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

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

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

Outsiders' Response to Europe 1992. Case of Austria

This paper deals with the response of outsider countries to the EC'92 single-market act. The theory developed by Hirsch, Almor (1992) is tested with Austrian data. Several hypotheses on the change in the geographical orientation of firms since 1987, in particular the increase of foreign direct investment (FOi) into EC in order to overcome likely barriers to entry after completion of EC'92 is confirmed. Uncertainty concerning the EES agreement and Austrian membership in EC lead to a sharp increase of Austrian FOi in relation to domestic investment. Yet, a substantial share of total FDI flow was accounted for by the only "true" Austrian multinational in the late 80ies. This is a state-owned company which does not represent the private sector which has been - with a few exceptions - less dynamic in FOi so far. The hypothesis concerning the knowledge-intensity of production, the type of competition (costrelated, quality-related) and firm integration was also tested but did not find strong support.Series: Department of Economics Working Paper Serie

Stagnieren die Löhne aufgrund von Unternehmensmacht?

Die aktuelle Debatte über die Verhandlungsmacht von Arbeit und Kapital bezieht sich auf Faktoren wie steigende Einkommensungleichheit, das Auseinanderdriften von Löhnen und Produktivität und die geringen Lohnzuwachsraten in den letzten Jahren. Dieser Beitrag fokussiert auf vier Aspekte von Unternehmensmacht, die sowohl das Lohnwachstum als auch den Anteil der Löhne am Volkseinkommen dämpfen und damit die Einkommensungleichheit erhöhen: (1) Steigende Macht der Unternehmen auf Produktmärkten, (2) steigende Macht der Unternehmen auf Arbeitsmärkten, (3) sinkende Macht von ArbeitnehmerInnen und (4) neoliberale Arbeitsmarktpolitik