Explaining Firms’ Export Behaviour: R&D,Spillovers and the Destination Market*

We examine the importance of a firm's own R&D activity and intra‐sectoral spillovers on the decision to export and the export intensity using firm level panel data for Spain for the period 1990–98. Own R&D activity is found to be an important determinant of export activity. There is little evidence to suggest that Spanish firms benefit from spillovers of the exporting activity of others. However, there is evidence that R&D spillovers exert positive effects on firms’ export ratios. We find a larger marginal impact of R&D spillovers on export intensity of firms exporting to other OECD countries than those exporting to non‐OECD nations.     

The Role of Export Market Participation in the Choice of Organizational Form of Production Technology*

This paper shows that the reason for a higher capital–labour ratio, observed for exporting firms, is a higher capital intensity of their production technology. Exporters choose to use different organizational forms of their production process, in which the share of capital and intermediate inputs in the final output is higher than that of non‐exporters. The organization of the production process is part of the firm's organizational strategy, which generates within‐industry heterogeneity in factor intensities and production technologies. The results of this study indicate that the decision to export is preceded by a process of restructuring production technology, which then has the effect of increasing a firms’ productivity and in so doing prepares them for competition in the global market.     

Multilateral trade liberalisation helps promote export product diversification: Trade tensions damage the prospects of the poorest economies

Using a large panel dataset over a 20‐year period, this article explores the effect of multilateral trade liberalisation on export product diversification. Empirical results show that multilateral trade liberalisation is positively associated with export product diversification. However, less‐developed economies experience a greater positive effect than relatively advanced economies. This analysis suggests that if trade tensions reduce cooperation on trade matters among World Trade Organization members, it may hinder export product diversification in developing countries, and the poorest countries might be the most adversely affected.     

Partial privatization in transition economies

Privatization in transition countries has often been partial, with the state retaining a non-controlling ownership share in privatized assets. This paper reviews briefly the empirical evidence and then analyzes the justifications that have been put forward for adopting partial privatization. These are related to the objectives of economic efficiency and the generation of government revenue, as well as to political motivations. The issues covered are the stock-flow problem, risk-sharing and restructuring, informational considerations, the role of market structure, bargaining, foreign investment and the irreversibility of reform. The paper ends with some suggestions for further research.     

Relative Wage Variation and Industry Location in the United Kingdom*

This paper shows that both relative wages and industry structure vary considerably across regions of the United Kingdom. In accordance with the neoclassical model of trade, regions abundant in a factor (i) exhibit lower relative prices of that factor than regions scarce in the factor, and (ii) tend to specialize in a mix of industries intensive in the use of the factor. We show that this specialization leads UK regions to be asymmetrically exposed to external macroeconomic or international trade shocks.     

Exchange rate regimes in the transition economies

D. Mario Nuti illustrates the extraordinary progress made by central and eastern European economies in their trade and exchange regimes. Surprisingly, instant convertibility of exchange rates was established. In spite of diverse exchange rate regimes they have all experienced initial severe undervaluation - the cost of speed and of unrestricted trade - followed by rapid real revaluation and incipient protectionism. Since 1994 an embarras de richesse has appeared: high capital inflows which are either inflationary or costly to sterilise. Lower interest rates are recommended.     

Foreign presence and efficiency in transition economies

This paper presents empirical evidence on the role of foreign presence in the performance of domestic manufacturing firms in five Central and Eastern European countries. Data Envelopment Analysis (DEA) was used to estimate a frontier for each sector with similar technology common for five transition countries in the sample − Bulgaria, Estonia, Hungary, Poland and Romania. Following Simar and Wilson (J Econom 136(1):31–64, 2007), this study applies a truncated regression and bootstrap technique in a second stage post-DEA analysis. Some evidence is found to support the hypothesis that foreign presence has an overall positive spillover effects on the performance of domestic firms.     

