Long Run and Short Effects in Static Panel Models

For short and fat panels the Mundlak model can be viewed as an approximation of a general dynamic autoregressive distributed lag model. We give an exact interpretation of short run and long effects and provide simulations to assess the quality of the approximation of the long run and short run effects by the parameters of the Mundlak Model.Random Effects Models, Mundlak Model, Panel Econometrics

The determinants of intra-firm trade: in search for export-import magnification effects

This paper studies the determinants of Austrian bilateral intra-firm trade in a panel of industry-level intra-firm goods trade flows. Economic size, unit labor costs and the magnification effects originating from multiple border crossing of sequentially finished products are found to be the most important determinants of trade within multinational firms. Especially, our evidence lends support to multiple border crossing of sequentially finished products, an argument that recently has been put forward in the outsourcing literature. --

Trade, multinational sales, and FDI in a three-factors model

The overwhelming importance of multinational activities as well as the coexistence of exporters and multinationals within the developed countries demand for theoretical models which provide a convincing explanation of simultaneous two-way trade and horizontal multinational activities. We present a model with three factors of production to disentangle the twofold importance of headquarters for their affiliates into a know-how and a capital serving part (FDI). Multinationals trade-off the incentives for a high proximity to the market and a concentraion of production facilities. We simulate the model to derive predictions about the impact of trade costs, plant set-up costs, relative country size and factor endowments on the factor prices of labor, human and physical capital on the one hand and three main output variables, exports, multination sales and FDI, on the other. We find that the effects are not uniform for multinational sales and FDI. Hence, one shuld be careful with interpreting the simulation results of previous work for sales as simply holding for FDI as well.multinationals; new trade theory; endogenous location

Labor Unions and the Scale and Scope of Multi-Product Firms

This paper sets up a general oligopolistic equilibrium model with multi-product firms and union wage setting in a subset of industries. By claiming a wage premium, labor unions enforce a decline in firm scale and scope and thus dampen industrial output, with negative feedback effects on the competitive wage and positive ones on firm scale and scope in non-unionized sectors. In this setting, a decline in union density raises labor demand and thus wages in non-unionized as well as unionized industries. This induces a general decline in firm scale and scope, with the respective reduction being more pronounced in non-unionized industries. Aside from analyzing the consequences of deunionization in a closed economy, we also shed light on how multi-product firms respond to a country’s movement from autarky to free trade with a symmetric partner country. Access to international trade stimulates labor demand and raises the competitive as well as the union wage, thereby lowering firm scope in all industries. Since the labor market distortion becomes less severe, unionized and non-unionized firms become more similar in the size of their product range. While scope effects are unambiguous, adjustments in firm scale turn out to be less clearcut and inter alia depend on the degree of product differentiation.Multi-product firms, General oligopolistic equilibrium, Labor unions, International trade

Structural Estimation of Gravity Models with Path-Dependent Market Entry

This paper develops a structural empirical general equilibrium model of aggregate bilateral trade with path dependence of country-pair level exporter status. Such path dependence is motivated through informational costs about serving a foreign market for first-time entry of (firms in) an export market versus continued export services to that market. We embed the theoretical model into a structural dynamic stochastic econometric model of bilateral selection into import markets and apply it to a data-set of aggregate bilateral exports among 120 countries over the period 1995-2004. In particular, we disentangle the role of changes in trade costs, in labor endowments, and in total factor productivity for trade, bilateral market entry, numbers of firms active, and welfare. Dynamic gains from trade differ significantly from static ones, and path-dependence in market entry cushions effects of impulses in fundamental variables that are detrimental to bilateral trade.Bilateral trade flows, Gravity equation, Dynamic random effects model, Sample selection

Do Fiscal Transfers Alleviate Business Tax Competition? Evidence from Germany

The paper empirically analyzes the incentive effects of equalizing transfers on business tax policy by exploiting a natural experiment in the state of Lower Saxony which changed its equalization formula as of 1999. We resort to within-state and across-state difference-in-difference estimates to identify the reform effect on municipalities' business tax rates. Confirming the theoretical prediction, the reform had a significant impact on the municipalities’ tax policy in the four years after the reform with a “phasing out” of the effect starting in the fourth to fifth year. The finding is robust to various alternative specifications.equalization grants, tax competition, local public finance, fiscal capacity equalization

Knowledge-Capital Meets New Economic Geography

We incorporate the now standard knowledge-capital model of multinational firms in a new economic geography setting. The theoretical predictions of our model suggest that unskilled labor mobility leads to less concentration of production than skilled labor mobility does. This is in line with empirical evidence that agglomeration of production among European nations is less pronounced than among US regions. Our model shows that the different patterns in labor mobility can explain actual differences in the spreading of industries. According to our welfare analysis, trade liberalization is likely Pareto-improving for a larger (smaller) country with mobile unskilled (skilled) labor. In the supplement, we investigate the sensitivity of our results in several respects. In the first section, we provide the figures of real factor rewards for the trade liberalization scenarios discussed in and underlying Figures 7 and 8 of the paper. Second, in Figures 3(n) - 5(v) (6(n) - 6b(v)) we infer the existence, or non-existence, of each firm type separately in the τ - λ L-space (τ - λ S-space) for country i firms and all four scenarios of firm regimes. Third, we illustrate how changes in the parameters μ, ρ and σ affect the outcome. Finally, we analyze how the asymmetric endowment with the immobile factor influences the core-periphery patterns.knowledge-capital model, new economic geography, unskilled labor mobility, skilled labor mobility

Corporate Taxation and Multinational Activity

This paper assesses the impact of corporate taxation on multinational activity. A numerically solvable general equilibrium model of trade and multinational firms is used to incorporate the following components of corporate taxation: parent and host country statutory corporate tax rates, withholding tax rates, and parent and host country depreciation allowances. We account for their differential impact under alternative methods of double taxation relief (i.e., credit, exemption, and deduction). The hypotheses regarding the effects of changes in the tax parameters are investigated in a panel of bilateral OECD outbound stocks of foreign direct investment (FDI) from 1991 to 2002. For this, we compile annual information on taxation to construct the largest existing panel of tax parameters at the bilateral level based on national tax law and bilateral tax treaties. Our findings indicate that the parent country's statutory corporate tax rate tends to foster outward FDI, whereas the host country's statutory corporate and withholding tax rates are negatively associated with outward FDI. Depreciation allowances exert a significant impact on FDI, as hypothesized.corporate taxation, foreign, direct investment, panel econometrics