Lending technologies,banking relationships,and firms’ access to credit in Italy: the role of firm size

This paper analyses the role of lending technologies and banking relationships on firms’ credit access in Italy. Using EFIGE firm-level data, we show that the depth and strength of firm–bank relationships have heterogeneous effects on credit demand and rationing probabilities depending on the size of the borrower. Multiple banking relationships alleviate financial constraints for small firms, while borrowing from a large number of lenders hinders access to credit for large companies. Small and medium-sized enterprises with a higher share of debt with the main bank have a lower probability of being credit denied, as debt concentration contributes to overcome the opacity problems typical of the SMEs. Long-lasting relationships, by reducing information asymmetries, significantly improve access to credit for small and large firms. Conversely, we find that medium-sized enterprises are more exposed to financing constraints as relationship duration increases, due to possible lock-in effects. Finally, firms maintaining banking relationships based on transactional technologies are more likely to be credit denied, while the use of relationship lending technologies improves credit availability for both small and large enterprises.     

China’s direct investment in the European Union: challenges and policy responses

The dramatic rise of Chinese direct investment into the European Union (EU) has sparked a debate about the control that China may be seeking to take over European economies. Quite naturally, these concerns have led to repeated calls that action be taken to slow down, if not to halt entirely, this growing trend. The objective of the article is to shed light on this debate. Following a thorough analysis of Chinese direct investment in the EU, this article suggests that the challenges posed by these inflows are widely overblown. Despite this, the article concludes that it is necessary to have a systematic approach to regulating inbound foreign investment (including from China) in the EU. Such an approach may help guard against the risk of a protectionist drift inside the EU, as well as the possibility that some investors may one day pose a threat to national security. This article concludes that although the current fragmented regulatory approach is unsatisfactory, because of the difficulties associated with a unified EU-wide review process, the most realistic option is to promote a more systematic and coordinated use of existing mechanisms such as competition policy. Also, pushing for the negotiation of a China–EU BIT is certainly a promising avenue to enhance the EU’s bargaining leverage based on the principle of positive reciprocity.     

Government incentive strategies and private capital participation in China’s Shale gas development

Shale gas development investments are uncertain and irreversible in the initial stage in China. Flexible incentive strategy is needed for governments to guide private capital participation at different development stages. This study aims to provide analysis governments can use to encourage private investment in shale gas projects according to its plans in an extended real options framework. A social benefits variable is introduced to determine the threshold of social benefits that determine whether the government will choose a deferred or instant incentives strategy. By considering the efficiency factor, we show the optimal arrangements of two kinds of incentives: tax cuts and production subsidies, to implement incentive targets. The results indicate that current market demand and social benefits are the key factors that affect the government’s choice of incentive strategy. We also find that the optimal level of incentives, either tax cuts or production subsidies, are independent of current market demand and future market uncertainty under the delayed incentive strategy, but which affect the optimal level of incentives under the instant motivation strategy, and ignoring the negative influence of unpredictable random events on future market demand might lead to insufficient government incentives in this case.     

Price leadership and firm size asymmetry: an experimental analysis

We use laboratory experiments to examine the effect of firm size asymmetry on the emergence of price leadership in a price-setting duopoly with capacity constraints. Independent of the level of size asymmetry, the unique subgame perfect equilibrium of our timing game predicts that the large firm is the price leader. Experimental data show that price leadership by the large firm is frequent, but simultaneous moves are also often observed. Profit outcomes in the previous period affect the subjects’ decisions to announce or wait in a way that hampers convergence to the equilibrium. Furthermore, while both small and large firms display a strong tendency to wait to announce their price when firm size asymmetry is low, they often set prices early when size asymmetry is high. Prices are higher when price setting is sequential rather than simultaneous and when firm size asymmetry is high. Hence, price leadership by either type of firm has an anti-competitive effect that is more pronounced when the size difference between firms is large.     

Scientific personnel reallocation and firm innovation: Evidence from China’s college expansion

Given that the supply of scientific personnel is inelastic, the expansion of public research may negatively influence private research by driving up the wage of scientific personnel and reallocating them away from private sectors. China's massive college expansion since 1999 and labor market segmentation provide us with a unique opportunity to investigate such a reallocation effect on firm innovation. Consistent with the reallocation hypothesis, we find that China's college expansion negatively influenced firm innovation as well as regional innovation in the short run. Moreover, we provide direct evidence on scientific personnel reallocation by finding that when college expansion was more intensive, highly educated laborers were less likely to choose an industrial job, and those working in industries enjoyed a higher wage rate when holding a professional (research related) job.     

