The complementarity between U.S. foreign direct investment stock and trade

Within a gravity model framework, this paper will establish that trade and foreign direct investment (FDI) are complementary, using trade and FDI stock data on a bilateral basis between the U.S. and 51 other countries over the period 1982 to 1994. U.S. outward FDI is found to have a larger predicted impact on U.S. exports than does inward FDI. On the other hand, inward FDI is found to have a larger predicted impact on U.S. imports than does U.S. outward FDI. These results are directly linked to patterns of intrafirm trade within the multinational enterprise (MNE), a result consistent with the transactions cost theory of MNEs. In addition, a sectoral analysis indicates that U.S. outward FDI in manufacturing has a large predicted impact on both exports and imports, whereas U.S. outward FDI in services has a large predicted impact on U.S. exports but little or no predicted impact on imports. Detailed comments and suggestions were provided by Joe Daniels, Albert Berry, and seminar participants at the University of Toronto, York University, Industry Canada, and the 1999 annual Canadian Economics Association meeting. Research assistance was provided by George Georgopoulos and Anthony Yao. The authors are responsible for any remaining errors.     

The demographics of trade-affected services and manufacturing workers (1987–1990): A comparative analysis

Using input-output data for 1987 and 1990, this study identifies the demographic characteristics of trade-affected workers in U.S. manufacturing and service industries. Trade-affected workers are defined as employees in industries that experienced a change (positive or negative) in net total (direct and indirect) trade-related employment between 1987 and 1990. For the period 1987–1990, three industry categories were examined: (a) industries that experienced an increase in positive net trade-related employment; (b) industries that experienced a decline in positive net trade-related employment; and (c) industries that suffered net trade-related employment losses in both years yet experienced an improvement over the period. The study finds that, while manufacturing industry workers in the most favorably affected industry group (i.e., group “a”) were more likely to be highly skilled (i.e., scientists & engineers), highly educated (i.e., over four years of college education), unionized, married and white males, corresponding service sector workers were predominantly unskilled (laborers), less educated, non-unionized, young (i.e., aged 16–24) and male (black and white). Furthermore, the service sector was associated with greater mean trade-related employment and output gains and lower mean employment and output losses than was the manufacturing sector. This is a revised version of a paper presented at the Western Economic Association Internationale 69th Annual Conference, Vancouver, British Columbia.     

The role of foreign direct investment in the host-country firm selection process: firm-level evidence from Slovenian manufacturing

This paper examines the role of inward foreign direct investment (FDI) in firm selection processes in the Slovenian manufacturing sector in the 1994–2003 period. It adopts the firm dynamics framework that allows testing of selection effects directly by assessing the impact of foreign firms’ activity on the probability of exiting of local firms (crowding out). The results show that intra-industry productivity spillover effects offset only a minor part of the competition pressure which results from foreign firm entry, hence incumbent firms experience a drop in their survival probability upon a foreign firm’s entry within a particular industry. This result is driven by foreign firm entry of the greenfield type, as entry through the acquisition of existing firms has no significant effect. The strength of the crowding-out effect decreases with the incumbent firm’s export propensity. There is no significant evidence that inward FDI would stimulate the selection process through backward linkages in the upstream supplying industries, whereas foreign firms’ activity reduces the exit probability of downstream local customers (through forward linkages).     

FDI,Education, and Economic Growth: Quality Matters

In this paper, we revisit the results from the influential study by Borensztein et al. (Journal of International Economics 45:115–135, 1998), which argues that inward foreign direct investment (FDI) promotes the economic growth in a less developed host country only when the host country obtains a threshold level of secondary schooling. Borensztein et al. (Journal of International Economics 45:115–135, 1998) only focus on the quantity of education. We take into consideration both the quantity and the quality of education. We adjust the original schooling data in Borensztein et al. (Journal of International Economics 45:115–135, 1998) by two quality of education indices and re-estimate their model. We find that the complementarity between inward FDI and schooling still exists, but the threshold level of schooling in our study is lower than the threshold calculated in Borensztein et al. (Journal of International Economics 45:115–135, 1998). Our results support the importance of education quality and suggest that with improved quality of education, it does not take as much quantity of schooling, as established in Borensztein et al. (Journal of International Economics 45:115–135, 1998), for inward FDI to have a positive impact on economic growth in the host country.     

New borders: Evidence from the former Soviet Union

New Borders: Evidence from the Former Soviet Union. — We study the effects of trade barriers and the persistence of past linkages on trade flows in the former Soviet Union (FSU). Estimating a gravity equation on 1987–1996 trade between nine Russian regions and fourteen FSU republics, we find that Russian regions traded nearly twice as much with each other as with republics in the reform period (1994–1996). In contrast, they did not trade significantly more with each other than with republics in the prereform period (1987–1990). Our results suggest that the bias towards domestic trade in the reform period is primarily a result of tariffs. We also find that past linkages, such as infrastructure, production and consumption chains, and business networks, have limited the reorientation of trade.     

