An assessment of Ireland’s export-led growth strategy via foreign direct investment: 1960–1980

An Assessment of Ireland’s Export-Led Growth Strategy via Foreign Direct Investment: 1960-80. - Ireland’s export-led growth strategy using foreign direct investment as a vehicle for industrialization reveals many lessons for newly-industrializing economies in Europe and Asia. Using a relatively simple macroeconomic model of the Irish economy, this study sought to ascertain if government subsidies and grants were a significant locational determinant for foreign direct investment and if foreign direct investment led to the expansion of exports, capital formation, employment, and output. The results show that from 1960-80 Irish exports, output, and manufacturing employment grew, but so did the dependence and vulnerability of the Irish economy.     

Does China Transfer Productivity Enhancing Technology to Sub‐Saharan Africa? Evidence from Manufacturing Firms*

Abstract: This paper considers whether trade between China and sub‐Saharan Africa results in productivity‐enhancing technology transfers to sub‐Saharan African manufacturing firms. As trade flows between countries potentially results in interactions that lead to technological improvements in the production of goods and services, we parameterize the level of total factor productivity for African manufacturing firms as a function of foreign direct investment flow, and for the country in which it operates, trade openness with China, and its interaction with foreign direct investment. With micro‐level data on manufacturing firms in five sub‐Saharan African countries, we estimate the parameters of firm‐level production functions between 1992 and 2004. Our parameter estimates reveal that across the firms and countries in our sample, there is no relationship between productivity‐enhancing foreign direct investment and trade with China. In addition, increasing trade openness with China has no effect on the growth rate of total factor productivity. To the extent that total factor productivity and its growth is a crucial determinant of economic growth and living standards in the long run, our results suggest that increasing trade openness with China is not a long‐run source of higher living standards for sub‐Saharan Africa.     

Trade and employment in Vietnam: how firms' trade matters

This paper aims to analyse how employment and wages change when a firm's trade status is altered. Using a detailed firm-level dataset of Vietnamese manufacturing enterprises, the study finds that how firms trade matters for firm employment and wages in Vietnam. The average effect of one-way trading (exporting or importing) is positive for both firms' total employment and female employment. Direct trading activities are associated with a higher level of employment than indirect trading activities by firms. The female employment effect of direct exports is nearly three times higher than direct imports. Indirect imports hurt firms' total employment and female employment. Both direct and indirect two-way traders experience higher growth in firm employment than direct-only traders. However, it is interesting to note that indirect two-way trading activities have a positive impact on female employment. Furthermore, the commencement of direct import is also associated with greater labour cost advantage.     

Do Exporting Firms Pay Higher Wages? Evidence from Kenya's Manufacturing Sector

Abstract: When trade liberalization was first embarked on in Kenya some 20 years ago, a key argument against it was that it would reduce domestic wages, as exporting firms sought to remain competitive versus, for example, the low‐cost Asian countries. A counter argument was that manufactured exports require more elaborate design, supervision, packaging and handling, and thus a more educated labor force than production for the domestic market. To attract such skills, exporting firms would need to pay higher wages than non‐exporting ones. This paper uses data from Kenyan manufacturing to study the impact of trade liberalization on earnings, distinguishing between exporting and non‐exporting firms. In particular, it investigates whether exporting firms paid a wage‐premium to their employees. The study uses manufacturing firm survey data from a World Bank regional project. The study has three important findings: (1) There was a large and significant effect of exporting on wages in the first decade of trade liberalization. During the first half of the 1990s, workers in exporting firms earned up to 30 percent more than those engaged in non‐exporting firms. The results are robust even after controlling for individual and firm‐level characteristics such as employee demographics, productivity, firm location and occupation. (2) After a decade of trade liberalization, exporting ceased to be a significant determinant of wages in Kenyan manufacturing, after controlling for productivity and firm location. (3) During the 2000s, casual or irregular employment became a more common feature of exporting firms. The results suggest that while higher wages were important in attracting skilled labor to exporting firms at the beginning of trade liberalization in the 1990s, domestic competition has since reduced the wage premium. Cost cutting pressures are instead reflected in the substitution of casual and low wage labor for permanent and better educated labor and in increased automation.     

