The long-run effects of the real exchange rate on employment and wages in Canadian manufacturing

ABSTRACT

The literature on real exchange rate effects on the labour market is dominated by short-run analysis showing that there is heterogeneity in the responses of firms or industries to a real exchange rate shock. Analysing data on Canadian manufacturing industries, I conclude that there is a common long-run equilibrium across all manufacturing industries controlling for their openness to trade after varying adjustments to a real exchange rate shock have taken place. This conclusion is important from the perspective of policy making because it helps to form expectations about the effects of a real exchange rate movement on the labour market. The results suggest that real appreciation leads to economically significant reductions in employment in manufacturing in the long run. Real wages decrease in industries that are highly engaged in international trade and somewhat increase in industries that are relatively closed to international trade. Both employment and real wages converge quickly to the long-run equilibrium.     

Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks

We use comprehensive firm‐level data to estimate the responses of heterogeneous Canadian retail firms to real exchange rate movements. Our analysis focuses on a period characterized by large fluctuations in the Canadian dollar, providing an opportunity to quantify both intensive and extensive margin responses in retail industries to real exchange rate shocks and to examine how those responses differ across firms, locations, and sub‐industries. Our results indicate that a real Canadian currency appreciation significantly reduces a retailer's sales, employment, and profits. The strength of this negative effect is decreasing in the distance of a retailer from the US‐Canada border. We do not find evidence of a strong relationship between real exchange rate movements and the number of operating firms nor the probability of firm survival. These findings are consistent with the view that a real Canadian dollar appreciation increases cross‐border shopping by Canadians, resulting in a negative demand shock for Canadian retailers, and the dominant response by firms to such a shock is through the intensive margin.     

Innovation And Job Creation In A Smallopen Economy-Evidence From Norwegian Manufacturing Plants 1982–92

It is often claimed that the opportunities to create new manufacturing jobs in open, high-cost economies such as Norway, are concentrated in activities which are technologically advanced and knowledge intensive. This paper examines the relationship between job creation and innovation, as measured by R&D investments, in Norwegian manufacturing. We compare job creation in plants belonging to R&D firms to job creation in plants belonging to firms without R&D. We also compare job creation in plants belonging to high and low tech industries. Our data set covers more than 80 percent of manufacturing employment in Norway over the period 1982–92. The paper challenges the optimistic view about job creation in R&D intensive firms and high-tech industries. Some main findings are: (i) Net job creation is not higher in high-tech industries. (ii) There is no clear-cut positive relationship between net job creation and the R&D-intensity of the firm. (iii) There is less net job creation and less job-security in R&D-intensitefirms in the late 1980s and early 1990s.     

ICT and employment generation: evidence from Turkish manufacturing

This study is said to be the first attempt in exploring the impact of information and communication technologies (ICT) capital on employment generation/destruction in Turkish manufacturing industry by using labour demand estimation framework. The analysis is based on firm-level data, which includes all firms employing 20 or more employees in Turkish manufacturing for the period 2003–2013. Our findings based on system GMM estimations show that ICT has employment-enhancing effects in Turkish manufacturing. Moreover, our results provide the evidence that tangible ICT capital has stronger employment generation impact than that of intangible ICT capital in medium- and low-tech industries.     

Exchange rate exposure at the firm and industry levels: Evidence from Turkey

The purpose of this study is to examine industry-weighted exchange rate exposure at the firm and industry level for Turkish plants. We use an unbalanced panel of plant-level data for manufacturing firms in Turkey during the years of 2002 and 2010 in seven industries. The results indicate that macro indicators seem to be a more significant influence on the exchange rate exposure. Moreover, industry-weighted openness is the most important factor to determine the exchange rate exposure for Turkish firms. We also find that the direction of exposure varies at the industry level.     

Real wages,profit margins and inflation in Turkish manufacturing under post-liberalization

This article reports investigations into the behaviour of gross profit margins (mark-ups) in Turkish manufacturing industries for the post-1980 liberalization period in relation to price inflation, trade liberalization (openness) and real wage costs. Panel data econometrics over 29 subsectors of Turkish manufacturing are used over the period 1980–1996. Results suggest that profit margins are positively and significantly related both to price inflation and real wage costs. However, openness is found to have very little impact on profit margins.     