Business Cycles and FDI: Evidence from German Sectoral Data

Globalization has affected business cycle developments in OECD countries and has increased activities of firms across national borders. This paper analyzes whether these two developments are linked. We use a new firm-level data set on the foreign activities of German firms to test whether foreign activities are affected by business cycle developments. We aggregate the data by the sector of the reporting firm, the sector of the foreign affiliate, and the host country. Data are annual and cover the period 1989–2002. We find that German outward FDI increases in response to positive cyclical developments abroad and in response to a real depreciation of the domestic currency. JEL no. E3, F23     

Has International Trade Affected Workers’ Bargaining Power?

In this paper, we investigate whether globalization has affected workers’ bargaining power in the Belgian manufacturing industry over the period 1987–1995 using a sample of more than 20,000 firms. We find little evidence of international trade and inward foreign direct investment having an impact on the workers’ bargaining power. We find some evidence that technological change has a positive impact on the workers’ bargaining power. JEL no. C23, D21, F16, F23, J50, L13     

Dependence on External Finance: An Inherent Industry Characteristic?

Rajan and Zingales (1998) use U.S. Compustat firm data for the 1980s to obtain measures of manufacturing sectors’ Dependence on External Finance (DEF). They take any differences in these measures to be structural/technological and thus applicable to other countries. Their joint assumptions about how to obtain representative values of DEF by sector and about why these values differ fundamentally have been adopted in additional studies seeking to show that sectors benefit unequally from a country’s level of financial development. However, the assumptions as such have not been examined. The present study, conducted with cyclically adjusted annual measures of DEF derived from U.S. industry data for 1977–1997, attempts to do so using data that are aggregated by sector.     

Is There a Link Between Casual Employment and Export-Orientation of Firms? The Case of Kenya’s Manufacturing Sector

Empirical evidence on the link between trade and employment outcomes in Africa is severely limited. The paper analyses employment outcomes, that is, the rise in casual employment in Kenya’s manufacturing sector in relation to firms’ export orientation. While exporting firms generally account for a higher proportion of employment in the manufacturing sector, the proportion of workers in exporting firms declined by over 20% between the early 1990s and 2003. On the other hand, the proportion of casual workers employed in manufacturing firms increased over the same period. However, the empirical results show no strong evidence of “exporting” significantly influencing the proportion of casual workers employed by firms. The combination of an increasingly skilled labour force in Kenya and deepening casualisation among workers points to a conundrum that requires further analysis. That notwithstanding, the results suggest a need for policy focus not only on job creation, but also on the quality of jobs created.     

The Effect of the Exchange Rates on Investment in Mexican Manufacturing Industry

This paper, considering revenue and cost exposure channels, investigates the effects of exchange rate on fixed capital investment in Mexican manufacturing sector over 1994–2003. We find that i) currency depreciation has a positive (negative) effect on fixed investment through the export (import) channel; ii) exchange rate volatility impacts mostly export oriented sectors; iii) the sensitivity of investment to exchange rate movements is stronger in non-durable goods sectors and industries with low mark-up ratios.     

The Impact of Foreign Trade on the Employment of Unskilled U.S. Workers: Some New Evidence

This paper explores four empirical relationships reflecting the impact of foreign trade on the employment of unskilled workers: (i) the direct relationship between net exports and embodied education of the corresponding goods; (ii) the changes in domestic prices accompanying changes in net exports; (iii) the relationship between real or potential import competition and defensive measures such as more investment or increasing the skill level of the labor force; and (iv) the relationship between foreign trade and domestic prices. None of these exercises suggests that foreign trade has much impact on the employment of less skilled U.S. workers.     

Foreign direct investment and productivity spillovers: Evidence from the Spanish experience

Foreign Direct Investment and Productivity Spillovers: Evidence from the Spanish Experience. — The aim of this paper is to analyse the impact of foreign direct investment (FDI) on firms’ productivity using a panel of Spanish manufacturing firms for the period 1990–1998. Firstly, we show that for countries, like Spain, that are undergoing significant structural changes over the period in question it is important to control for both time-invariant as well as time-variant sectoral characteristics. Secondly, we confirm previous findings that one needs to take into account the “absorptive capacity” of firms when considering whether they are able to avail of externalities associated with FDI presence. For the Spanish case we find that only firms with sufficient levels of such capacity experience positive spillovers.     

Local labor market conditions and foreign direct investment flows in the U.S.

This study evaluates the impact of industry and state-specific economic conditions on inward Foreign Direct Investment (FDI) in several states in the U.S. FDI inflows in the U.S. are attracted by high industry and state specific labor productivity, and also by high state spending on education. Multinational companies seem to highly value a productive and educated labor force.     

Macroeconomic and Sectoral Effects of International Trade: A Vector Error-Correction Study

This study examines various claims that in the U.S., international trade has contributed to a loss of manufacturing base, an increased gap between unskilled and skilled wages, lower employment, and a loss of productivity. Cointegration tests indicate that in the long run and at the macro level, the ratio of trade to output and FDI to output are correlated with the manufacturing share of output, the ratio of unskilled to skilled wages, labor productivity, and the employment rate. However, Granger causality tests reveal that, with one exception, causation does not run from trade to the domestic variables, the only exception being that FDI Granger causes productivity. When the focus is shifted to the manufacturing sector, the results support the proposition that openness to trade has had adverse effects on this sector.A slightly different version of this paper was presented at the Fifty-sixth International Atlantic Economic Conference, October 16–19, 2003 in Quebec City, Canada. The research reported in this paper is partially funded by a grant from the Institute for Global Economic Affairs at Marquette University.     

