Market Concentration and Innovation in Transnational Corporations: Evidence from Foreign Affiliates in Central and Eastern Europe
Liviu Voinea, Johannes Stephan
Research on Knowledge, Innovation and Internationalization (Progress in International Business Research, Volume 4),
2009
Abstract
Purpose – The main research question of this contribution is whether local market concentration influences R&D and innovation activities of foreign affiliates of transnational companies.
Methodology/approach – We focus on transition economies and use discriminant function analysis to investigate differences in the innovation activity of foreign affiliates operating in concentrated markets, compared to firms operating in nonconcentrated markets. The database consists of the results of a questionnaire administered to a representative sample of foreign affiliates in a selection of five transition economies.
Findings – We find that foreign affiliates in more concentrated markets, when compared to foreign affiliates in less concentrated markets, export more to their own foreign investor's network, do more basic and applied research, use more of the existing technology already incorporated in the products of their own foreign investor's network, do less process innovation, and acquire less knowledge from abroad.
Research limitations/implications – The results may be specific to transition economies only.
Practical implications – The main implications of these results are that host country market concentration stimulates intranetwork knowledge diffusion (with a risk of transfer pricing), while more intense competition stimulates knowledge creation (at least as far as process innovation is concerned) and knowledge absorption from outside the affiliates' own network. Policy makers should focus their support policies on companies in more competitive sectors, as they are more likely to transfer new technologies.
Originality/value – It contributes to the literature on the relationship between market concentration and innovation, based on a unique survey database of foreign affiliates of transnational corporations operating in Eastern Europe.
Read article
Margins of international banking: Is there a productivity pecking order in banking, too?
Claudia M. Buch
Bundesbank Discussion Paper 12/2009,
2009
Abstract
Modern trade theory emphasizes firm-level productivity differentials to explain
the cross-border activities of non-financial firms. This study tests whether a
productivity pecking order also determines international banking activities. Using
a novel dataset that contains all German banks’ international activities, we
estimate the ordered probability of a presence abroad (extensive margin) and the
volume of international assets (intensive margin). Methodologically, we enrich the
conventional Heckman selection model to account for the self-selection of banks
into different modes of foreign activities using an ordered probit. Four main
findings emerge. First, similar to results for non-financial firms, a productivity
pecking order drives bank internationalization. Second, only a few non-financial
firms engage in international trade, but many banks hold international assets, and
only a few large banks engage in foreign direct investment. Third, in addition to
productivity, risk factors matter for international banking. Fourth, gravity-type
variables have an important impact on international banking activities.
Read article
The Gender Pay Gap under Duopsony: Joan Robinson meets Harold Hotelling
Boris Hirsch
Scottish Journal of Political Economy,
No. 5,
2009
Abstract
This paper presents an alternative explanation of the gender pay gap resting on a simple Hotelling-style duopsony model of the labour market. Since there are only two employers, equally productive women and men have to commute and face travel cost to do so. We assume that some women have higher travel cost, e.g., due to more domestic responsibilities. Employers exploit that women on average are less inclined to commute and offer lower wages to all women. Since women's firm-level labour supply is for this reason less wage-elastic, this model is in line with Robinson's explanation of wage discrimination.
Read article
Organization and Financing of Innovation, and the Choice between Corporate and Independent Venture Capital
Paolo Fulghieri, Merih Sevilir
Journal of Financial and Quantitative Analysis,
No. 6,
2009
Abstract
This paper examines the impact of competition on the optimal organization and financing structures in innovation-intensive industries. We show that as an optimal response to competition, firms may choose external organization structures established in collaboration with specialized start-ups where they provide start-up financing from their own resources. As the intensity of the competition to innovate increases, firms move from internal to external organization of projects to increase the speed of product innovation and to obtain a competitive advantage with respect to rival firms in their industry. We also show that as the level of competition increases, firms provide a higher level of financing for externally organized projects in the form of corporate venture capital (CVC). Our results help explain the emergence of organization and financing arrangements such as CVC and strategic alliances, where large established firms organize their projects in collaboration with external specialized firms and provide financing for externally organized projects from their own internal resources.
Read article
Financial constraints and the margins of FDI
Claudia M. Buch
Bundesbank Discussion Paper 29/2009,
2009
Abstract
Recent literature on multinational firms has stressed the importance of low productivity as a barrier to the cross-border expansion of firms. But firms may also need external finance to shoulder the costs of entering foreign markets. We develop a model of multinational firms facing real and financial barriers to foreign direct investment (FDI), and we analyze their impact on the FDI decision (the extensive margin) and foreign affiliate sales (the intensive margin). We provide empirical evidence based on a detailed dataset of German multinationals which contains information on parent-level and affiliate-level financial constraints as well as about the location the foreign affiliates. We find that financial factors constrain firms’ foreign investment decisions, an effect felt in particular by large firms. Financial constraints at the parent level matter for the extensive, but less
so for the intensive margin. For the intensive margin, financial constraints at the affiliate level are relatively more important.
