Who Uses Intermediaries in International Trade? Evidence from Firm‐level Survey Data

The present paper uses data from the World Bank Enterprise Survey conducted in Turkey in 2005 to shed light on the firms that use intermediaries in international trade. It lends robust empirical support to recent theories which suggest that indirect exporters are mostly small firms that are not profitable enough to cover the high fixed costs of building an own distribution network abroad. Manufacturers who develop new products are more likely to use trade intermediaries, as are firms that produce low‐quality goods. In contrast, neither foreign ownership nor credit constraints are correlated with the choice of export mode. Moreover, firms that rely on trade intermediaries to sell their goods abroad also do so to source their foreign inputs, implying that the role of intermediaries in facilitating trade may be larger than previous studies suggest.     

Do safeguard tariffs and antidumping duties open or close technology gaps?

This paper examines how the country-breadth of tariff protection can affect the technology adoption decisions of both domestic import-competing and foreign exporting firms. The contribution of the analysis is to show how firm-level technology adoption changes under tariffs of different country-breadth. I show that a country-specific tariff like an antidumping duty induces both domestic import-competing firms and foreign exporting firms to adopt a new technology earlier than they would under free trade. In contrast, a broadly-applied tariff like a safeguard can accelerate technology adoption by a domestic import-competing firm, but will slow-down technology adoption by foreign exporting firms. Because safeguard tariffs can delay the foreign firm's adoption of new technology, the worldwide welfare costs associated with using them may be larger than is generally believed.     

异质性服务企业、风险承担与开放经济下二元市场结构演变

本文将服务企业特性和风险承担因素引入异质性企业贸易理论的分析框架中,考察了发展中国家不同风险承担的服务企业在国内与国外二元市场结构上的演变机制及效应。结果表明:风险承担较高的服务企业呈现出由国内转向国外的二元市场结构演变效应,而风险承担较低的服务企业呈现出相反效应;演变机制是生产环节资本性支出的增加和营销环节贸易成本及风险的有效克服;与制造业企业的比较显示,由于外资型加工贸易企业和小型外贸企业的存在,使得不同风险承担的制造业企业在二元市场结构上的演变效应与服务企业截然相反,但演变机制与服务企业是一致的。本文研究为发展中国家促进服务业发展和扩大服务出口提供了企业风险承担视角下的政策启示。     

Endogenous market structures and the gains from foreign direct investment

This paper discusses the gains from liberalizing foreign direct investment (FDI) in a two-country setting with endogenous market structure. We investigate two different scenarios. In the first scenario, headquarters costs are large in the foreign country so that the industry is located in the domestic country only. In this case, multinational and national firms may coexist and market concentration may make FDI welfare improving for the foreign country and welfare reducing for the domestic country. In the second scenario, headquarters costs are symmetric and firms will be located in both countries. Here, profitable FDI activities lead to mutual welfare gains, irrespective of market structure effects.     

Factor Prices,Factor Substitution and Exporting in US Manufacturing Affiliates Abroad

This paper uses the unique matched individual parent and affiliate data from the foreign investment survey of the Bureau of Economic Analysis to examine how US firms of different industries and capital intensities at home adapt to lower costs of labour and other host‐country characteristics in their foreign production. We find that foreign affiliates of US multinationals carry their parent firms’ technology with them in producing abroad. That is, affiliates of capital‐intensive parents produce in a relatively capital‐intensive manner wherever they are located. Despite these resemblances to their parents, affiliates produce in a more labour‐intensive manner where labour is cheaper and also where the scale of production is small. We found no evidence that more labour‐intensive firms selected production locations where labour was cheaper. Labour costs dominated the methods of production but not its location. Affiliates that export are more responsive in their factor proportions to the labour costs where they produced than affiliates selling only in their host countries. The probability that an affiliate would export, however, did not seem to be much affected by factor proportions. It was much more closely related to the scale of the affiliate's operations; larger affiliates were more likely to be exporters.     

