Productivity Effects of Internationalisation Through the Domestic Supply Chain: Evidence from Europe (with A. Theodorakopoulos)
This paper analyses whether indirect effects of internationalisation occur through the domestic supply chain. We investigate productivity effects for a given firm resulting from the import or export of intermediate inputs by domestic upstream and downstream industries. Using a rich sample of manufacturing firms in 19 EU countries, we find evidence that domestic access to intermediate inputs that are also destined to foreign countries is associated with higher levels of revenue productivity. Further, our results highlight two common, but important, misspecification biases: ignoring the dynamic nature of productivity and estimating a value-added instead of a gross-output production function.
Border Regimes and Indirect Productivity Effects from Foreign Direct Investment (with V.Purice)
Supplying inputs to foreign affiliates is consistently found to be an important source of productivity gains for domestic firms. We analyse the impact of border regimes on the existence and size of cross-border indirect productivity effects, exploiting variation in the pace and extent of European integration of seven Central and Eastern European countries and their neighbours during the period 2000-2010. EU-membership is a necessary condition for positive cross-border indirect productivity effects through backward linkages. Schengen area participation further magnifies cross-border effects. Our results bear testimony to the successful EU integration of CEECs and warn about potential productivity costs to local firms should border restrictions be reinstated.
Downstream Offshoring and Firm-level Employment (with B. Michel)
Forthcoming at Canadian Journal of Economics
When engaging in offshoring, firms do not only import intermediates they used to produce in-house, but also intermediates previously sourced from non-affiliated domestic suppliers. This leads to a negative demand shock for the latter. Prior empirical research has so far neglected this channel through which offshoring may affect employment. We label this demand shock `downstream offshoring' and develop a novel measure capturing its extent for a firm in a given upstream industry. According to our instrumental variables estimations for a representative sample of Belgian manufacturing firms over 1997-2007, downstream offshoring has a robust negative effect on employment.
new version May 2016; FEB UGent Working Paper 14/880
Does a Tax Credit Matter for Job Creation by Multinational Enterprises (with J. Konings, and C. Lecocq)
We analyze the impact of a tax credit on jobs in multinational enterprises. In particular, we exploit the introduction of the 'notional interest deduction' regime in Belgium in 2006, an 'allowance for corporate equity', which aimed to provide an attractive tax system for multinational enterprises active in Belgium. We study employment growth in foreign affiliates of MNEs in Belgium and use as a control group the affiliates of the same MNEs in France. We find that the tax credit has increased employment in Belgian affiliates by 6 to 8 percent over the period 2006-2008.
A constrained nonparametric regression analysis of factor-biased technical change and TFP growth at the firm-level (with Verschelde M., Dewitte R., Dumont M., and Rayp G.)
Forthcoming in European Journal of Operational Research as Firm-Heterogeneous Biased Technological Change: A Nonparametric Approach under Endogeneity
Using firm-level data for Belgium, we study the validity of Hicks neutrality in several sectors that cover the spectrum of knowledge intensity. We find that Hicks neutrality is clearly not supported by the data in different sectors. The results are not sensitive to altering the specification of the technology by including firm age and R&D into the analysis. We also reject Hicks neutrality for a balanced sample, pointing to ‘within-firm’ factor-biased technical change and we also find factor-biased technical change in the pre-crisis era, indicating that unobserved heterogeneity in demand does not drive the results. Overall, our results point towards low-skilled labour- saving and materials-using technical change. So far, this has received little attention and may be linked to offshoring and global value chain networks. Finally, we show that nonparametric estimates of TFP change that allow for factor biases support the evidence of the recent slowdown in TFP growth in many manufacturing sectors in Belgium. Estimations of TFP and technical change are shown to be sensitive to the estimation method and the specification of the factor bias of technical change.
Multinational Networks, Foreign, and Domestic Firms in Europe (with M. de Zwaan, K. Lenaerts, and V. Purice)
This paper introduces two datasets, AUGAMA, a panel of European firms for the period 1996-2011, and EUMULNET, a European Multinational Network data set. These datasets are constructed on the basis of the Amadeus database issued by Bureau Van Dijk Electronic Publishing. We document the process of building these data sets from the raw Amadeus data for 26 European countries. We show that the data sets adequately approximate the structure of the European economy across countries, regions, and industries as portrayed by data from Eurostat (Structural Business Statistics) and Cambridge Econometrics. As an illustration of possible application, we use the datasets to test a number of results from the theoretical literature regarding the productivity of multinational firms vis-a-vis domestic firms.