Interrelationship among foreign presence,domestic sales and export intensity in Chinese manufacturing industries

Using panel data on six Chinese manufacturing industries over the period 2005–2007, this article explores the interrelationship among foreign presence, domestic sales and export intensity of local firms. We find that the domestic sales and exports are complementary for local firms in China’s pharmaceutical industry, whereas in the case of the textile, transportation equipment, beverage, communication equipment and general equipment manufacturing industries, domestic sales and exports are substitutes. An increase in the average domestic sales increases foreign presence in all industries. The same applies to an increase in the average export intensity. An increase in the level of competition in China’s textile industry increases the export intensity as well as domestic sales of local textile firms. However, an increase in the level of competition in the pharmaceutical industry leads to a very large decrease in export intensity of local pharmaceutical firms. In the case of China’s transportation equipment manufacturing industry, an increase in the level of competition decreases domestic sales of local firms. Furthermore, an increase in the firm size increases domestic sales of Chinese firms in all six manufacturing industries.     

ECONOMICS OF THE LIVING DEAD*

Zombie firms are those firms that are insolvent and have little hope of recovery but avoid failure thanks to support from their banks. This paper identifies zombie firms in Japan, and compares the characteristics of zombies to other firms. Zombie firms are found to be less profitable, more indebted, more dependent on their main banks, more likely to be found in non‐manufacturing industries and more often located outside large metropolitan areas. Overall, larger size makes the firm less likely to be a zombie, but among small firms, relatively larger firms are more likely to be protected and become zombies. Controlling for profitability, the exit probability for zombie firms does not differ from that for non‐zombies. Zombie firms tend to increase employment by more (but do not reduce employment by more) than non‐zombies. Finally, when the proportion of zombie firms in an industry increases, job creation declines and job destruction increases, and the effects are stronger for non‐zombies.     

制造业竞争力对人民币升值的敏感性——基于长三角制造业面板数据的实证分析

利用2005—2010年我国长三角地区21个制造业的面板数据,基于面板数据模型,分析了人民币升值与长三角地区的制造业全行业、劳动密集型产业、技术密集型产业、资本密集型产业的国际竞争力的关系。研究结果显示:人民币升值会导致由人均制造业出口额代表的长三角地区制造业全行业的国际竞争力水平降低;分行业看,人民币升值对技术密集型产业和资本密集型产业的国际竞争力水平的影响较劳动密集型产业更大。     

Employment And Mobility Of Workers In Industries With Different Intensity Of Innovation: Evidence On Italy From A Panel Of Workers And Firms

In this paper a panel of workers and firms is used to investigate employment composition and dynamics in industries which differ by innovation intensity. To define the latter industry-wide statistics were used (for a subset of 2,800 firms, individual data on R&D expenditures and investments in innovative processes were available from a survey on manufacturing). Firms and workers are observed over the period 1985–1991. The paper document an high rate of labour turnover. Annual separation rates are high in all size-classes, but they decline from 50% in small firms (less than 20 employees) to 13% in large ones (with more than 1,000 employees). Separations are inversely related to an industry's innovative intensity (from 18% in the highly innovative industries to 31% in the traditional industries). A logit model, which controlled for the characteristics of workers and firms, showed that the probability of separation is higher among manual and young workers and decreases monotonically with the firm size. The probability of separation declines as job tenure and, perhaps more importantly, the individual's wage increases. After controlling for these factors, the evidence suggests that the highest probability of separation is in traditional industries, the lowest is in the more innovative industries. The result is strengthened when firm-level data on R&D and other innovative expenditures are used. Other things being equal, firms that invest in R&D have a more stable labour force, and firms that invest in non-innovative processes have a less stable labour force. We therefore find empirical evidence to support the hypothesis that more innovative firms cultivate more durable employer-employee relationships. The fraction of job-to-job moves (with no intervening period of unemployment) on total separations qualifies the turnover of workers. Controlling for firm size, the percentage of job-to-job moves increases fairly regularly with worker's skills and with the industry's innovative intensity. Thus the innovative intensity of he industry appears to have a positive effect on the share of job-to-job moves, while there is some evidence that it lowers the chances of separation. This result may be linked to the skills and specialisations of the workforce; it is certainly related to the higher demand for labour in the High Tech Sectors (where employment is growing) relative to the less innovative sectors.     

