Can Production Subsidies Explain China's Export Performance? Evidence from Firm‐level Data*

This paper analyses the relationship between production subsidies and firms’ export performance using a very comprehensive and recent firm‐level database and controlling for the endogeneity of subsidies. It documents robust evidence that production subsidies stimulate export activity at the intensive margin, although this effect is conditional on firm characteristics. In particular, the positive relationship between subsidies and the intensive margin of exports is strongest among profit‐making firms, firms in capital‐intensive industries, and those located in non‐coastal regions. Compared to firm characteristics, the extent of heterogeneity across ownership structure (SOEs, collectives, and privately owned firms) proves to be relatively less important.     

Multinational Enterprises,Absorptive Capacity and Export Spillovers: Evidence from Polish Firm‐level Data

An important benefit attributed to the activity of multinational enterprises (MNEs) in developing and transition countries is its effect on international market access. Through a variety of channels the presence of MNEs is expected to reduce the costs faced by indigenous firms in breaking into international markets and in turn boost their export prospects. In this paper we use an extensive Polish firm‐level dataset for the period 2000–2008 to verify whether MNEs have positively contributed to the export performance of indigenous firms. We track not only sectoral and geographical spillovers stemming from the activity of MNEs but also control for firm‐specific characteristics that affect indigenous firms' decisions to export including their absorptive capacity. Our empirical results support the existence of positive spillovers (related to MNE export activity) at the sectoral level but not at the regional level. Finally, we find that individual absorptive capacity determines the size of export spillovers.     

Export revenue and quality: Firm‐level evidence from developing countries

I combine firm‐level export data from eight low‐income and middle‐income countries to test the relation between export price and export revenue. Across‐firm estimations show a strong positive association between export price and export revenue. Within‐firm estimations show that firms generate larger export revenue from their high‐price products. The positive correlation between export price and export revenue is strong for manufactures, weak for primary commodities, and nonexistent for extractables. Results are robust to using an alternative quality measure and controlling for exporters’ market power.     

Does Trade Credit Substitute Bank Credit? Evidence from Firm‐level Data

The paper examines micro data on Italian manufacturing firms' inventory behaviour to test the Meltzer (1960) hypothesis according to which firms substitute bank credit with trade credit (TC) during money tightening. We find that inventory investment of Italian manufacturing firms is constrained by their availability of TC and that this effect more than doubles during monetary restrictions. As for the magnitude of the substitution effect, however, we find that it is not sizeable. This is in line with the micro theories of TC and the evidence on actual firm practices, according to which credit terms display modest variations over time .     

Offshore Outsourcing and Productivity: Evidence from Japanese Firm‐level Data Disaggregated by Tasks

This paper examines the relationship of offshoring with productivity, based on the original survey data of Japanese firms. Productivity gains were found in the firms offshoring both manufacturing and service tasks, but not in the firms offshoring only either manufacturing or service tasks. This paper also finds that firms offshoring to various destinations tend to be more productive than non‐offshoring firms. These results suggest that the level of firms' engagement in offshoring is more important for productivity than whether or not firms engage in offshoring.     

Outsourcing,Importing and Innovation: Evidence from Firm‐level Data for Emerging Economies

This paper investigates two sourcing strategies of firms, outsourcing and importing, and links these to innovation activities. The authors examine this empirically using firm‐level data for 28 emerging market economies and find robust evidence that outsourcing increases the likelihood to spend on R&D and via this channel raises innovation output, whereas importing increases innovation output, but not R&D. The results hold when implementing an instrumental variables approach. It is found that results crucially depend on the institutional environment in the economy, e.g. property rights and intellectual property rights protection. The results suggest that better institutions magnify the gains from importing, but not from outsourcing. EU countries also reap additional positive innovation effects from importing compared with non‐EU countries.     

Government Partisanship and Property Rights: Cross‐Country Firm‐Level Evidence

Property rights are essential to economic development but vary with the political environment. We develop and test the claim that government partisanship influences the security of business firms' property rights: the perceived security of property rights increases when right‐wing parties take power and declines with the election of left‐leaning parties. Unlike research that uses country‐level aggregates to draw inferences about the determinants of secure property rights, we analyze survey responses of over 7,400 firm owners from 73 countries using a novel difference‐in‐differences approach. We find that the political partisanship of the government in power strongly affects individual perceptions of property rights: firm owners are more likely to perceive that their property rights are secure under right‐leaning governments. Our results are robust to firm‐ and country‐level economic performance as well as controls for political institutions that might induce more stability to property rights, such as the number of checks and balances (veto players) in a system. Overall, our results indicate that business owners' beliefs about the security of property rights are highly responsive to changes in government partisanship.     

