Does it matter where you come from? Vertical spillovers from foreign direct investment and the origin of investors

This study uses firm-level panel data from Romania to examine whether the origin of foreign investors affects the degree of vertical spillovers from FDI. Investors' origin may matter for spillovers to domestic producers supplying intermediate inputs in two ways. First, the share of intermediates sourced locally by multinationals is likely to increase with the distance between the host and the source economy. Second, the sourcing pattern is likely to be affected by preferential trade agreements. In this case, the Association Agreement between Romania and the European Union (EU) implies that inputs sourced from the EU are subject to a lower tariff than inputs sourced from the United States or Canada. This means that on average American investors may have a greater incentive than EU investors to source from Romania and hence present a greater potential for vertical spillovers. The empirical analysis produces evidence consistent with this hypothesis. The results show a positive association between the presence of American companies in downstream sectors and the productivity of Romanian firms in the supplying industries and no significant relationship in the case of European affiliates. The results also indicate that Romanian firms in sectors whose products are expensive to transport benefit more from downstream presence of American affiliates than Romanian firms in sectors with low shipping costs. No such pattern is found for European affiliates.     

The Global Distribution of Trademarks: Some Stylised Facts

This paper provides the first empirical analysis of the global distribution of trademarks. It is based on a new dataset compiled by the authors from the statistical information published by the World Intellectual Property Organisation (WIPO). The questions analysed include the distribution of trademarks among countries of different income levels, the share of trademark registrations accounted for by foreign residents and its variation across different income groups, the extent to which poor countries participate in the international trademark system, and the distribution of registrations across different sectors of the economy. The evidence presented in this paper is relevant for assessing possible welfare implications of changes in intellectual property protection and evaluating the role of reputational assets in determining international trading patterns.     

Policies Facilitating Firm Adjustment to Globalization

This paper focuses on policies facilitating firm adjustmentto globalization. We briefly review the effects of trade andinvestment liberalization on firms, focusing on within-industryeffects. We postulate that governments' role in supporting theprocess is to: (i) ensure that firms face the 'right' incentivesto adjust, and (ii) intervene in areas where market failuresare present. The main message of the paper is that, while manypolicies could be adopted, they need to be carefully designedand implemented in a stable macroeconomic environment. An institutionalinfrastructure that supports the functioning of modern marketsis most important. Pro-active support policies of whatever stripeshould be subject to cost–benefit analysis, based on theexistence of an identified market failure and monitored forperformance and cost effectiveness. Transparency and accountabilityare critical in ensuring that interventions accomplish theirintended objectives rather than being vehicles for rent seeking.     

The composition of foreign direct investment and protection of intellectual property rights: Evidence from transition economies

While existing literature examined the impact of intellectual property protection on the volume of foreign direct investment (FDI), little is known about its effect on the composition of FDI inflows. This paper addresses this question empirically using a unique firm-level data set from Eastern Europe and the former Soviet Union. It finds that weak protection deters foreign investors in technology-intensive sectors that rely heavily on intellectual property rights. Moreover, the results indicate that a weak intellectual property regime encourages investors to undertake projects focusing on distribution rather than local production.     

Does services liberalization benefit manufacturing firms?: Evidence from the Czech Republic

While there is considerable empirical evidence on the impact of liberalizing trade in goods, the effects of services liberalization have not been empirically established. This study examines the link between services sector reforms and the productivity of manufacturing industries relying on services inputs. Several aspects of services liberalization are considered, namely, the presence of foreign providers, privatization and the level of competition. The results, based on firm-level data from the Czech Republic, show a positive relationship between services sector reform and the performance of domestic firms in downstream manufacturing sectors. Allowing foreign entry into services industries appears to be the key channel through which services liberalization contributes to improved performance of manufacturing sectors. This finding is supported by evidence that foreign acquisitions of Czech services providers result in profound changes in the labor productivity and sales of acquired firms. As most barriers to foreign investment today are not in goods but in services sectors, the findings of this study may strengthen the argument for reform in this area.     

Integration into Global Production and Distribution Networks through FDI: The Case of Poland

Technological progress has led to increasing importance of the international division of labour organized around global production and distribution networks. Multinational corporations have been a driving force behind these developments. This article studies the role of MNCs in integrating a host country into the international system of division of labour in the context of Poland. It provides evidence of Poland's increasing participation in global production and distribution networks that is taking place through FDI inflows. It concludes that, thanks to a large volume of FDI inflows, Poland's exports driven by production fragmentation will continue to expand at even faster rates than those observed in recent years.     

Income-Related Biases in International Trade: What Do Trademark Registration Data Tell Us?

Rich countries trade more among themselves than with poor economies due to a closer match of exporter supply structures and importer preferences. In the literature, the closeness of supply and demand has traditionally been determined by the quality of products—as expressed in the Linder hypothesis. This paper examines an extension of the hypothesis by considering the extent of brand differentiation as another determinant of the closeness of supply and demand. The analysis employs information on international trademark registrations to test whether richer countries import more from countries exporting products of higher quality and greater brand differentiation. The hypothesis is confirmed in most consumer goods sectors. JEL no. F 10, O 34     

Tough Love: Do Czech Suppliers Learn from their Relationships with Multinationals?*

Countries strive to attract foreign direct investment hoping that knowledge brought by multinationals will spill over to domestic producers. While the literature has cast doubt on the existence of spillovers within industries, it has found evidence of spillovers from multinationals to the supplying sectors. However, the existing studies rely on industry‐level proxies rather than information on actual relationships between suppliers and multinationals. This study goes one step further by employing a unique dataset from the Czech Republic where such relationships can be identified. It finds evidence consistent with both high productivity firms having a higher probability of supplying multinationals as well as suppliers learning from their relationships with multinationals.     

Openness and Industrial Response in a Wal‐Mart World: A Case Study of Mexican Soaps,Detergents and Surfactant Producers

This paper uses a case study approach to explore the effects of NAFTA and GATT membership on innovation and trade in the Mexican soaps, detergents and surfactants (SDS) industry. Several basic findings emerge. First, the most fundamental effect of NAFTA and the GATT on the SDS industry was to help induce Wal‐Mart to enter Mexico. Once there, Walmex fundamentally changed the retail sector, forcing SDS firms to cut their profit margins and/or innovate. Those unable to respond to this new environment tended to lose market share and, in some cases, disappear altogether. Second, partly in response to Walmex, many Mexican producers logged impressive efficiency gains during the previous decade. These gains came both from labour‐shedding and from innovation, which in turn was fuelled by innovative input suppliers and by multinationals bringing new products and processes from their headquarters to Mexico. Finally, although Mexican detergent exports captured an increasing share of the US detergent market over the past decade, Mexican sales in the US were inhibited by a combination of excessive shipping delays at the border and artificially high input prices (due to Mexican protection of domestic caustic soda suppliers). They were also held back by the major re‐tooling costs that Mexican producers would have had to incur in order to establish brand recognition among non‐Latin consumers, and in order to comply with zero phosphate laws in many regions of the US.