Determinants of firms' inputs sourcing choices: the role of institutional and regulatory factors. ESRI WP599, September 2018

Using the theoretical framework of global sourcing with firm heterogeneity, we examine determinants of inputs sourcing choices of manufacturing firms established in the EU countries. To this purpose, we combine information on the ownership structure and company accounts from the Orbis data set with input-output data from the World Input-Output Tables (WIOT) and with information on institutional and regulatory factors at country level provided by international organisations. Our research findings indicate that manufacturing firms that source inputs intra-firm via foreign direct investment (FDI) across EU countries are larger, more productive, more intensive in tangible and intangible capital and less intensive in skills than manufacturing firms that source inputs at arm’s length. The probability of integrating inputs by manufacturing firms across EU countries is positively linked with the strength of legal systems, flexibility of labour markets and negatively linked to corporate tax rates and financial development in host countries. Less efficient insolvency procedures are associated with a higher probability of sourcing inputs intra-firm via FDI relative to arm’s length sourcing. The probability of sourcing inputs via FDI is negatively linked to sectoral restrictions to FDI and positively linked to the impact of service regulations on downstream industries

The impact of investment in innovation on productivity: firm level evidence from Ireland. ESRI WP571, September 2017

This paper examines the relationship between investment in innovation and productivity across firms in Ireland. We estimate a structural model using information from three linked micro data sets over the period 2005-2012 and identify the relationships between investment in innovation, innovation outputs and productivity. Our results indicate that innovation is positively linked to productivity. This result holds for all types of innovation and for both R&D and non-R&D expenditures. The innovation-related productivity gains range from 16.2 per cent to 35.4 per cent. The strongest link between innovation and productivity is found for firms with R&D spending and with product innovation

PRODUCTIVITY SPILLOVERS FROM MULTINATIONAL ACTIVITY TO LOCAL FIRMS IN IRELAND. OECD PRODUCTIVITY WORKING PAPERS No. 16, November 2018

As well as their direct effects on output and employment, the attraction of foreign direct investment is sometimes argued to provide further economic benefits through spillover effects that potentially increase the productivity performance of domestic firms. Empirical evidence on these indirect effects has however tended to be mixed. This paper uses Irish firm-level data on both manufacturing and services firms to re-examine and update evidence on intra-industry and intra-region spillovers and then extends the previous research by examining if spillovers are more likely to occur through supply chain linkages. In addition, we consider the heterogeneity of investors and allow the spillover effects to differ for foreign affiliates owned by EU and non-EU based parent companies. Finally, we examine the role of domestic firms’ absorptive capacity in conditioning the effects of spillovers from multinationals on their productivity. Overall, we find limited evidence or a negative link between the presence of foreign-owned firms and the productivity of domestic firms in the same industry or the same region. Examining forward and backward linkages through supply chains indicates that on average, selling to foreign-owned firms had a positive effect while buying from foreign owned firms had a negative effect on the average productivity of domestic firms. Finally, considering the absorptive capacity of domestic firms and allowing the spillover effects to differ depending on the origin of the parent companies, we find that the positive productivity spillovers come from supply chain linkages between domestic firms investing in R&D and foreign affiliates of multinationals with headquarters based outside the EU

Productivity spillovers from multinational activity to indigenous firms in Ireland. ESRI WP587, March 2018

As well as their direct effects on output and employment, the attraction of foreign direct investment is sometimes argued to provide further economic benefits through spillover effects that potentially increase the productivity performance of domestic firms. Empirical evidence on this has however tended to be mixed. This paper uses Irish firm-level data on both manufacturing and services firms to re-examine and update tests of intraindustry and intra-region spillovers and then extends the previous research by examining if spillovers are more likely to occur through supply chain linkages. We further test for the sensitivity of these vertical spillover effects to alternative supply chain measures. Overall, we find fairly limited evidence of a link between the presence of foreign-owned firms and the performance of domestic firms with considerable sensitivity of results to changes in specification. Important variation across sectors is identified, however, with more robust evidence of intra-industry spillovers on the productivity performance of firms in services. Examining forward and backward linkages through supply chains indicates some negative impacts from obtaining supplies from and supplying foreign-owned firms although these are mitigated for domestic firms which invest in R&D, which appears to increase the absorptive capacity of the firms to benefit from productivity spillovers

Go ahead and trade: The effect of uncertainty removal in the EU’s GSP scheme. ESRI Working Paper 691 December 2020.