International trade and hedging in economies in transition

This paper develops a general equilibrium framework to analyze risk management policies in economies in transition. By cross-hedging against real exchange rate risk exposures, these economies can increase their gains from international trade. We suggest that countries with emerging forward markets can gradually introduce the risk sharing markets, as limiting resources may prevent them from introducing complete hedging markets in the first place. Thus the growing demand for risk management instruments can be gradually met and it would be welfare enhancing. Economies in transition benefit when hedging devices are offered by financial markets, irrespective of whether the hedging instruments are de facto perfect or not.     

Survival is for the fittest: Export survival patterns in Georgia

This paper analyzes the determinants of export flow survival in Georgia. The paper uses a unique Georgian firm-level dataset, in which firm characteristics and output dynamics are matched with their customs export transactions, for the period 2006–2012. We adopt a discrete survival model to explore the role of firm-level characteristics, diversification strategies and network effects on the survival rates of export flows. Low survival rates at the product level limit the ability of Georgian firms to consolidate new products in international markets. The analysis finds that it is production efficiency, rather than size, that boosts export survival chances, that firms’ diversification strategies matter for the prospects of survival, and that there is strong evidence of network effects in export survival. We also find that ratified foreign trade agreements contribute to increase the survival of export flows by reducing policy-induced trading costs and increasing information about destination markets.     

Firm-level determinants of tax evasion in transition economies

Business tax evasion is an important issue for governments. Yet the factors that determine business tax evasion have not been sufficiently examined in the literature in general, and in transition contexts in particular. To address this gap, this study uses the WB/EBRD Business Environment and Enterprise Performance Survey (BEEPS) database with a sample of over 12,692 firms from 26 transition economies. Applying various modelling strategies, we argue that tax evasion is a function of firm-level and institutional-level variables. We contribute to the literature by providing robust evidence showing that the perceived tax burden has a positive impact on tax evasion. We also find that the tax evasive behaviour of firms is positively influenced by low trust in government and in the judicial system as well as by higher perceptions of corruption and higher compliance costs. We find that smaller firms, individual businesses and firms in sectors that are less visible to the tax administration are more likely to get involved in evasive behaviour. Overall, institutional factors play an important role in determining firms’ tax evasion behaviour in transition economies. This finding has important policy implications.     

Does Skill Content Explain Total Trade and Intra‐Industry Trade?*

This study compares the results of skill content tests for types of trade flows under alternative assumptions about the technologies used to produce imports and exports. For trade between high‐ and middle‐income countries, we show that the match between the actual skill content of trade and that predicted by endowments in a Heckscher–Ohlin–Vanek framework improves substantially if technological heterogeneity across countries is allowed for and if the factor content of intra‐industry trade is included with that of inter‐industry trade. Endowment differences are important in explaining net trade and vertical intra‐industry trade, but not horizontal intra‐industry trade.     

Liberalization,entry and product quality in transition economies

We model the effect of liberalization on product quality and industrial activity in transition economies. As barriers to entry are reduced, entry costs fall. This leads to an increase in the proportion of low quality producers in the market. The decrease in the expected quality can have adverse effects on consumer demand for the domestic product. The analysis suggests a demand side explanation of the observed restructuring and decline in output in sectors exposed to Western competition during transition.     

Forecasting economies in transition: The case of Romania

Structural change is endemic in the Eastern European economies and the newly emerging Commonwealth of Independent States yet conventional econometric modelling techniques proceed under the assumption that there is a structurally stable true economy to be discovered. This paper extends the analysis of Hall (1993) by exploring the consequences of endemic structural change for forecasting and building structural econometric models. We propose a model formulation which makes the econometric model itself able to adjust its parameters in the light of economic change using the Kalman Filter.The paper then illustrates this approach by building a small model of Romania and investigating its forecasting properties.This work was presented at a meeting of the MEET II network funded by the ACE project, Econometric Inference into the Macroeconomic dynamics of East European Economies.     