China’s value-added tax reform,firm behavior and performance

China reformed value-added tax (VAT) by removing investment from the tax base in northeastern provinces in 2004, which is a “natural experiment” of its tax system. Using difference-in-differences method, this paper for the first time investigates the impact of VAT reform on China firms’ fixed asset investment, employment behavior, innovative activities, and productivity, and furthermore discusses the impact of firm behavior on industrial structural upgrade and employment with a firm-level panel data of large and medium-sized manufacturing enterprises in China. We find that VAT reform significantly promotes firms’ fixed asset investment, and increases firms’ capital-labor ratio and productivity; while enhancement of firms’ productivity is mainly achieved by means of substituting labor with capital, rather than independent technology innovation; meanwhile, VAT reform distinctly decreases employment. Our findings have essential policy implications on the extension of VAT reform in the entire China.     

Reforms on China＇s Fiscal System and Its Impact on Local Government Behavior

The fiscal system is an important part of national economic management and deals with the division of financial responsibility and power, regulates and defines the fiscal activities among different levels of governments. The changes in economic system and economic structure decide the changes of fiscal function and fiscal structure, which results in the changes in intergovernmental distribution form and local government behavior. This paper takes a look at the stages of China＇s fiscal reform process and the impacts on local government behavior, and tries to find measures for perfecting the fiscal system reform to optimize local government behavior and guarantee a healthy national economy.     

Industry innovativeness,firm size,and entrepreneurship: Schumpeter Mark III?

Emphasizing the dynamics in economies and industries, Schumpeter points to entrepreneurs carrying out ‘new combinations’. His work, and in particular the Theory of Economic Development, is often interpreted as praising individual entrepreneurs setting up new firms to contribute to an industry’s innovativeness. This has come to be referred to as the Schumpeter Mark I perspective. Later, however, in his Capitalism, Socialism, and Democracy, Schumpeter has rather suggested that large incumbents are best positioned to contribute to an industry’s innovativeness (Schumpeter Mark II). In this discussion, however, the possibly different effects of structural as opposed to dynamic industry competitiveness is often not taken into account. In addition, the contribution of new and small firms to industry innovativeness are often conflated. Using New Product Announcements as a measure of innovation, we find that industries dominated by small firms prove consistently and significantly more innovative than industries where large firms dominate. Taking account of industries’ structural and dynamic levels of competition, we find that high existing and increasing levels of new firms entering an industry, exercising what Schumpeter called the ‘entrepreneurial function’, actually decrease industry innovativeness. We conclude that the contribution of small firms in terms of industry innovativeness is different from that of large as well as new firms, suggesting a Schumpeter Mark III perspective.     

Building of Knowledge Pipelines and How the Local Government to Do： the Case of China＇ s Music Instrument Industry

从知识流动来看,现阶段国内制造业存在两个问题：第一,行为主体如制造商与配套商、专业院校之间的知识流动通道尚未真正建立;第二,虽然已有知识流动,但由于各行为主体的知识深度都不高,导致知识互动转化不足。知识流动不是自发的,地理邻近或表面上相关的行为主体之间不必然产生知识流动。在国内,地方政府是建立知识流动通道的关键,政府应主动和其他行为主体互动,并成为其他行为主体之间知识流动的桥梁或“二传手”。文章进行了乐器制造的案例分析。     

Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?

Financial factors have been found highly important in influencing firms’ real activities and in promoting aggregate growth. Yet, the linkage between finance and firm-level productivity has been overlooked in the literature. We fill this gap using a panel of 130,840 Chinese manufacturing firms over the period 2001–2007 to estimate a TFP model augmented with cash flow. We find that, especially for illiquid foreign and private firms, productivity is strongly constrained by the availability of internal finance. Furthermore, contrary to private firms, foreign non-exporters display higher dependence of productivity on cash flow than exporters.     

Trade liberalization and Firms’ export performance in China: Theory and evidence

The focus of the literature surrounding trade liberalization has recently shifted from trade liberalization in imported final goods to studying the effects of trade liberalization in imported intermediate inputs. This emphasis fits very well the trade liberalization experience of China following its accession to the WTO in 2001. In this paper, we build a multi-sector heterogenous-firm model with trade in both intermediate goods and final goods, and we ask: How do final-goods producers respond to trade liberalization in imported inputs? Do they respond differently across sectors? How do firms respond differently to trade liberalization in imported-outputs instead? We separate the total effect of trade liberalization into those caused by inter-sectoral resource allocation (IRA) and by within-sector selection of firms according to productivity (which we call Melitz selection effect). It is the IRA effect that gives rise to differential impacts of trade liberalization in different sectors. These impacts include changes in the probability of entry into the export market, the fraction of firms that export and the share of export revenue. To test our hypotheses, we carry out both quantitative analysis and empirical analysis by using Chinese firm-level data. The results are consistent with our theoretical predictions.     