Global value chains and servicification of manufacturing: Evidence from firm-level data

Recent literature on global value chains (GVCs) has mainly focused on manufacturing firms’ global sourcing and investment strategies. Our question here is that, if the manufacturing firms established foreign manufacturing plants and engaged in sourcing inputs and exporting outputs, have they changed their domestic employment composition toward service workers? This is what we call servicification of manufacturing firms in this paper. To answer this question, using Korean firm-establishments matched data, we examine changes in the shares of service employment in manufacturing firms from 2008 to 2013, when those firms are participating in both import-and-export and foreign direct investment (i.e., GVC firms). We find that the two-way trading firms that own manufacturing plants in foreign countries—and particularly in nearby foreign countries—have changed their domestic employment structures to increase the number of service workers they employ. Moreover, the relatively greater increase in the share of R&D workers than of wholesale-and-retail workers serves as further evidence of the servicification of domestic manufacturing. Overall, our findings suggest that Korean firms who engage in GVCs through both trade and foreign direct investment have reorganized domestic labor structure to be able to provide high value-added headquarter services for their manufacturing plants that are closely located in foreign countries.     

The impact of foreign direct investment on export structure and employment generation

The literature on foreign direct investment often treats its determinants and consequences independently. This is particularly so for empirical studies. The purpose of this paper is to consider both aspects simultaneously and to provide some empirical evidence on the nature of foreign investment and its impact on export structure and employment generation. The method consists of a model which includes both industry-specific and location-specific determinants of foreign direct investment in the export sector and their effects on the employment generating capacity of individual manufacturing industries. It is estimated for three-digit S.I.C. industries in Puerto Rico in 1979. The results suggest that Puerto Rico's export sector consists of US based firms producing on a large scale. These firms are primarily attracted to the island by relatively higher profits than on the mainland. Low wage labor is not considered an important inducement to foreign investment in Puerto Rico. The labor intensity of the island's export sector lags behind that of comparable countries due to the capital-intensive nature of its principal exports. The island's manufacturing employment can be more effectively increased by altering the composition of exports than by inducing present firms to hire more workers.     

Imported Capital Goods and Manufacturing Productivity: Evidence from Botswana's Manufacturing Sector

This article examines the effects of imported capital goods on manufacturing productivity growth in Botswana. Despite consistent efforts aimed at diversification, Botswana's economy has remained heavily dependent on diamond exports, and the country's productivity remains a point of concern. The ability to apply foreign technologies to increase productivity and spur diversification is limited by the foreign exchange gap. This study uses an imported input growth model to analyse how the importation of capital goods contributes to enabling productivity growth and export diversification. With a panel of 340 manufacturing firms, the study also analyses the effects of imported capital goods on firm productivity growth and skills development. The results show that imported machines and equipment have increase manufacturing productivity after 1‐2 years following the investment. Additionally, foreign‐owned firms were found to enjoy more productivity growth than their domestic counterparts.     

International Trade and R&D Investment: Evidence from Chinese Manufacturing Firms

A current concern for China's long‐term growth prospect is whether China can become an innovative economy and achieve industrial upgrading to compensate for the gradually declining competitiveness resulting from low‐cost labor. The present study examines this issue by exploring how trade participation impacts on the R&D investment of manufacturing firms through various channels. Merging China's Annual Manufacturing Survey Dataset and the Chinese Customs Dataset allows us to study such a relationship at the individual firm level. The empirical results suggest that channels such as geographical diversification of export markets, share of imports from high‐income countries, average unit value of imports, number of intermediate goods and capital goods imports, and the trade regime are significant factors that influence firm‐level R&D investment. The study discusses the policy implications of the empirical findings in relation to industrial and trade policies that may be potentially beneficial for China's transition towards an innovative economy.     

The impact of mandated employment verification systems on state‐level employment by foreign affiliates

Faced with diminishing prospects for a comprehensive immigration reform at the federal level, states have started to take immigration matters into their own hands. For example, many states have been mandating the use of employment verification (E‐Verify) systems to confirm work eligibility. Some of the consequences of these E‐Verify mandates remain unclear. In this article, we focus on the effect of anti‐illegal immigrant laws on foreign investment. Specifically, we exploit the state‐level and time variation in the enactment and implementation of E‐Verify mandates to explore if punitive measures against the firm impact states' ability to attract foreign direct investment (FDI). We quantify FDI through the employment by U.S. affiliates owned by foreign firms. Our results suggest that E‐Verify mandates adversely affect employment among these majority‐owned U.S. affiliates and, therefore, work against states trying to attract FDI.     