Wage dispersion in Germany and the US: is there compression from below?

Wage compression from below is a common diagnosis for Germany compared to the U.S. We develop alternative hypotheses in order to identify the so-called accordion effect, i.e. reduced inter-quantile distances below the median especially for low skilled and other ill-paid groups. Our results are partly at odds with wide-spread beliefs. Using large micro data sources we find evidence of an accordion effect at the low end of the distribution for the U.S. The results for Germany, however, are contrary to what one would have expected in case of marked wage compression from below. For low-skilled workers of both genders and for female workers in general we find higher inter-quantile distances below rather than above the median. By contrast, there is strong evidence for the accordion effect if skilled male workers are considered.     

International spillovers of U.S. monetary uncertainty and equity market volatility to China’s stock markets

Due to the global economy that is currently being increasingly integrated and liberalized, the cross-country transmission of U.S. monetary policy surprises has become a critical issue attracting scholarly attention. This research thus extends the existing literature by assessing the causal linkages among U.S. monetary policy uncertainty (USMPU), equity market volatility, and China’s stock price index over the period from January 1994 to August 2021. We apply Granger causality in quantile analysis to explore the relationships in each quantile of the distribution in a comprehensible manner. The results indicate that equity market volatility and China’s stock price dynamics play little role in affecting USMPU. We also find that only greater changes in both positive monetary policy uncertainty and stock prices lead to changes in equity market volatility. Furthermore, fluctuations in monetary policy uncertainty and equity market volatility in the United States Granger-cause China’s stock prices. Knowing such causality results could prevent market participants from adopting a one-size-fits-all strategy.     

生产者服务业FDI与东道国工资差距:理论与实证

本文从理论和实证两个角度,阐述并验证了生产者服务业FDI对东道国熟练与非熟练工人的工资差距的影响。通过一个将生产者服务作为中间投入的两部门理论模型,我们发现,生产者服务业FDI使得服务品种增加,并造成熟练工人从一般制造业部门流向服务(或高技术)部门,导致熟练工人工资上升而非熟练工人工资下降。本文选取上海市的数据,建立了4个回归模型进行实证检验。结果表明,生产者服务业FDI对熟练与非熟练工人的工资差距会产生直接而显著的扩大作用,但是它同时能通过其他解释变量,如人均GDP、人均人力资本、第三产业就业率以及第二产业的全员劳动生产率对工资差距产生间接的收缩作用。最后,本文针对回归结果得出了相应的结论和启示。     

Convergence in Revealed Preferences for Automobiles as Differentiated Goods: U.S. and OECD Countries: 1970–1999

Attributes of differentiated goods in personal consumption have both conceptual and policy importance in macroeconomic applications that include obsolescence rates of capital stock, the savings rate, and environmental issues. While there is both direct and indirect evidence of variation in preferences for these attributes across countries, there is also conjecture that recent global integration has reduced this variation. We examine convergence between the U.S. and four OECD countries in the levels of automobile attributes over the 1970–1999 period. Results of panel unit root tests with the U.S. as the comparison country showed convergence in the constructed measures of size, performance and efficiency. In pairwise comparisons between the U.S. and OECD countries, results of our model estimations indicated convergence in size and efficiency with estimated half lives to convergence of between four to six years. Disaggregating the definitional components of performance, results show convergence in horsepower when selected economic variables are controlled. We find that measures of trade, per capita income and price appear to be among the mechanisms through which increasing global integration relates to convergence. Directions for further study of convergence preferences for attribute profiles across countries are discussed.     

Enterprise responses to price and output shocks in transitioning economies: The case of the Czechoslovak machine-building sector

The behavior of a sample of 161 state-owned, Czechoslovak machine-building enterprises for the period 1985–89 is examined by means of simulation techniques based on the estimated dynamic factor demand equations. The simulations of input utilization for 1990–92 indicate that the state-owned firms have been less responsive to market signals and to output changes during the transition period of 1990–92 than they were in 1985–89. This may reflect either a change in decision-making regime at the firm level or the magnitude of changes in prices and output levels that occurred in 1990–92. We also find that the output shocks were much more important for the changes in input utilization during the transition than were input price shocks. The research results reported here are part of a World Bank project on enterprise behavior in transition. The results and conclusions are solely the responsibility of the authors and in no way represent the views of the World Bank or of their respective employers.     

Are Older Workers Harmful for Firm Productivity?

This paper investigates the effects of the workforce age structure on the productivity of large Belgian firms. More precisely, it examines different scenarios of changes in the proportion of young (16–29 years), middle-aged (30–49 years) and older (more than 49 years) workers and their expected effects on firm productivity. Using detailed matched employer–employee data, we find that young workers are significantly more productive than older workers. Yet, results also show that age structure effects on productivity: (i) have substantially decreased over time and (ii) are much stronger in ICT than in non-ICT firms.