We estimate the trade effect of removing uncertainty about future trading conditions in the context of the 2014 reform of the Generalized System of Preferences (GSP) of the European Union (EU). EU GSP members receive non-reciprocal trade preferences (NRTPs), but only as long as they are not too competitive; i.e. they will graduate in case their share of EU GSP imports in a sector exceeds a certain threshold. However, the 2014 reform removed the threat of these competitiveness-related graduations for members of the so-called “GSP+”, a sub-scheme of the main programme. We find that the reform increased EU imports from GSP+ countries by about 45% on average whilst tariffs stayed the same. This trade impact is driven by the country-sector pairs most exposed to NRTPs uncertainty prior to the reform. The effect is robust to taking into account other aspects of the reform, such as the reduction in GSP membership and changes in tariff margins, respectively

Firms and trade in downturns

My research lies at the intersection of international trade and industrial economics. I contribute to the firms and trade literature, both empirically and theoretically, focusing on the impact of the financial crisis of 2008-09 on various dimensions of firms' activities. In particular, I study the response of international trade to the shock, focusing on the reaction of importers to the reduction in demand. Additionally, I explore the impact of the crisis on firms' innovation decisions, together with the implications of this for firms' export participation. I pursue these avenues of research as the Great Recession constituted a large shock, impacting severely various aspects of firms' operations. This allowed me to study the impacts of the fall in demand on trade, and the effects of liquidity scarcity on innovation and exporting. In Chapter 2 I exploit detailed Slovenian custom data to explore the product dimension of the trade crisis. I find that imports of inputs accounting for a larger share of firms' costs underwent an enhanced reaction during the event. This finding is explained with an inventory adjustment model which predicts a more than proportionate adjustment for high cost-share inputs because of their higher storage costs. In the Chapter 3 and 4, I concentrate on the effects of the 2008 crisis on firms' innovation decisions and selection into exporting. I augment the Melitz and Ottaviano (2008) framework to include process innovation subject to liquidity constraints, and show that a reduction in liquidity for innovation has opposing outcomes on innovators and exporters: innovative activity is reduced but entry into exporting is stimulated by a reduction in the industry-wide degree of competition. Evidence supporting these theoretical predictions is found in an empirical analysis with Slovenian firm level data in Chapter 4

Investment in knowledge-based capital and productivity: firm-level evidence from a small open economy

This paper examines the responsiveness of firm productivity to investment in knowledge-based capital (KBC) including a range of intangible assets such as research and development (R&D), intellectual property assets, computer software, organizational, and branding capital. A dynamic econometric model is estimated with micro-data from Ireland over the period 2006–2012. Ceteris paribus, the estimated average elasticity of productivity with respect to investment in KBC per employee is 0.3. In comparison to previous empirical studies, this paper goes beyond the representative firm approach and accounts for the heterogeneous behavior of firms which differ by ownership, size, export participation, and sector of activity. Further, the analysis finds that investing simultaneously in multiple KBC assets has complementary as well as substitution effects on firm productivity, with different interdependence patterns for specific investment combinations across groups of firms and sectors

International trade regulation and job creation

Trade regulation can create jobs in the sectors it protects or promotes, but almost always at the expense of destroying a roughly equivalent number of jobs elsewhere in the economy. At a product-specific or micro level and in the short term, controlling trade could reduce the offending imports and save jobs, but for the economy as a whole and in the long term, this has neither theoretical support nor evidence in its favor. Given that protection may have other—usually adverse—effects, understanding the difficulties in using it to manage employment is important for economic policy