Employment in domestic plants and foreign affiliates: A note on the elasticity of substitution

Conclusions For a high-wage country like Austria, it is commonly expected that growing employment in foreign affiliates substitutes jobs at home. This paper provides a simple framework for estimating the determinants of relative labor demand (abroad in relation to that at home) bilaterally. It is based on the relationship of (dis)economies and transportation costs under the hypothesis that goods trade is an imperfect substitute for foreign production in the case of horizontal investments, while with respect to vertical investments, goods trade is solely dependent on relative market size. The estimates are based on bilateral industry-level data on foreign affiliates and the domestic activities of Austrian manufacturing firms, covering the period 1990–1996, the 10 most important host countries and 7 industrial sectors.     

Heterogeneity of FDI Export Spillovers and Its Policy Implications: The Experience of China

This paper explores the magnitude and heterogeneity of foreign direct investment (FDI) export spillovers in China. Using a Heckman sample selection model estimated over a rich firm‐level dataset in China's manufacturing sector from 2000 to 2003, we find that FDI exerts significant impacts on the exporting behavior of domestic firms, and such impacts are heterogeneous in that some firms receive positive impacts while others receive negative impacts. The heterogeneity of FDI spillovers has significant policy implications as it indicates that government policies need to be more specific and targeted in order for the benefits of FDI to be reaped.     

Import competition from and offshoring to low-income countries: Implications for employment and wages at U.S. domestic manufacturers

Using confidential linked firm-level trade transactions and census data between 1997 and 2012, we provide new evidence on how American firms without foreign affiliates adjust employment and wages as they adapt to import competition from low-income countries. We provide stylized facts on the input sourcing strategies of these domestic firms, contrasting them with multinationals operating in the same industry. We then investigate how changes in firm input purchases from low-income countries as well as domestic market import penetration from these sources are correlated with changes in employment and wages at surviving domestic firms. Greater offshoring by domestic firms from low-income countries correlates with larger declines in manufacturing employment and in the average production workers’ wage. Given the negative association, however, the estimated magnitudes are small, even for a narrow measure of offshoring that includes only intermediate goods. Import penetration of U.S. markets from these sources is associated with relatively larger changes in employment for arm’s length importing firms, but has no significant correlation with employment changes at firms that do not trade. Given differences in the degree of both offshoring and import penetration, we find substantial variation across industries in the magnitude of changes associated with low-income country imports.     

Input Trade Liberalization and the Export Duration of Products: Evidence from China

This paper introduces a quasi‐natural experimental framework into trade policy evaluation and reassesses China's trade liberalization through the survival of export products. We use propensity score matching and China's dual trade system to design a quasi‐natural experiment based on Chinese industrial enterprises, customs import and export, and tariff data over the period of 2000–2006; we then use survival analysis to study the impacts of China's trade liberalization on the export duration of manufacturing firms’ products. We find that the substantial reduction in import tariffs after China's accession to the World Trade Organization enhances the export duration of firm products, indicating that trade liberalization ameliorates the survival of export products. The promotion effects of tariff reduction on export duration are obviously stronger for core products than for noncore products.     

Foreign Multinationals and Local Firms in Vietnam's Economic Transition*

This paper compares the economic performance of foreign multinational corporations (MNC) and local firms in Vietnam, distinguishing between two distinct types of local firms: state‐owned enterprises (SOE) and non‐SOE. Between the mid‐1990s and 2000, foreign MNC in Vietnam's economy grew very rapidly, but their growth has been much slower thereafter. Consistent with the theoretical suggestion that MNC possess relatively large amounts of firm‐specific assets related to production technology, marketing networks and management know‐how, these comparisons suggest that foreign MNC were generally larger and had higher labor productivity, capital intensity, wage levels, investment propensities and trade propensities than non‐MNC. On the other hand, foreign MNC tended to have relatively low capital productivity and wage shares of value added, while results regarding profitability were mixed. In general, these differentials tended to be relatively small between foreign MNC and SOE, and SOE tended to be larger than foreign MNC in terms of employment. Correspondingly, comparisons of foreign MNC with non‐MNC generally revealed more consistent differences, largely because the local private sector is still very underdeveloped in Vietnam.     

