Finance constraints and technology spillovers from foreign to domestic firms

Scholars have suggested that externalities such as technology spillovers to domestic firms from the entry and presence of foreign firms – i.e., Foreign Direct Investment (FDI) spillovers – arise only when domestic firms possess adequate absorptive capacity. But they have also maintained a predominantly technological focus in their conceptualization of absorptive capacity, treating it mostly as a function of domestic firms' technological investments. Yet, several anecdotes point to finance constraints being equally important hurdles to absorbing technology. Given the comparatively scant attention to finance constraints in the FDI spillover literature, we present theoretical arguments and a counterfactual simulation for how finance constraints influence firms' realization of FDI spillovers. In the process, we identify two mechanisms underlying why firms facing high finance constraints experience lower FDI spillovers. (125 words).     

Knowledge,coordination and the firm: Historical perspectives

Abstract

This paper illustrates the problems and processes of developing economic knowledge by a selective historical treatment of ideas about the firm. Coase thought it necessary to explain firms as organizations, but not as distinctive productive units; neither did he explain why markets exist. Chamberlin's attempt to introduce product differentiation and selling costs is compared with Allyn Young's process theory and Marshall's treatment of the firm, and inter-firm relations, as means of organizing the growth of knowledge. The firm is a decision-making system in a context of Knightian uncertainty, and Simon's concept of quasi-decomposability applies to human brains and human organizations.     

Payment uncertainty, the division of labor, and productivity declines in great depressions

This paper proposes a simple model that formalizes a variant of Ohanian's conjecture explaining the productivity declines observed in the Great Depression [Ohanian, L.E., 2001. Why did productivity fall so much during the Great Depression? American Economic Review 91 (2), 34–38]. If a large payment shock like an asset-price collapse renders many firms insolvent, other economic agents become exposed to a higher risk of not being paid (payment uncertainty). The payment uncertainty causes endogenous disruptions of the division of labor among firms, thereby lowering macroeconomic productivity.The prediction of the model is that productivity correlates negatively with bankruptcies and positively with the cost share of intermediate inputs, which is consistent with the data from depression episodes. The model implies that the so-called failure of macroeconomic policy in the United States during the early 1930s, when a rash of bankruptcies occurred, could actually have been welfare enhancing, since the quick exit of insolvent agents can resolve payment uncertainty quickly.     

Oligopolistic Competition and New Technology Adoption under Uncertainty

The paper examines the adoption of a new technology in oligopoly, where there is ex ante uncertainty about variable costs of the new technology. Each firm can either adopt the new process by bearing some up-front investment or may continue to use the old one, after which firms play a Cournot market game. If in equilibrium both technologies are employed, more uncertainty about the new technology increases (decreases) the number of innovating firms and decreases (increases) the product price if the up-front investment is large (small). Our model applies readily to vertical integration if integrated firms neither buy nor sell the intermediate good on the market. However, if buying and selling is allowed, the number of integrated firms is independent of input price uncertainty.     

Who invests more in advanced abatement technology? Theory and evidence

We study firm investment in abatement technology under a heterogeneous‐firm framework. We find that more‐productive firms make more (less) investment in abatement technology if investment and productivity are complements (substitutes). Under linear demand, firms’ abatement investments exhibit an inverted U‐shape with respect to productivity level. This finding is in contrast to results in existing studies. We also find that in response to tightened environmental regulations, more‐productive firms raise their respective investments in abatement technology, whereas less‐productive firms do the opposite. More‐productive firms have lower pollution emission intensity. The key theoretical predictions are confirmed by empirical tests using Chinese data.     

Cost Reduction,Licensing and Incentive to Innovate: A Note

In this Note we consider an economy composed by two firms; a leader and a follower, that invest in R&D for process innovations. Competition to innovate is usually modelled as a two stage game. In the first stage of the game both firms simultaneously reduces their production costs. In the second stage the firms compete la Stackelberg and it is possible to prove that the profits of one of the two firms (and total profits) might decrease in a range of parameters. Then we consider the possibility of technology transfer from the leader that has the most productive technology to the follower under licensing by means of a fixed fee and of a royalty. It is possible to prove that under licensing total profits will increase in some range of parameters above mentioned in comparison to the pre-innovation case.     