The Impact of European Regional Policy - A firm-level analysis (with M. De Zwaan)
One of the main objectives of the European Union (EU) is to reduce disparities between the levels of development of European regions. To this end, the EU spends nearly thirty per cent of its budget on regional policy. Using a carefully constructed firm–level database covering al- most all EU member states for the period 2000–2006, we consider the effect of EU regional policy on (the distribution of) firm–level productivity and employment in European regions using a matching design for treatment effects. We do not find any evidence for an average effect of regional policy, but rather we find considerable heterogeneity in the effects.
MNE Heterogeneity and FDI Spillovers (with K. Lenaerts)
published Review of World Economics
This paper analyzes for a panel of Romanian manufacturing firms whether the quality of foreign firms, measured by their productivity level, affects their potential as a source of indirect productivity effects on domestic firms. We find that only sufficiently productive foreign firms generate positive productivity effects on domestic supplier firms. The most productive foreign firms are the main source of productivity effects. Domestic firms with higher productivity levels also enjoy larger total positive productivity effects. When supplying foreign firms that are less productive than themselves, domestic firms experience zero to negative effects.
Investment-Cash Flow Sensitivity and the Cost of External Finance (with K. Mulier and K. Schoors)
published Journal of Banking and Finance
We contribute to the investment-cash flow sensitivity debate by creating a new index to identify the supply of finance to firms. We find that firms that are considered constrained according to our index pay a higher interest rate on their debt, and display the highest investment-cash flow sensitivities. Moreover, these findings are not driven by the possible information content of cash flow regarding investment opportunities as we control for oppor- tunities by augmenting our empirical model with firm-level employment growth. We thus provide new evidence consistent with Campbell et al. (2012) that the cost of capital is the driving force behind investment-cash flow sensitivity.
The contribution of start-ups and young firms to industry–level efficiency growth (with Verschelde M., Dumont M., and Rayp G.)
published Applied Economics
This paper examines the impact of start-ups (1 up to 5 years active) and young firms (6 up to 10 years active) on industry-level efficiency growth in six EU countries. Evidence indicates that entrants gradually raise their efficiency level through a phase of learning and adaptation. Starting firms have a high probability to be forced to exit at an early stage but a small share of surviving start-ups explain a disproportionate part of industry-level efficiency dynamics. Results show that efficiency growth of young firms is more important for industry-level efficiency than entry and exit. The relative contribution of efficiency growth of young firms is the only component that is found to have a statistically significant positive impact on industry-level efficiency.
Does it Take Time to Travel Distance? Geography, Entry Timing and Knowledge Spillovers (with V. Purice)
published Papers in Regional Science
This paper investigates the effect of foreign direct investment on the productivity of local firms. We decompose traditional country-wide spillover measures in different components according to both distance between foreign and domestic firms and time- since-foreign-entry. We find larger and faster spillover effects for local suppliers of foreign firms at shorter distance, driven mainly by recent foreign entrants. Irrespective of distance, foreign firms of medium maturity generate backward spillover effects that fade away with longer presence. A positive effect on local competitors is not significantly affected by distance and requires the presence of mature foreign firms.
Supply Chain Fragmentation and Spillovers from Foreign Direct Investment (with K. Lenaerts)
published Economic Systems Research
The literature on FDI spillovers to domestic firm productivity increasingly points to supply chain linkages with multinational firms as the main channel for positive effects. To determine local and multinational firms’ relative position in the supply chain, the literature relies on input-output tables. For a panel of Romanian firms we show that the level of industry ag- gregation in these tables and the commonly applied definitions for vertical spillovers bear an important impact on results. The use of aggregated input-output tables gives rise to significant and large horizontal spillover effects, whereas backward spillovers tend to be small and only marginally significant. Using detailed input-output tables, backward spillovers become highly significant and dominate horizontal spillover effects whose impact is considerably reduced. Assuming that the true nature of the backward spillover is to be found in a supplier-customer relationship, we show that -for the detailed IO-tables- including within-industry intermediate supply (excluded in the commonly used definition) results in a larger impact of the backward spillover, whereas the horizontal spillovers disappear.
European competitiveness: A semiparametric stochastic metafrontier analysis at the firm level (with Verschelde M., Dumont M., and Rayp G.)
published Journal of Productivity Analysis
In this paper a semiparametric stochastic metafrontier approach is used to ob- tain insight into firm-level competitiveness in Europe. We differ from standard TFP studies at the firm level as we simultaneously allow for inefficiency, noise and do not impose a functional form on the input-output relation. Using AMADEUS firm-level data covering 10 manufacturing sectors from seven EU15 countries, (i) we document substantial, persistent differences in competitiveness (with Belgium and Germany as benchmark countries and Spain lagging behind) and a wide technology gap, (ii) we confirm the absence of convergence in TFP between the seven selected countries, (iii) we confirm that the technology gap is more pronounced for smaller firms, (iv) we highlight the role of post-entry growth for competitiveness.