Pitfalls in estimating equilibrium exchange rates for transition economies

The literature on equilibrium exchange rates for the central and eastern European countries has mushroomed in recent years. In this paper, we discuss the econometric pitfalls involved in such estimations and endow the reader with the methodological ingredients to avoid such biases. We review the commonly used approaches and identify problems related to the most straightforward econometric procedures as they often do not take the transition process properly into account. As an alternative, we propose a two-stage “out-of-sample” strategy that consists of estimating the relationship between the exchange rates and fundamentals and the extrapolation of these relationships to transition economies.     

An analysis of repressed inflation in two transition economies

We construct a simple model that tests for repressed inflation by estimating a true rate of inflation that explains behavior of observed money demand. We estimate the model using quarterly data for Czechoslovakia and Poland. Although our results should be viewed as preliminary, given the imperfect nature of our data, we do have strong evidence that, prior to 1991, there was considerable repressed inflation in Poland, while there was essentially no repressed inflation in Czechoslovakia.This paper was funded by a World Bank project on formerly planned economies. We would like to thank Jong-goo Park for suggesting the topic, and Fabrizio Coricelli and Adnan Mazarei for helpful discussions. The views expressed here are our own and do not necessarily reflect the opinions of the World Bank.     

Productivity and Trade Orientation in UK Manufacturing*

We show that improvements in aggregate productivity in UK manufacturing during the first years after the implementation of the Euro, by the UK's main trading partners in Europe, are determined by both market share reallocation and within‐company productivity growth. Furthermore, we outline a structural methodology for estimating parameters of a production function linking the unobservable productivity to endogenous company‐level trade orientation, investment and exit decisions. This allows us to back out consistent and unbiased estimates of productivity dynamics by trade orientation of companies within four‐digit UK manufacturing industries using FAME data over the period 1994–2001. Our estimates of productivity dynamics indicate that improvements in aggregate productivity were mainly driven by market share reallocations away from inefficient and towards efficient exporting companies alongside productivity improvements within non‐exporting companies.     

Property rights,rent-seeking and aggregate outcomes in transition economies

We analyze the macroeconomic consequences of rent-seeking activities in transition economies. Due to strategic complementarities in modernization of firms, multiple equilibria can occur. However, given the institutional vacuum, the macroeconomic outcomes crucially depend on how property rights are distributed and on the number of contestants over the surplus of the firms. Under inside ownership, the distributional conflict between inside workers, within each firm, may lead to a bad equilibrium without modernization. Outside ownership adds another level of distributional conflict (between insiders and outsiders) but may lead to a high equilibrium with modernization as the number of outside owners increases.     

De facto and official exchange rate regimes in transition economies

This paper provides an empirical investigation on the discrepancies between official and de facto exchange rate regimes in transition economies. We use a probit model to describe the determination of regime discrepancies. We find that “errors” in the selection of official regimes as well as the macroeconomic developments calling for conflicting adjustments in exchange rate regimes are important determinants of regime discrepancies.     

Privatization in transition economies: Privatization scale and country size

This paper examines determinants of privatization in transition countries. Empirical studies of privatization are few and even fewer formal empirical analyses of privatization in transition countries exist. Another goal is to examine differences between large-scale and small-scale privatization. We find that scales of privatization respond differently to various determinants. Particularly, privatization scales are sensitive to changes in economic prosperity, unemployment, and inflation. Country size, not government size, seems to be driving privatization in transition countries. Effects of Soviet legacy are non-existent. Some findings are unique to the literature, while others differ from existing studies. Policy implications are discussed.     

Equity block transfers in transition economies: Evidence from Poland

This paper investigates valuation effects of share block transfers and employs agency theory to explain the determinants of equity block premia. A sample of transactions from Poland is used to measure benefits and costs of ownership concentration. Block premia are found to be remarkably low and comparable with those for the most developed economies. Shareholders expect to benefit from intensified monitoring and from corporate restructuring resulting from block acquisitions. Still, shareholders are wary of expropriation stemming from the extraction of private benefits of control by block holders. The opportunities to extract such benefits depend on relative power of investors.