Price Commitment versus Flexibility: the Role of Exchange Rate Uncertainty and its Implications for Exchange Rate Passthrough

The paper investigates the incentives to commit price or retain price flexibility in a model in which exporting firms face different degrees of exchange rate uncertainty. The result shows that introducing exchange rate uncertainty can lead to the endogenous emergence of a unique leader–follower equilibrium; which firm emerges as price leader depends on the substitutability of products, the magnitude of exchange rate uncertainty, and the cost structure. This study may provide one explanation as to why some exporters set price before the realization of the nominal exchange rates (“sticky price”). The results imply exchange rate variability affects exchange rate passthrough.     

"新新贸易理论"的思想脉络及其发展

新新贸易理论将企业异质性成功的引入到国际贸易模型中,从微观层面解释了贸易的发生及影响,从而开拓了国际贸易研究的新领域。新新贸易理论解释了为什么好的企业做国际贸易,而较次的企业做国内贸易这一现象,该理论认为,自由贸易可以提高产业生产率水平和社会福利,所以在政策上应该促进自由贸易而不是贸易保护。     

HOW ASSET IRREVERSIBILITY INFLUENCES THE INVESTMENT‐UNCERTAINTY RELATIONSHIP

This paper examines how uncertainty affects firms' investments for varying degrees of asset irreversibility (i.e., the wedge between purchase price and liquidation value of an asset). To identify more or less irreversible capital goods, we exploit unique survey data on German manufacturing firms over the sample period 2004 to 2012 in which managers provide information on investments' purpose (capacity expansion, replacement, restructuring, rationalization, and other). Our results indicate that only investments into the most irreversible capital goods (capacity expansion) will decrease if uncertainty rises. We also find support for other channels, such as the financial friction or the market power channel, to explain the investment‐uncertainty relationship.     

How Much do Technological Gap,Firm Size,and Regional Characteristics Matter for the Absorptive Capacity of Italian Enterprises?

The absorptive capacity—the ability of enterprises to efficiently absorb and internalise knowledge from outside sources—represents the link between firms’ capabilities to implement new products and the external stock of technological opportunities, such as those gleamed from Multinational Enterprises (MNEs). This paper explores whether the effect of foreign direct investment (FDI) on the productivity of Italian domestically-owned firms (DOFs) is dependent on their absorptive capacity. In particular, given the peculiar characteristics of the Italian productive system, our analysis focuses on three different dimensions of the absorptive capacity: the size of the technological gap between foreign-owned firms (FOFs) and DOFs, firm size, and the regional distribution of firms. Our findings suggest that technological gap and firm size matter considerably for the spillover effect. Moreover, spillovers exhibit a sub-national dimension present only in the northeastern region of the peninsula.     

Innovation,Skilled Labour,Technology And Performance In Israeli Industrial Firms

A technology index based on R&D, skilled labour and capital vintage was developed and used to characterise industrial firms by technology level, facilitating the analysis of relationships between technology and economic performance at the firm level. The results show that technology-intensive firms are important players in industrial performance, accounting for a disproportionate share of total production. Compared to other kinds of firms, technology intensive firms are larger, more productive, offer higher average salaries, generate a higher value added and a highcr profit per employee and capital. They also tend to operate in more highly concentrated industries and are more involved in external trade. While down-sized as a group, high-tech firms show net job creation during the 11-year period surveyed.     

Market Size and the Survival of Foreign‐owned Firms*

We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign‐owned firms. The survival probabilities of foreign‐owned firms depend on firm‐level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign‐owned firm will be less likely to be shut down when its parent firm's productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign‐owned firms if their parent firms are sufficiently productive.     

Intra-good trade in Germany: a first look at the evidence

This article contributes to the literature by using newly released comprehensive transaction-level data on all exports and imports to document facts about the amount of intra-good trade – the simultaneous export and import of identical goods by one firm – in Germany. Combined data for trade transactions and for characteristics of a representative large sample of trading firms are then used to report differences between firms that export and import different goods only (inter-good traders) and firms that engage in the simultaneous export and import of identical goods (intra-good traders). We find that the share of intra-good trade in total trade was some 17% in Germany in 2012. Intra-good trade matters. This share differs widely between broadly defined groups of goods and between industries. Controlling for detailed industry affiliation, intra-good traders differ significantly from inter-good traders – they are larger, more human capital intensive, more productive, have a higher R&D intensity and are more profitable. The data, however, are not rich enough to reveal the direction of causality between intra-good trade and firm performance and to investigate empirically the reasons why some firms engage in intra-good trade.     