Exports in the strategy of multinational enterprises

Using data from a sample of 329 multinational firms, this paper analyses the impact of increases in foreign production on exports from the parent firm. The relationship between internal exports and foreign production is positive at all feasible levels of foreign production, although the impact on extra-group exports may be negative. These effects may be swamped by changes in relative international competitiveness between firms of the same nationality and industry group. The importance of these findings for multinational firms is that anticipation of these effects can reduce costs of reallocation of resources for the parent, firm and the results illustrate the wide remaining scope for further internationalization even among the world's largest firms. The impact of foreign production on home country employment is likely to remain positive so long as the firm's international competiveness can be improved.     

In Search of Environmental Spillovers

There is an extensive literature that examines the relationship between foreign direct investment (FDI) and the productivity and competitiveness of domestic firms. Using estimation techniques from the productivity spillover literature, this paper tests for the presence of environmental spillovers from foreign firms. On the basis that foreign‐owned firms may encourage firms in their extended supply chain to improve their environment‐related management practices, evidence for the existence of environmental spillovers should be easier to find than productivity spillovers where firms naturally attempt to minimise intra‐industry knowledge leakage. In this paper we show that, first, foreign‐owned firms are more likely to implement environmental management systems (EMS) and, second, that the presence of foreign‐owned firms in those sectors that a firm supplies can encourage good environmental practice. This is especially true if a firm is foreign, has high absorptive capacity, and operates in the presence of formal and informal networks.     

Do foreign workers reduce trade barriers? Microeconomic evidence

This paper provides evidence that foreign workers reduce firms’ trade costs and thus increase the probability that firms export. This informs both the literature on trade costs and the microeconomic literature on firms’ export behaviour. We identify the nationality of each worker in a large sample of German establishments and relate this to the exporting behaviour of these establishments. We allow for the possible endogeneity of an establishment's workforce by instrumenting the share of foreign workers with the regional distribution of foreign workers in the wider labour market. We find a significant effect of worker nationality on exporting which is not driven by the industrial, occupational or locational concentration of migrants. The effect is much stronger for senior occupations, who are more likely to have a role in exporting decisions by the establishment. The relationship is also stronger when we consider exports to particular regions and workers from these regions, consistent with a gravity model in which trade flows from country i to j are a function of migrants from j in i.     

Foreign acquisition and post-privatization exit of state-owned firms

This paper analyzes the impact of foreign and domestic ownership on the exit rates of privatized state-owned enterprises (SOEs) in transitional countries. The exit of privatized SOEs can have a profound impact on employment and on the development of local economies of transitional countries. An oligopoly model that incorporates country-level trade costs and individual SOE's productivity is developed to assess the exit of SOEs under either foreign or domestic ownership. The model shows that market competition between firms can lead to liquidation of the SOE by a domestic firm when trade costs increase. When the productivity of SOE is high, neither foreign nor domestic firm will liquidate. The predictions of the model are tested using firm-level privatization data from Central and Eastern Europe. By controlling for productivity, trade costs, and other attributes of SOEs after privatization, it is found that foreign ownership significantly reduces the probability of SOE's exit as compared to domestic ownership. Furthermore, there is evidence that as trade costs increase, the exit probability of domestically owned SOEs increases and the exit probability of foreign-owned SOEs declines.     

A quantitative approach to multinational production

I examine new data on the number and revenues of foreign affiliates of multinational firms across a large number of country pairs. The data shed light on the behavior of the intensive and extensive margins of multinational production (MP). To capture the patterns observed in the data, I build and calibrate a multi-country general-equilibrium model of MP that combines a Lucas (1978) span-of-control with an Eaton and Kortum (2002) type model, and includes both fixed and variable costs of opening affiliates abroad. I use the calibrated model to calculate the gains that a country would experience from liberalizing access to foreign firms. Those calculations suggest that the welfare losses of closing up to foreign firms would be around 4%, while the gains of liberalizing access to foreign firms would be large, particularly if the variable – rather than the fixed – component of MP costs were lowered.     

