Determinants and Effects of Foreign Direct Investment: Evidence from German Firm-Level Data
Claudia M. Buch, J. Kleinert, A. Lipponer
Economic Policy,
No. 41,
2005
Abstract
Foreign direct investment is an essential aspect of ‘globalization’ yet its empirical determinants are not well understood. What we do know is based either on poor data for a wide range of nations, or good data for the US and Swedish cases. In this paper, we provide evidence on the determinants of the activities of German multinational firms by using a newly available firm-level data set from the Deutsche Bundesbank. The specific goal of this paper is to demonstrate the relative role of country-level and firm-level determinants of foreign direct investment. We focus on three main questions: First, what are the main driving forces of German firms’ multinational activities? Second, is there evidence that sector-level and firm-level factors shape internationalization patterns? Third, is there evidence of agglomeration effects in the foreign activities of German firms? We find that the market access motive for internationalization dominates. Firms move abroad mainly to gain better access to large foreign markets. Cost-saving motives, however, are important for some manufacturing sectors. Our results strongly suggest that firm-level heterogeneity has an important influence on internationalization patterns – as stressed by recent models of international trade. We also find positive agglomeration effects for the activities of German firms that stem from the number of other German firms that are active on a given foreign market. In terms of lessons for economic policy, our results show that lowering barriers to the integration of markets and encouraging the formation of human capital can promote the activities of multinational firms. However, our results related to the heterogeneity of firms and agglomeration tendencies show that it might be difficult to fine-tune policies directed at the exploitation of synergies and at the creation of clusters of foreign firms.
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Firm-Specific Determinants of Productivity Gaps between East and West German Industrial Branches
Johannes Stephan, Karin Szalai
IWH Discussion Papers,
No. 183,
2003
Abstract
Industrial productivity levels of formerly socialist economies in Central East Europe (including East Germany) are considerably lower than in the more mature Western economies. This research aims at assessing the reasons for lower productivities at the firm level: what are the firm-specific determinants of productivity gaps. To assess this, we have conducted an extensive field study and focussed on a selection of two important manufacturing industries, namely machinery manufacturers and furniture manufacturers, and on the construction industry. Using the data generated in field work, we test a set of determinant-candidates which were derived from theory and prior research in that topic. Our analysis uses the simplest version of the matched-pair approach, in which first hypothesis about relevant productivity level-determinants are tested. In a second step, positively tested hypothesis are further assessed in terms of whether they also constitute firm-specific determinants of the apparent gaps between the firms in our Eastern and such in our Western panels. Our results suggest that the quality of human capital plays an important role in all three industrial branches assessed. Amongst manufacturing firms, networking activities and the use of modern technologies for communication are important reasons for the lower levels of labour productivity in the East. The intensity of long-term strategic planning on behalf of the management turned out to be relevant only for machinery manufacturers. Product and process innovations unexpectedly exhibit an ambiguous picture, as did the extent of specialisation on a small number of products in the firms’ portfolio and the intensity of competition.
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The Effect of Expected Effective Corporate Tax Rates on Incremental Financing Decisions
Reint E. Gropp
IMF Staff Papers,
No. 4,
1997
Abstract
This paper uses U.S. panel data to estimate the effect of expected effective corporate tax rates on the amount of debt issued by firms. The paper directly estimates expected corporate tax rates using rational expectations. The estimated measures of expected effective tax rates of firms are related to a continuous measure of incremental debt financing. The paper finds that expected effective tax rates are significantly and positively related to a higher level of debt financing. Simulations suggest that debt issues would double if firms were unable to shield profits and actually faced the statutory tax rate.
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Uncovered Workers in Plants Covered by Collective Bargaining: Who Are They and How Do They Fare?
Boris Hirsch, Philipp Lentge, Claus Schnabel
Abstract
In Germany, employers used to pay union members and non-members in a plant the same union wage in order to prevent workers from joining unions. Using recent administrative data, we investigate which workers in firms covered by collective bargaining agreements still individually benefit from these union agreements, which workers are not covered anymore, and what this means for their wages. We show that about 9 percent of workers in plants with collective agreements do not enjoy individual coverage (and thus the union wage) anymore. Econometric analyses with unconditional quantile regressions and firm-fixed-effects estimations demonstrate that not being individually covered by a collective agreement has serious wage implications for most workers. Low-wage non-union workers and those at low hierarchy levels particularly suffer since employers abstain from extending union wages to them in order to pay lower wages. This jeopardizes unions' goal of protecting all disadvantaged workers.
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