Gaining and Losing Competitive Advantage

Efficient policies to stimulate the competitiveness of firms require knowledge of future firm-strategies and a proper as-sessment of the location advantages of a country or region. Therefore, industry comparative advantage analysis needs to be complemented by firm competitive advantage analysis. This yields four hypotheses of firm strategies on the basis of the existing advantage combination. Detailed empirical analysis of a representative sample of Austrian manufacturing firms during 1990-2000 shows that changes in employment, value-added and exports are in line with the suggested de-velopment. Three of the 3-digit industries lost their advantages while seven industries gained advantages, yet overall in-dustry distribution has been remarkable stable over the four advantage combinations. In terms of number of firms, howe-ver, a large share (30%) of the total population shifts between advantage combinations even during short periods of time. The firm strategies outlined suggest a differentiated policy approach, yet the short-term dynamics revealed empirically imply a high potential for policy failure.Comparative Advantage; Competitiveness; Austria; Manufacturing

Multinational Enterprises and Their Domestic Counterparts: Past Research, Current Issues and Future Directions

This paper reviews and summarises the results of selected empirical studies on performance gaps between multinational enterprises and their domestic counterparts. Performance gaps arise in such fields as productivity, profitability, wages, skills, factor intensity and growth. Of central interest is the question to what extent is foreign ownership an explanatory factor of performance gaps? Empirical evidence supports the existence of performance gaps between foreign and domestic firms, yet foreign ownership is a much less important explanatory factor than normally assumed. Structural factors like industry, size and multi-nationality per se are more important. It is argued that such results are broadly consistent with those derived in the literatures on ownership change, on foreign entry and on spillovers. The concluding section discusses the normative issue whether there is a case for investment promotion policies to discriminate between firms on the basis of performance gaps by ownership.multinational enterprises; foreign ownership, domestic firms, Foreign Direct Investment; performance gaps; firm performance

EU enlargement and consequences for FDI assisted industrial development

Many of the new member states as well as candidate and accession countries of the EU are confident that membership will result in substantially increased inward foreign direct investment (FDI) in manufacturing. This paper discusses the policy issues and challenges that cohesion and accession countries face, applying lessons that by now have become mainstream in the parallel discussion of FDI-assisted development in the developing economies. We argue that globalisation has attenuated the benefits that accrue from EU membership for latecomers, and they must now compete for FDI not just with other European countries but also with non-EU emerging economies. We posit that they should not base their industrial development strategy on mere passive reliance of FDI flows without considering how to concatenate their industrial development and the nature of the MNE activities they attract.FDI, European Union, MNEs, multinationals, absorptive capacity, globalization, industrial development, EU enlargement, foreign investment, direct investment

Does the impact of employment protection legislation on FDI differ by skill-intensity of sectors? An empirical investigation

In line with previous literature this paper finds that employment protection legislation, especially regulations towards regular employment, has a negative impact on the volume of inward Foreign Direct Investment. Yet, we also find that the deterrent effect of inflexible labor markets is predominantly given for industries with relatively high shares of low skilled workers employed. This result is consistent with the view that high exit costs due to strict employment protection legislation matters particularly for mobile industries like the textile, food and wood industries which continuously seek for low labor cost locations.Foreign Direct Investment; Labour Market; OECD; Panel Econometrics

Direct Versus Indirect FDI: Impact On Domestic Exports And Employment

One of the specific characteristics of Austrian Foreign Direct Investment (FDI) abroad is that a large part is carried out by firms, which themselves are affiliates of foreign Multinational Enterprises (MNEs). Such investment is termed indirect FDI in order to distinguish it from direct FDI, made by Austrian-owned firms. The objective of this paper is to analyse, whether the relatively better domestic employment performance of domestic firms (direct FDI) compared to foreign-owned firms (indirect FDI) can be linked to FDI abroad. Based on an analysis of the sales and trade structure of a sample of Austrian investors in Central and East European Countries (CEECs), this paper tests the hypothesis that these two groups of investors have different motives to invest in CEECs and therefore their activities in CEECs differ by type (sales affiliate, production abroad) and consequently the employment effects at home. Regression results confirm that direct FDI are more strongly determined by labour costs and exhibit an employment pattern related to a deeper international division of labour (including production), while indirect FDI is based relatively more on market seeking investment. Empirical results also confirm that employment effects at home differ. The positive (negative) effect of one additional unit of parent (affiliate) sales on domestic employment for indirect FDI compared to direct FDI is larger (smaller). The - despite this empirical fact - relatively better domestic employment performance of direct FDI is explained by their superior sales performance, resulting from restructuring their international division of labour.Foreign Direct Investment

Attracting foreign direct investment: the public policy scope for South East European countries