The Influence of Firm's Size and International Experience on the Ownership Structure of Italian FDI in Manufacturing

The literature on foreign direct investment (FDI) has analysed the entry mode choice by multinational enterprises (MNEs) from several theoretical viewpoints. Nevertheless, previous studies have mainly focused on the behaviour of large and established MNEs while little attention has been given to small- and medium-sized firms.The paper aims at providing further empirical evidence on the role of firm size and international experience in influencing the ownership structure of FDI. The main hypothesis is that smaller firms, characterised by financial and managerial constraints, as well as firms lacking experience in managing foreign operations, suffer from a condition of adverse asymmetry in information costs, compared to their competitors. Therefore, they are forced to act prudently, minimising risk and thus preferring a less control arrangement of foreign subsidiaries.A binomial logistic model is developed with reference to manufacturing foreign direct investments undertaken by Italian firms in the period 1986–1993.     

Knowledge spillovers and high-impact growth: Comparing local and foreign firms in the UK

This paper is concerned with entrepreneurial high-impact firms, which are firms that generate ‘both’ disproportionate levels of employment and sales growth, and have high levels of innovative activity. It investigates differences in the influence of knowledge spillovers on high-impact growth between foreign and local firms in the UK. The study is based on an analysis of data from UK Innovation Scoreboard on 865 firms, which were divided into ‘high-impact firms’ (defined as those achieving positive growth in both sales and employment) and low-impact firms (negative or no growth in sales or employment). More precisely, the paper investigates the influence of knowledge spillovers on high-impact growth of foreign and local firms, from regional, sectoral and firm size perspectives. The findings suggest that (1) firms’ access to regional knowledge spillovers (from businesses and higher education institutions) is more significantly associated with high-impact growth of local firms in comparison to foreign firms; (2) because knowledge spillovers are more likely to occur in high-tech sectors (compared to low-tech sectors), firms in high-tech sectors are more associated with high-impact growth. Nonetheless, the relationship is stronger for local firms compared to foreign firms; (3) because small firms have greater need for knowledge spillovers (relative to large firms), there is a negative relationship between firm size and high-impact growth, but the negative relationship is greater for UK firms in comparison to foreign firms. Implications are drawn for policy and research.     

Managerial Firms,Entry, and Switching Costs

Empirical evidence shows that switching costs are important in many industries. We analyze the welfare effects of entry into markets with switching costs when firms can be run by managers and the entrant may be partially foreign-owned. We find that with profit-maximizing firms, the welfare effect of entry depends crucially on the ownership of the entrant firm. We also show that entry is less likely with managerial firms than it is with profit-maximizing firms. In the latter case, entry always reduces welfare if the share of the entrant firm owned by foreign investors is high. However, with managerial firms, entry always increases welfare.     

A model of demand,productivity and foreign location decision among Taiwanese firms

We develop a theoretical framework to examine the relative importance of firm demand and productivity in firm decisions to export and where to locate foreign direct investments. The model shows that the equilibrium firm decision depends on product technology, consumer preference for product quality, fixed investment costs of establishing a foreign subsidiary, transportation costs and relative wages. Our empirical results confirm the predictions of the theoretical model. Firm-level demand and productivity components are important in explaining the decision to participate in foreign markets with their relative importance depending on the firm's organizational form (exports versus FDI) and the destination of the investments. In general, FDI firms are more productive than exporting firms regardless of FDI destinations. FDI firms also have a higher demand component than exporters and this demand component is stronger than productivity. Finally, among FDI firms, while those with a high demand index and productivity have a significantly higher propensity to invest in high-income countries, firm productivity is the sole determinant of firms undertaking FDI in low-income countries.     

Environmental Pressure and the Performance of Foreign Firms in an Emerging Economy

Does environmental management help foreign firms outperform local firms in emerging economies? While existing research suggests that environmental management may or may not benefit firm performance, the question is particularly under-investigated in the emerging economy context. Using the data on foreign investment into China, this study explores whether foreign firms that are under greater environmental pressure, at home or at the host, outperform comparable local firms in an emerging host country. In making this comparison, we use propensity-score matching and a difference-in-differences approach to handle the problem of endogeneity inherent in comparing the performances of foreign versus local firms. We find empirical support that foreign firms perform better than local firms when they are under high environmental pressure in the emerging host country, and this result is driven by the foreign firms originating from countries with high environmental pressure.     