To innovate or to transfer?

FDI has been considered by many development economists as an important channel for transfer of technology to developing countries. It is suggested that modern, advanced technologies introduced by multinational firms can diffuse to domestic firms through spillovers. In this paper, we study innovation and technology transfer activities of domestic and foreign firms in Turkish manufacturing industries, and the impact of horizontal, vertical and labor spillovers on these activities. Our analysis shows that foreign firms are more innovative than their domestic counterparts, and transfer technology from abroad (mostly from their parent companies). Horizontal spillovers from foreign firms seem to be insignificant. The effects of foreign firms on technological activities of other firms in vertically related industries are ambiguous. High-tech suppliers tend to have a high rate of innovation when the share of foreign users is high, but the opposite is true for users: high-tech users supplied mainly by foreign firms tend to have a lower rate of innovation. Labor turnover is found to be the main channel of spillovers. Our findings reiterate the importance of tacitness of knowledge, and confirm that technology cannot easily be transferred through passive mechanisms.     

Trade Competitiveness and Employment: Job Creation or Job Destruction

This paper empirically examines the impact of fluctuations in international trade competitiveness on employment in the UK manufacturing sector over the period 1999–2010. We find statistically significant but economically small effects of a shock to international trade competitiveness on the level of employment. Our results show that the adjustment process in employment mainly works through job creation. We also find that compared to large firms, small firms contribute more toward job creation than job destruction. Our results that changes in GDP growth rate and average wages are significantly related to employment suggest that the UK labour market significantly responds to market forces. Finally, we find that the effect of changes in the real exchange rate on both job creation and job destruction differs between exporting and non-exporting firms.     

Revisiting the demand for money model: money and loans in selected manufacturing industries

Using a dynamic infinite horizon optimizing model, it is shown that the empirical demand for money equation employed by a generation of applied monetary researchers is a reduced form model of the dynamic Euler equations for real money balances. The Euler equations derived in this paper focus on the finance capital for the firm and consist of real money balances (M1) and real business loans (F1) for selected manufacturing industries. By employing explicit structural dynamic specification and sectoral disaggregation, the question of how firms close the gap between desired real money balances and actual real money balances is examined. Model consistent ‘desired’ levels of money balances and business loans are found to depend not only upon the usual transactions variable and interest rate but also upon relative prices and a technology index. Moreover, the speed in closing the gap between desired and actual money balances (loan balances) is estimated using annual two-digit Standard Industrial Code data for durable and non-durable industries. Non-durable industries tend to close the gap faster than durable industries by as much as 25% in a given year.     

THE DETERMINANTS OF THE INTER-INDUSTRY PATTERN OF DIVERSIFICATION BY U.K. MANUFACTURING ENTERPRISES*

Evidence of the diversity of output of larger U.K. manufacturing enterprises’in 1958, 1963 and 1968 is provided in the Reports on the Census of Production. The Censuses show that between 1958 and 1968 diversification was a significant and general trend in manufacturing industries and an important element in the growth of firms during the period. Moreover diversification seems to be part of a longer term trend in U.K. industry and part of the typical development pattern of the large firm. A theory of the firm's diversification decision is proposed and from this theory predictions are made of the structural features both of a firm's primary industry and of outside industries which are likely to encourage diversification from the one industry to the other. The power of the model in explaining the pattern of diversification between SIC manufacturing orders in the period 1963–68 is weak, due in part to the wide variety of factors influencing diversification and to the aggregated form of the data. Nevertheless, the results show the importance of research and development effort in encouraging diversification and the stimulus to diversification given by profitability and risk in firms’primary industries and high rates of output growth in outside industries. While the findings offer no clear conclusions regarding the impact of diversification upon economic performance, the results are consistent with the propositions that (i) diversification encourages technical progress in industry and (ii) diversification increases the efficiency with which resources are allocated between industries.     