GLOBALIZATION AND MULTIPRODUCT FIRMS

We present an international trade model with multiproduct firms. Firms are heterogeneously endowed with two types of capabilities that jointly determine the trade‐off within firms between managing a large portfolio of products and producing at low marginal cost. The model can explain many of the documented cross‐sectional correlations in firm performance measures, including why larger firms are more productive and more diversified, and yet more diversified firms trade at a discount. Globalization is shown to induce heterogeneous responses across firms in terms of scope and productivity, some of which are consistent with existing empirical work, whereas others are potentially testable.     

Cross‐border Mergers and Greenfield Foreign Direct Investment

This paper presents a model of international trade and foreign direct investment (FDI), where FDI is comprised of greenfield FDI and mergers and acquisitions (M&A). In a monopolistically competitive environment merging firms do not reduce competition. Mergers are motivated by efficiency gains and transfer of technology. Following empirical evidence, greenfield investors are modeled as more productive than M&A firms, which are in turn more productive than exporters. The model has two symmetric countries and generates two‐way flows of both M&A and greenfield FDI. Trade liberalization makes more firms choose greenfield FDI over M&A and leads to lower productivity and welfare.     

Corruption,Bureaucracy and Firm Productivity in Africa

This paper estimates the impact of corruption and poor bureaucratic quality on firm productivity for a unique dataset with firm‐specific data of more than 900 firms over 12 years for Ghana, Kenya and Tanzania. We first discuss why poor bureaucratic quality and, especially, corruption are expected to have negative impacts on firm productivity. We then employ Data Envelopment Analysis to estimate firm productivity and pooled OLS and Tobit regression analysis to estimate the effects of corruption and bureaucratic quality on firm productivity. We find that less productive firms are more likely to engage in corrupt activities; both poor bureaucratic quality and corruption reduce firm productivity; and corruption has a greater negative impact on productivity.     

Strategic technology choice in regulated markets with demand uncertainty

This paper presents a simple model of a non-competitive market with demand uncertainty in which firms can choose their technology of production. Technology is characterised by two parameters: capacity and flexibility. The first has a strong commitment value while flexibility is needed to face uncertainty. Lack of competition requires active regulation to ensure that the price is not set at excessive level. When choosing their technology, firms take into account not only the effects of this choice on the opponent(s) but also the effect on the regulated price. In this framework, and because of regulation, firms have an incentive to strategically manipulate their cost (cost padding). This causes monopoly regulation aiming at improving allocative efficiency to be ineffective. In fact, by “tying its hand” to a low level of capacity, the monopolistic firm is able to get round the constraint imposed by the regulator. Increasing the number of firms in the market may restore regulation effectiveness. The reason is that if demand is sufficiently volatile, then firms strategically choose flexible techniques and this effect dominates over the incentive to manipulate costs in order to escape regulation. In this case, regulation is effective precisely because cost padding is hampered by firms’ non-cooperative behaviour.

The dynamics of environmental innovations: three stylised trajectories of clean technology

In this article, we explore the dynamics of environmental innovations developed by firms to comply with environmental regulations. Our analysis is based on a micro-simulation model of industrial dynamics. The question arises: how do firms competing in the same industry deal with environmental issues without altering their productive efficiency or the performance of the product? We focus on clean technology which seeks to combine environmental and productive dimensions by way of innovation offsets. Our simulations show that an innovative strategy based on a good balance between environmental and productive dimensions takes more time to develop and needs to address a ‘competence destroying effect’. Finally, we study favourable conditions for the development of this type of clean technology and draw some policy implications.     

Policy uncertainty and inventory behavior: Evidence from the US manufacturing sector

This study investigates the impact of economic policy uncertainty (EPU) on asymmetric inventory investment (i.e., inventory stickiness or sticky inventory management). Using a sample of 74,912 US firm-year observations over the 1984–2021 period, we observe a significantly negative relationship between EPU and asymmetric inventory investment. Our cross-sectional analyses reveal that managers' pessimistic expectations regarding future demand and higher cost of funding and maintaining capacity are the channels through which EPU affects asymmetric inventory behavior. Moreover, this negative impact is more pronounced for firms that face longer-duration uncertainty, rely heavily on government purchases, and have higher firm-specific political risk. Lastly, we find that reducing inventory stickiness leads to improved firm performance during periods of increasing policy uncertainty.