Read article
Barriers to Internationalization: Firm-Level Evidence from Germany
Claudia M. Buch
IAW Discussion Paper No. 52,
2009
Abstract
Exporters and multinationals are larger and more productive than their domestic
counterparts. In addition to productivity, financial constraints and labor market
constraints might constitute barriers to entry into foreign markets. We present new
empirical evidence on the extensive and intensive margin of exports and FDI based on detailed micro-level data of German firms. Our paper has three main findings. First, in line with earlier literature, we find a positive impact of firm size and productivity on firms’ international activities. Second, small firms suffer more frequently from financial constraints than bigger firms, but financial conditions have no strong effect on internationalization. Third, labor market constraints constitute a more severe barrier to foreign activities than financial constraints. Being covered by collective bargaining particularly impedes international activities.
Read article
The Euro and the Competitiveness of European Firms
Filippo di Mauro, Gianmarco Ottaviano, Daria Taglioni
Economic Policy,
No. 57,
2009
Abstract
Much attention has been paid to the impact of a single currency on actual trade volumes. Lower trade costs, however, matter over and beyond their effects on trade flows: as less productive firms are forced out of business by the tougher competitive conditions of international markets, economic integration fosters lower prices and higher average productivity. We assess the quantitative relevance of these effects calibrating a general equilibrium model using country, sector and firm-level empirical observations. The euro turns out to have increased the overall competitiveness of Eurozone firms, and the effects differ along interesting dimensions: they tend to be stronger for countries which are smaller or with better access to foreign markets, and for firms which specialize in sectors where international competition is fiercer and barriers to entry lower.— Gianmarco I.P. Ottaviano, Daria Taglioni and Filippo di Mauro
Read article
Globalisation and the Competitiveness of the Euro Area
Filippo di Mauro, Katrin Forster
ECB Occasional Paper Series,
No. 97,
2008
Abstract
Against the background of increasing competition and other significant structural changes implied by globalisation, maintaining and enhancing competitiveness has evolved into one of the prime concerns in most countries. Following up on previous work (see in particular ECB Occasional Papers No. 30 and No. 55), this Occasional Paper examines the latest developments and prospects for the competitiveness and trade performance of the euro area and the euro area countries. Starting from an analysis of most commonly used, traditional competitiveness indicators, the paper largely confirms the findings of previous studies that there have been substantial adjustments in euro area trade. Euro area firms have taken advantage of the new opportunities offered by globalisation, and have at the same time been increasingly challenged by emerging economies. This is primarily reflected in the loss of export market shares which have been recorded over the last decade. While these can partly be related to the losses in the euro area's price competitiveness, further adjustment also seems warranted with regard to the export specialisation. Compared with other advanced competitors, the euro area remains relatively more specialised in labour intensive categories of goods and has shown only a few signs of a stronger specialisation in research-intensive goods. Nevertheless, the paper generally calls for a more cautious approach when assessing the prospects for euro area competitiveness, as globalisation has made it increasingly difficult to define and measure competitiveness. Stressing the need to take a broader view on competitiveness, specifically with a stronger emphasis on productivity performance, the paper also introduces a more elaborate framework that takes into account the interactions between country-specific factors and firm-level productivity. It thus makes it possible to construct more broadly defined competitiveness measures. Pointing to four key factors determining the global competitiveness of euro area countries - market accessibility, market size, technological leadership of firms and institutional set-up - the analysis provides further arguments for continuing efforts to increase market integration and strengthen the competitive environment within Europe as a mean of enhancing resource allocation and coping with the challenges globalisation creates.
Read article
The Changing Role of the Exchange Rate in a Globalised Economy
Irina Bunda, Filippo di Mauro, Rasmus Rüffer
ECB Occasional Paper Series,
No. 94,
2008
Abstract
In addition to its direct effects on the global trading and production structure, the ongoing process of globalisation may have important implications for the interaction of exchange rates and the overall economy. This paper presents evidence regarding possible changes in the role of exchange rates in a more globalised economy. First, it analyses the link between exchange rates and prices, showing that there is at most a moderate decline in exchange rate pass-through for the euro area. Next, it turns to the effect of exchange rate changes on trade flows. The findings indicate that the responsiveness of euro area exports to exchange rate changes may have declined somewhat as a result of globalisation, reflecting mainly shifts in the geographical and sectoral composition of trade flows. The paper also provides a firm-level analysis of the impact of exchange rate changes on corporate profits, which suggests that overall this relationship appears to be relatively stable over time, although there are important cross-country differences. In addition, it studies the overall impact of exchange rates on GDP and the potential role of valuation effects as a transmission channel in the case of the euro area. JEL Classification: E3, F15, F31
Read article