International standards certification,institutional voids and exports from developing country firms

This paper analyses the impact of International Standards Certification (ISC) on the export participation and the scale of exports of firms based in 89 developing or transition countries. We conceptualise ISC as an endogenous institutional advantage, which bridges institutional voids in the country and helps firms to export. The empirical results show that certified firms are more likely to export, and to export on a larger scale. The impact of ISC runs through two channels: productivity and transaction cost economies. We show that certification plays an important role in bringing down transaction costs in international markets, while also maintaining and raising efficiency. This finding is reinforced by additional evidence, suggesting that ISC matters more for the export participation of domestic firms than for foreign firms and is of greater importance for firms based in countries characterised by severe institutional voids.     

An Exploration of Factors Influencing Inward Technology Licensing Performance

This article describes an exploratory study of firms' performance in the use of technology licensed from foreign non-affiliate companies. It focuses on identifying the factors that distinguish between licensee firms with high and low performance. The results suggest that a firm's internal distictive competencies in manufacturing and marketing; and mangers' perceived costs and bengits of inward licensing significantly explain the firm's performance in the use of licensed technology.     

Firm heterogeneity and location choice of Taiwanese multinationals

This paper examines the extent to which production location decisions of Taiwanese multinationals reflect underlying patterns of firm productivity. In our theoretical model, heterogeneous firms in a middle-income country decide on the optimal production locations for serving three geographically separate markets: domestic, foreign high-income and foreign low-income. The model shows that the equilibrium decision of a firm depends on the fixed investment costs of establishing foreign subsidiaries, production costs, transportation costs, market size and its own productivity level.

Using firm-level data in 2000, Taiwanese electronics firms are divided into four different categories: non-FDI, investors in China only, investors in the U.S. only, investors in both China and the U.S. We use a multinomial logit model to link firms' location choices with their productivity, controlling for country, industry and other firm characteristics. Our empirical results are consistent with the predictions of the theoretical model. We show that more productive firms engage in outward FDI, with the most productive ones investing in both China and the U.S. We also provide evidence indicating that Taiwanese multinationals investing only in the U.S. are more productive than those investing exclusively in China due to smaller fixed investment costs in China relative to the U.S.     

Foreign Firms and Chinese Employment

This paper examines the effect of foreign direct investment (FDI) on employment in the Chinese manufacturing sector. As one of the world's largest recipients of FDI, China has arguably benefited from foreign multinational enterprises in various respects. However, one of the main challenges for China, and other developing countries, is job creation, and the effect of FDI on employment is uncertain. The effect depends on the amount of jobs created within foreign firms as well as the effect of FDI on employment in domestic firms. We analyse FDI and employment in China using a large sample of manufacturing firms for the period 1998–2004. Our results show that FDI has positive effects on employment growth. The relatively high employment growth in foreign firms is associated with their firm characteristics and their high survival rate. Employment growth is also relatively high in private domestic Chinese firms. There also seems to be a positive indirect effect of FDI on employment in private domestically‐owned firms, presumably caused by spillovers.     

Firm heterogeneity and location choice of Taiwanese multinationals

This paper examines the extent to which production location decisions of Taiwanese multinationals reflect underlying patterns of firm productivity. In our theoretical model, heterogeneous firms in a middle-income country decide on the optimal production locations for serving three geographically separate markets: domestic, foreign high-income and foreign low-income. The model shows that the equilibrium decision of a firm depends on the fixed investment costs of establishing foreign subsidiaries, production costs, transportation costs, market size and its own productivity level.Using firm-level data in 2000, Taiwanese electronics firms are divided into four different categories: non-FDI, investors in China only, investors in the U.S. only, investors in both China and the U.S. We use a multinomial logit model to link firms' location choices with their productivity, controlling for country, industry and other firm characteristics. Our empirical results are consistent with the predictions of the theoretical model. We show that more productive firms engage in outward FDI, with the most productive ones investing in both China and the U.S. We also provide evidence indicating that Taiwanese multinationals investing only in the U.S. are more productive than those investing exclusively in China due to smaller fixed investment costs in China relative to the U.S.