Based on earlier empirical literature for Central and Eastern European Countries this paper attempts to analyze the likely impact of changes in corporate income taxes, in the endowment with production-related material infrastructure and in the institutional environment on Foreign Direct Investment (FDI) – and thus on one channel of regional development in South Eastern European Countries (SEECs). Specifically, we explore the scope for public policy to attract FDI separated by these three policy areas and across the SEECs. Our findings suggest that the potential for SEECs to attract FDI upon changes in these policy areas varies not only substantially between the three policy areas but also within the group of SEECs. Yet, as a general picture, most SEECs have substantial scope to attract FDI by improving their institutional environment as well as their infrastructure endowment. The tax instrument, in contrast, is largely exhausted as a means to attract FDI. Based on these findings some medium- and long-term policy issues are outlined.foreign direct investment, taxes, infrastructure, institutions, South Eastern European countries

Economic Impact of Investment Agreements

Based on a thorough analysis of theoretical arguments, this meta-analysis does not find a genuine empirical effect of Bilateral Investment Treaties on Foreign Direct Investment after correcting for publication selection bias.Series: Department of Economics Working Paper Serie

Does lowering dividend tax rates increase dividends repatriated?: evidence of intra-firm cross-border dividend repatriation policies by German Multinational Enterprises

This paper explores the impact dividend taxes exert on the dividends repatriated from foreign affiliates to their German parent company. Based on an augmented Lintner model of firms' dividend payout decisions, the paper focusses on cross-border intra-firm dividend payments of wholly-owned foreign affiliates in the manufacturing sector. Firm-level data from the Microdatabase Direct Investment (MiDi) of the Deutsche Bundesbank is used. Results firstly signal the validity of the original Lintner model for cross-border intra-firm dividend payments of German affiliates abroad, although the target payout ratio and the degree of dividend smoothing drops substantially once timeinvariant unobserved heterogeneity is controlled for. Secondly, results from an augmented Lintner model imply that increases in dividend taxes indeed have a statistically significant negative impact on the expected value of dividends repatriated: Evaluated at the overall mean dividend payment a one percentage point increase in the dividend tax rate would decrease dividends repatriated by about 3.5 percent. Evaluated at the mean of positive dividend payments a semi-elasticity of -1.6 is derived. --Dividend policy,taxes,lintner model,multinational enterprise

Company Taxation in the European Union

This paper investigates different measures of corporate tax burden ranging from the most basic ones such as the statutory tax rate to the effective tax rates. Each of these measures has advantages and disadvantages and they may lead to different rankings of countries. One of the reasons lies the fact that they measure different things. The comparison of the statutory tax rates to the effective ones for the EU-27 during the period of 1998-2009 sometimes reveals very significant differences between these indicators. Taking this into consideration, the paper suggests that corporate tax burden analysis should not be limited to the most basic and readily available measure in the form of the statutory tax rate. Different measures are tailored to answer different research questions. Moreover, the article presents changes of company taxation for the EU-27 within 1998-2009.W artykule dokonano przeglądu miar obciążenia podatkowego przedsiębiorstw. Rozpoczynając od wielkości najprostszych, jak stopa nominalna, a kończąc na miarach efektywnych. Każdy ze wskaźników ma wady i zalety, a jego wykorzystanie może prowadzić do różnego uszeregowania państw ze względu na poziom opodatkowania. Jedną z przyczyn jest fakt, iż wielkości te mierzą inne rzeczy. Porównanie stóp nominalnych i efektywnych w krajach UE-27, w latach 1998-2009, wskazuje na istnienie niekiedy bardzo istotnych różnic pomiędzy analizowanymi wskaźnikami. W związku z tym artykuł sugeruje, iż nie należy ograniczać analiz opodatkowania przedsiębiorstw, do najprostszego i najłatwiej dostępnego wskaźnika w postaci ustawowej stopy podatkowej a rozszerzyć je o miary efektywne. Wielkości te, stanowiące lepszy instrument do porównań międzynarodowych, umożliwiają przeprowadzenie wszechstronnych badań

Towards A Flexible Concept of Competitiveness

The purpose of the paper Is to work out the substance of the term "competitiveness" from a broad overview of concepts used. For most of the period theory in the field has comprised three quite separate strands, f.e. trade theory, price theory and Industrial organization. Starting with the theoretical background the substance of "competitiveness" is derived from a classfflcatlon of determinants used in theoretical and empirical studies. The main indicators are defined and explained. We conclude that a flexible rather than a generalizing concept of competitiveness should be used, because the explanatory power increases with the former. The research problem in question defines the subset of indicators to be chosen. Consequently, the subset varies from case to case and with it the concept of competitiveness.Series: Department of Economics Working Paper Serie