Growing into Export Markets: The Impact of Exporting on Firm‐level Investment in Indonesia

This paper documents the impact of exporting on capital accumulation across heterogeneous manufacturing firms in Indonesia. The findings show that entering export markets significantly increases investment behavior during the year of initial entry and for as much as three years after entry. The results imply that the investment rate among new exporters is 37% higher than non‐exporters in the year of entry and 14–26% higher in the three years after entry. Using detailed data on firm ownership, the paper further show that foreign‐owned affiliates invest at systematically higher rates upon entry into export markets. The estimates indicate that domestically owned exporters are potentially credit constrained and suggest that improving credit market access may increase the investment rate among domestic exporters by as much as 40% in the year of entry.     

Exchange Rate Passthrough to Export Prices: Assessing Cross‐Country Evidence*

A growing empirical literature reports evidence of a decline in exchange rate passthrough to import prices in a number of industrial countries. Our paper complements this literature by examining passthrough from the other side of the transaction; that is, we assess the exchange rate sensitivity of export prices (denominated in the exporter's currency). We find that the prices charged on exports to the United States are more responsive to the exchange rate than are export prices to other destinations, which is consistent with results in the literature that import price passthrough in the US market is relatively low. In addition, the exchange rate sensitivity of export prices over time has been significantly affected by country‐ and region‐specific factors, including the Asian financial crisis (for emerging Asia), deepening integration with the United States (for Canada), and the effects of the 1992 ERM crisis (for the United Kingdom).     

Structural change and misallocation: Firm‐level evidence from Poland*

Early transition literature linked a large number of firm failures with the inability to overcome the pre‐transition misallocation of resources, that is, the inadequate capital–labour ratio. We look at the link between misallocation and firm survival using a rich firm‐level dataset of over 1,600 manufacturing plants established in a centrally planned economy after 1945. Our duration models include the standard Olley–Pakes misallocation measures as well as a firm‐level measure of the counterfactual level of capital that takes into account the present‐day market allocation and productivity. We show that while privatization is positively related to firm survival, misallocation (a) was more of a firm‐level than sector‐level phenomenon and, more importantly, (b) it, in general, did not have a sizeable effect on the actual firm survival nor it had an impact on the outcome of privatization.     

Internet use and export upgrading: Firm‐level evidence from China

This paper explores the impact of widespread Internet use on the product choices of exporters. Based on a highly disaggregated firm–product‐level data matched from the Annual Survey of Industrial Firms and China Customs Transaction Database, our baseline empirical analysis suggests that (1) Internet use (i.e., having an official website or corporate email) affects both extensive margin and quality margin of exported products; (2) exporters using Internet propone to expand their product line of export by introducing new products (cost‐reduction effect on extensive margin); (3) the average quality of exported products becomes lower after the Internet is adopted by exporters (competition effect on quality margin). Our heterogeneous analysis further shows that (1) exporters with high productivity are immune to the negative impact of Internet use on quality margin and maintain quality growth; (2) having an official website exerts larger impacts on both extensive margin and quality margin compared with only having a corporate email system. Our research sheds light on the existing literature on Internet use and firm export behaviors.     

Exporting to fragile states in Africa: Firm‐level evidence

This study analyses the effect of fragility in destination markets on firm export behavior and the role of firm size in mediating adverse outcomes. The analysis is conducted using firm transaction data on Kenyan exports to Africa over the period 2004–2013. The analysis reveals that fragility negatively affects a firm's decision to enter a given destination market, reducing Kenya's bilateral trade flows to African countries. Larger firms are more resilient to destination shocks in fragility and are less likely to exit. These results are robust to alternative measures of destination fragility, and the exclusion of bordering countries and the East African Community partner states. Our analysis reveals that the effect of business fragility (regulatory quality, government effectiveness, and control of corruption) dominates that of political fragility (voice and accountability, rule of law, and political stability), although both effects are negative and significant.     