Aid, Dutch disease, and manufacturing growth

We examine the effects of aid on the growth of manufacturing, using a methodology that exploits the variation within countries and across manufacturing sectors, and corrects for possible reverse causality. We find that aid inflows have systematic adverse effects on a country's competitiveness, as reflected in the lower relative growth rate of exportable industries. We provide some evidence suggesting that the channel for these effects is the real exchange rate appreciation caused by aid inflows. We conjecture that this may explain, in part, why it is hard to find robust evidence that foreign aid helps countries grow.     

Innovation and productivity in manufacturing and service firms in Catalonia: a regional approach

This article analyses the determinants of research and development (R&D) and the role of innovation on labour productivity in Catalan firms. Our empirical analysis found a considerable heterogeneity in firm performances between the manufacturing and service industries and between low- and high-tech industries. The frontiers that separate manufacturing and service industries are increasingly blurred. In Catalonia high-tech knowledge-intensive services (KIS) play a strategic role in promoting innovation in both manufacturing and service industries, and driving growth throughout the regional economy. Empirical results show new firms created during the period 2002–2004 that have a greater R&D intensity than incumbent firms (54.1% in high-tech manufacturing industries and 68.8% in high-tech KIS). Small and young firms in the high-tech KIS sector are very prone to carrying out R&D and they invest more in innovation projects. R&D expenditures, output innovation, investment in physical capital, market share and export have positive effects on labour productivity in both the manufacturing and service sectors. Firm size, on the other hand, has a positive effect on productivity in manufacturing industries but not in services.     

Environmental impact of customs union agreement with EU on Turkey's trade in manufacturing industry

In this study, we analyse Turkey's manufacturing industry trade by estimating sectoral import and export demand equations for 1980–2000. The study aims to understand whether the trade in the manufacturing industry complies with pollution haven hypothesis, and whether the free trade environment provided by the customs union (CU) agreement altered the trade pattern of the clean and dirty industries. Results of our econometric models have shown that while CU positively affects the import demand, it does not have any significant impact on the export demand of Turkish manufacturing industry. In terms of the environmental impact, distinction between clean and dirty industries turns out to be significant for both import and export demand. In general, our findings suggest that both clean and dirty industries’ import demand increased during the study period. In terms of export demand, clean industries’ export demand declines whereas dirty industries’ export demand increases compared to the total demand.     

Regulating away competition: the effect of regulation on entrepreneurship and employment

Many scholars have worried that regulation deters entrepreneurship because it increases the cost of entry, reduces innovation in the regulated industry, and benefits large firms because they can overcome the costs of complying with regulations more easily than smaller firms. Using novel data on the extent of US federal regulations by industry and data on firm births and employment from the Statistics of US Businesses, we run fixed effects regressions to show that more-regulated industries experienced fewer new firm births and slower employment growth in the period 1998–2011. Large firms may even successfully lobby government officials to increase regulations to raise their smaller rivals’ costs. We also find that regulations inhibit employment growth in all firms and that large firms are less likely to exit a heavily regulated industry than small firms.     

Concentration history and market power in US manufacturing industries

For a 1963–1992 panel of US manufacturing industries, the relationship between seller concentration and both price-cost margins (PCMs) and prices is investigated for industries divided by whether concentration has recently increased or decreased. Regressions of PCM in levels and first differences, and price equations in first differences, establish that the positive effect of concentration on prices and profits is always weaker in industries where concentration has recently increased and always stronger in industries where concentration has recently decreased. These results are attributed to the different endogeneity biases in the two samples. Increasing concentration industries are more likely the ones where leading firms have lowered prices to gain share, while decreasing concentration industries are more likely the ones where smaller firms have lowered concentration by lowering prices. An additional conclusion is that the cost-reducing effects of changes in concentration are greater for increasing concentration industries, meaning that increasing concentration industries have lower price increases compared to decreasing concentration industries.     

Greasing the wheels of international commerce: how services facilitate firms’ international sourcing

Abstract We use plant‐level data to study the link between the local availability of services and the decision of manufacturing firms to source materials from abroad. We develop a model to generate predictions about how the intensity of international sourcing of materials depends on the availability of services and firm characteristics. These predictions are supported by the data. Greater availability of services across regions, industries, and time increases firms’ foreign sourcing of materials relative to sales. The impact of services differs by firm type. National firms’ sourcing responds to changes in regional service conditions, whereas multinationals tend to be less affected.