms have been quick to embrace organizational restructuring to adapt to a new business environment brought about by IT, which seems to be the major source of the success of Korean firms. We have also found that: (i) there is no substantial difference in productivity gains between IT-producing firms and IT-using firms; (ii) productivity growth is more robust to business cycles in an IT-driven economy than in the traditional economy; and (iii) efficiency improvement attributed to organizational transformation plays a greater role in productivity growth as IT applications become more widespread.     

Sectoral Productivity Growth and R&D Spillovers in the Netherlands

This paper assesses empirically whether R&D spillovers are important and whether they originate from domestic or foreign activities. Data for eleven sectors are used to explain the impact on total factor productivity of R&D by the sector itself, by other Dutch sectors and by foreign sectors. We find that both domestic and foreign R&D are significant for the Dutch economy. The elasticity of total factor productivity with respect to R&D is approximately 37% for R&D by a sector, 15% for R&D by other Dutch sectors and 3% for R&D by foreign sectors. Our findings suggest moreover that more R&D speeds up the adoption of foreign technologies. Thus, even for a small open economy as the Netherlands, promoting investment in R&D is appropriate as it both stimulates adoption and generates spillovers.     

Does Foreign Direct Investment Affect the Growth of Local Firms？ The Case of China＇s Electrical and Electronics Industry

Does foreign direct investment(FDI) into developing countries affect the growth of local firms in host countries? Using a dataset of 38 sectors in China’s electrical and electronics industry,in this paper,we analyze whether FDI has a positive effect on local firms,with technology spillovers,added value and increasing total factor productivity,or a negative, market stealing,effect.Estimating the relationship between growth of local firms and investment of foreign firms,our results show that FDI is likely to have a negative impact on the growth of local firms in sectors with large disparities in technology and less experience in business.Therefore,local firms lacking in technology need to find markets with no competition from foreign firms or determine strategies to compensate technology disparities.     

Impact of Outward Foreign Direct Investment on Chinese Manufacturing Firms' Financialization and Servitization

This study examines the impact of outward foreign direct investment (OFDI) on Chinese manufacturing firms' financialization and servitization. Using a difference-in-differences approach with propensity score matching, we found that OFDI encouraged firms' financial and service activities. The effects of OFDI on financialization were stronger for firms specializing in short-term financial assets, operating in labor and technology-intensive sectors, investing overseas to pursue production, resources and markets there, and investing in non-OECD and Belt and Road Initiative (BRI) countries. Meanwhile, firms investing overseas were more likely to provide services at the sale or postsale stages. Outward foreign direct investment has also boosted the service activities of firms operating in the technology-intensive sector by investing overseas to seek resources and markets, as well as investing in non-OECD and BRI countries. Finally, OFDI partially influenced the extent of financialization and servitization of firms by affecting their profit-making ability.     

Imitating to export

China started to establish export processing zones (EPZs) in 2000 to better manage foreign processing business. The cluster of export processing business inside the EPZs provides an opportunity for neighboring Chinese firms to observe. Chinese firms quickly imitate foreign exporters in both export and import patterns. Exports of the exact products shipped from EPZs immediately increase throughout the province, with the largest gains in the city containing the EPZ, and the next largest in the cities adjacent to the EPZ. Chinese firms also import the same equipment imported by firms in EPZs, suggesting that they imitate foreign technology. Furthermore, we find that Chinese firms who imitate experience modest gains in profitability and productivity. We conclude that a key ingredient of China’s success in trade has been its ability to attract foreign capital and subsequently imitate them.     

Heterogeneity in lending and sectoral growth: evidence from German bank-level data

This paper investigates whether heterogeneity across firms and banks matters for the impact of domestic sectoral growth on bank lending. We use several bank-level datasets provided by the Deutsche Bundesbank for the 1996–2002 period. Our results show that firm heterogeneity and bank heterogeneity affect how lending responds to domestic sectoral growth. We document that banks’ total lending to German firms reacts pro-cyclically to domestic sectoral growth, while lending exceeding a threshold of €1.5 million to German and foreign firms does not. Moreover, we document that the response of lending depends on bank characteristics such as the banking groups, the banks’ asset size, and the degree of sectoral specialization. We find that total domestic lending by savings banks and credit cooperatives (including their regional institutions), smaller banks, and banks that are highly specialized in specific sectors responds positively and, in relevant cases, more strongly to domestic sectoral growth.