Location decisions of non‐bank financial foreign direct investment: Firm‐level evidence from Europe

The non‐bank financial sector in Europe has more than doubled in size between 2005 and 2015 reflecting the substantial growth in shadow banking activities. However, a large proportion of the non‐bank financial sector that remains unmapped as granular balance sheet information is not available for over half of the sector. Motivated by these data gaps and employing firm‐level data, this paper examines the location decisions of newly incorporated foreign affiliates in the non‐bank financial sector across 27 European countries over the period 2004 to 2012. The probability of a country being chosen as the location for a new foreign affiliate is found to be negatively associated with higher corporate tax rates and geographic distance but increases with the size and financial development of the host country. The financial regulatory regime in the host country and gravity related controls such as the home and host country sharing a common legal system, language, border, and currency are also found to impact the likelihood of non‐bank financial FDI.     

ISO Standards: A Certificate to Expand Exports? Firm‐Level Evidence from Argentina

Does standard adoption help firms in developing countries overcome information barriers and thereby perform better in international markets? What are the channels through which certification affects firms' exports, the intensive margin, or the extensive margin? We provide evidence on the impact of certification on export performance using a unique firm‐level dataset for Argentina over the period 1998–2006. We find that ISO certification is associated with increased exports, along the extensive margin—primarily in terms of destination countries—and the intensive margin.     

Uncovered Interest Parity: Cross‐Sectional Evidence

Uncovered interest parity (UIP) is estimated for short‐term horizons from one month to 12 months using a large number of cross‐sectional bilateral exchange rates. In contrast to conventional time‐series UIP, cross‐sectional UIP is examined with a single‐equation estimation and panel regression model estimation. The exchange rates analyzed here include a broad spectrum of countries: developed, developing, low‐inflation, and high‐inflation countries. Based on the empirical evidence, there does not appear to be a well‐publicized UIP puzzle for cross‐sectional UIP, and the slope estimates remain largely between zero and one throughout the sample periods, with a few exceptions. Evidence of UIP is more clear for low inflation countries than for high inflation countries. As interest rate maturity becomes longer from one month to 12 months, the UIP relationship becomes weaker.     

Cross‐country diffusion of ideology via FDI

This paper studies how foreign direct investment (FDI) contributes to ideological convergence across countries. In particular, this report focuses on whether multinational firms transfer freedom of speech (FOS) to local workers in China. Using a large source of individual survey data, it is found that those who work in foreign‐invested enterprises (FIEs), especially non‐Hong Kong, Macao and Taiwan (non‐HMT) invested enterprises tend to prefer FOS. This is in contrast to enterprises that do not work in FIEs. Such patterns are also observed in other related human rights and cultural measures common to Western democracies, but not China's political and local culture. Using policies on FDI as exogenous instruments, and other complementary identification strategies, a causal link for such an ideological transfer is established.     

Trade Openness and Cross‐country Income Differences

This paper asks how variations in trade openness contribute to cross‐country income differences. We approach this question using counterfactual experiments within a quantified general equilibrium model of trade. We find that trade costs gain their relevance only by amplifying the effects of existing differences in endowments, population sizes and technologies. If, for example, market entry costs were the same in all countries, inequality would be about 13% lower. Variable trade costs are found to have a similar effect. In contrast, if countries differed only by their degree of trade openness, the resulting variance of per capita income would be negligible.     

Housing Wealth Effects: Cross‐sectional Evidence from New Vehicle Registrations

We investigate the relationship between housing wealth and consumption using postcode‐level variation in house prices and administrative data on new passenger vehicle registrations as a proxy for consumption. We find a robust cross‐sectional relationship, and in our preferred specification estimate an elasticity of new passenger vehicle registrations with respect to gross housing wealth of 0.4–0.5, which based on our preferred calibration implies a marginal propensity to consume for total consumption of less than 0.5 cents. Notably, we find evidence that the relationship between house prices and new vehicle registrations is heterogeneous in income.     

Does Financial Depth Improve Aggregate Savings Performance? Further Cross‐Country Evidence

The paper examines whether financial depth can encourage savings. The main issue concerns how best to measure financial depth. A variety of proxies have been used in the past, mostly in the form of financial intermediation ratios (FIRs). A second issue concerns specification. Misspecification in earlier work may have overstated the importance of financial depth. A final issue concerns the effect of outliers, which are dealt with using robust estimation techniques. Based on a broadly specified lifecycle regression model and data from 122 countries, it is concluded that, although financial depth has a positive influence on savings, its strength continues to be open to question. Only one FIR and a non-FIR proxy (bank offices per person) are unambiguously significant. These results suggest that further work could be fruitful, especially if directed toward improving the accuracy and consistency of existing FIR data.