Misallocation in Chinese Manufacturing and Services: A Variable Markup Approach

Cross‐country comparison reveals an unusually small service sector in China. Using firm‐level data from China's 2008 economic census, we find two facts that speak to a novel mechanism of misallocation within service and between manufacturing and service sectors. First, compared with the manufacturing sector, there are more state‐owned enterprises and fewer entrants in the service sector. Second, markups increase with firm size, and the increase is more dramatic among service firms. We interpret these facts through the lens of a monopolistic competition model with heterogeneous firms and variable markups. A multisector model shows a new channel that translates asymmetric barriers to entry across sectors into sectoral markup differences, which in turn cause sectoral misallocation. Quantitative analysis shows that when reducing entry barriers to service firms to the extent observed for manufacturing firms, the model predicts a 12‐percentage‐point increase in the service employment share.     

Is There a Link Between Casual Employment and Export-Orientation of Firms? The Case of Kenya’s Manufacturing Sector

Empirical evidence on the link between trade and employment outcomes in Africa is severely limited. The paper analyses employment outcomes, that is, the rise in casual employment in Kenya’s manufacturing sector in relation to firms’ export orientation. While exporting firms generally account for a higher proportion of employment in the manufacturing sector, the proportion of workers in exporting firms declined by over 20% between the early 1990s and 2003. On the other hand, the proportion of casual workers employed in manufacturing firms increased over the same period. However, the empirical results show no strong evidence of “exporting” significantly influencing the proportion of casual workers employed by firms. The combination of an increasingly skilled labour force in Kenya and deepening casualisation among workers points to a conundrum that requires further analysis. That notwithstanding, the results suggest a need for policy focus not only on job creation, but also on the quality of jobs created.     

Financial Reporting and Trade Credit: Evidence from Mandatory IFRS Adoption*

We investigate the effect of mandatory IFRS adoption on trade credit. We document that firms in countries that adopt IFRS receive more trade credit from their suppliers, consistent with improved financial reporting quality and comparability playing a role in facilitating informal financing. This increase is larger for countries with a low level of societal trust, a poor pre‐IFRS‐adoption information environment, and stronger legal enforcement. These cross‐sectional results suggest that the conditions under which higher‐quality information is made publicly available affect suppliers' decisions to provide trade credit. This increase is also larger for firms with greater exposure to foreign markets, a finding that highlights the importance of more comparable international financial reporting standards in facilitating cross‐country trade credit. We also find that IFRS adoption has a stronger positive effect on trade credit for firms with greater liquidity needs. Finally, we find that firms in countries that adopt IFRS also extend more trade credit to their customers. Overall, our results support the notion that financial reporting can have a causal effect on trade credit.     

The heterogeneous effect of international outsourcing on firm productivity

This paper analyses how international outsourcing affects plant total factor productivity (TFP) using a census of Irish manufacturing firms. The results point to a striking pattern: the status of being or becoming an outsourcer matters strongly for firms that are indigenous and not exporting, while for exporters and foreign affiliates, TFP increases are lower, insignificant and sometimes negative. On the other hand, higher intensity of outsourcing matters for both exporters and foreign affiliates. The message is clear: international outsourcing’s initial learning effect on TFP is most pronounced when it serves as a first exposure to international markets, while the “scale effect” of outsourcing en masse only occurs to larger, already internationalised firms.     

Africa's clientelist budget policies revisited: public expenditure and employment in Kenya,Tanzania and Uganda, 1960–2010

What can be learned about policy prioritization in Africa by examining long‐run trends in public expenditure and employment? Many have contended that Africa's post‐colonial leaders pursued economically unproductive budget policies that prioritized the growth of their patronage networks over socially beneficial spending, resulting in bloated payrolls, persistent deficits, and a large rent‐seeking public service. Using a purpose‐built dataset of annual public expenditure and employment series from Kenya, Tanzania, and Uganda for 1960–2010 against which to test these assumptions, this article questions whether there was anything exceptional about the growth or composition of East Africa's post‐independence expenditure. All three states grew and contracted in roughly the same periods as other regions of the world, although their contraction after 1980 was particularly marked. Industrial policy and capital investments influenced budget priorities in the early independence era, while military expenditure and debt service payments escalated in the late 1970s. The government wage bill, meanwhile, fell as a proportion of total spending over the same period. To finance employment growth while the wage bill contracted, governments allowed real wages to plummet in the 1970s–90s. In light of these external constraints and legacies, this article questions whether a budget unencumbered by patronage would have looked very different.