Institutional constraints,double imbalances and policy option—global financial crisis and China’s fiscal policy

With the enormous development of China’s economy, we re-implement the proactive fiscal policy not only to response to the global financial crisis, but also to take advantage of the opportunity to resolve the institutional constraints, transform China’s economic growth pattern, keep stability and promote the sustainable growth of the economy. So the goal of fiscal policy should weigh easing the economic crisis against long-term stability and the development of economy. The past experiences of fiscal policy practices in China indicate that the traditional simple counter-cyclical fiscal policy may be able to pull the economy out of recession, but it has little effect on automatic recovery of the economy. Therefore, the fiscal policies need to hang on the entire reform process and the whole economic structure adjustment. This paper firstly reveals the root of “double imbalances” and institutional constraints, then analyzes the paradox between such constraints, and discusses the space of positive fiscal policy.     

Revising the European Central Bank’s fiscal rules to support growth and employment

Abstract

The paper presents a reform proposal for the operations of the European Central Bank (ECB) whose purpose is to create a common set of risk-free assets for financial institutions operating in the euro area (EA), which is the necessary condition for having a single internal financial market. The proposal does not require the introduction of changes in the existing European Union treaties. The effects of this reform on the debt dynamic of EA member countries permit a revision of the existing fiscal rules. With the help of some simulations, it is shown that maintaining compliance with the European treaties, the reform of the ECB operations and revised fiscal rules would transform the current fiscal deflationary stance into a reflationary one. Some implications for aggregate demand and growth for the EA are briefly discussed.     

Endogenous product versus process innovation and a firm’s propensity to export

This article provides an empirical analysis of the effects of new product versus process innovations on export propensity at the firm level. Product innovation is a key factor for successful market entry in models of creative destruction and Schumpeterian growth. Process innovation helps securing a firm’s market position given the characteristics of its product supply. Both modes of innovation are expected to raise a firm’s propensity to export. According to new trade theory, we conjecture that product innovation is relatively more important in that regard. We investigate these hypotheses in a rich survey panel data set with information about new innovations of either type. With a set of indicators regarding innovation motives and impediments and continuous variables at the firm and industry level at hand, we may determine the probability of launching new innovations and their impact on export propensity at the firm level through a double treatment approach.     

A ‘Big Think’ Approach to Government Debt: Promoting Significant Learning in Introductory Macroeconomics

Drawing on Dee Fink's theory of significant learning, the authors present a ‘big think’ learning module to supplement fiscal policy discussions in introductory macroeconomics courses. Students are asked to consider a salient, contentious question that can be addressed in meaningful ways based on principles-level concepts and models, namely: ‘In your judgment, does the recent steep rise in the US debt-to-GDP ratio pose a serious threat to the US economy? Why or why not?’ To enhance students' willingness and ability to engage this big think question, the module provides open-ended preparatory exercises amenable to courses taught from heterodox or mainstream perspectives. Unlike standard textbook treatments which inadvertently thwart exploratory thinking and provide little support for analyzing case-specific burdens and benefits of government borrowing, the big think unit motivates students to think logically and creatively about the debt–GDP relationship in the current US context.     

Biases in patent examination and firms’ responses: Evidence from the pharmaceutical industry

Empirical analysis of matched patent application data in the world’s major patent offices has shown considerable variation in patent granting probability and examination duration across different countries. This phenomenon is attributed to institutional misclassifications or patent examiners’ mistakes by some authors. Others argued that cross-country heterogeneity could also be caused by deliberate manipulation of patent examination procedures with the goal to foster native inventors through suppressing foreign patent applicants. To explore whether manipulation exists, this study presents a case study of pharmaceutical patents granted by the US patent office and approved by the US FDA. Especially it focuses on the filing behavior of pharmaceutical companies in Korea, Japan and China. The regression results show that the granting ratio of the previous applications of a foreign company is correlated with the company’s probability of lodging a new patent application, which provides a supplementary evidence of the existence of the manipulated patent examination procedures.     

Africa’s industrialization and China’s OFDI in the manufacturing sector: rationales and practices

The article examines the rationales and practices for three types of manufacturing outward foreign direct investment (OFDI) into Africa in the context of the cooperation between Africa’s industrialization and China’s OFDI on manufacturing. African economies have achieved impressive growth in the new century, but sustainable economic growth in this vast continent is still constrained by lagging industrialization and weak manufacturing sector. While China’s economy has made great achievements in Gross Domestic Product growth and poverty reduction, it witnessed hikes of factor price such as wage, land and exchange rate at varying degrees in the recent decade, imposing pressure on economic restructuring. Against the background, the new trend of Chinese manufacturing OFDI provides new opportunities for Africa to solve structural problems of weak manufacturing. Policy implications of this study on China–Africa industrial capacity cooperation are briefly discussed.     

Anti-corruption campaign in China: good news or bad news for firm value?

This article investigates the effects of an anti-corruption campaign on firm value by testing market reactions to the investigation of top local officials during the recent anti-corruption campaign in China. We find that the anti-corruption events are more likely to be bad news for the market values of local state-owned enterprises (SOEs) but good news for the market values of non-SOEs less dependent on political connections. Besides, anti-corruption events are also more likely to be bad news for firms in regulated industries or low-marketization regions but good news for firms in nonregulated industries or high-marketization regions.