Home versus Host Country Effects of FDI: Searching for New Evidence of Productivity Spillovers

This paper investigates the effects of both inward and outward foreign direct investment (FDI) on productivity in manufacturing and services sectors. The main novelty is the analysis of the spillover effects of outward FDI that may occur outside the investing firms on the rest of the home country. Our results based on panel data from Estonia do not indicate much spillover effects of outward or inward FDI that are robust to different specifications of the estimated model. There is substantial heterogeneity in the findings on spillovers across different specifications of the model or sector studied.http://deepblue.lib.umich.edu/bitstream/2027.42/57200/1/wp820 .pd

The Link between Innovation and Productivity in Estonia’s Service Sectors

The emerging literature on the characteristics of innovation processes in the service sector has paid relatively little attention to the links between innovation and productivity. In this paper we investigate how the innovation-productivity relationship differs across various subbranches of the service sector. For the analysis we use the CDM structural model consisting of equations for innovation expenditures, innovation output, productivity and exports. We use data from the community innovation surveys for Estonia. We show that innovation is associated with increased productivity in the service sector. The results indicate surprisingly that the effect of innovation on productivity is stronger in the less knowledge-intensive service sectors, despite the lower frequency of innovative activities and the results of earlier literature. Non-technological innovation only plays a positive role in some specifications, despite its expected importance especially among the service firms. An additional positive channel of the effects of innovation on productivity may function through increased exports.innovation, services, productivity

Optimality and Overuse of Labour in Estonian Manufacturing Enterprises

labour, efficiency, employment, flexibility, Estonia

Home versus Host Country Effects of FDI: Searching for New Evidence of Productivity Spillovers

This paper investigates the effects of both inward and outward foreign direct investment (FDI) on productivity in manufacturing and services sectors. The main novelty is the analysis of the spillover effects of outward FDI that may occur outside the investing firms on the rest of the home country. Our results based on panel data from Estonia do not indicate much spillover effects of outward or inward FDI that are robust to different specifications of the estimated model. There is substantial heterogeneity in the findings on spillovers across different specifications of the model or sector studied.foreign direct investment, spillovers, home country effects, productivity

The Impact of Outward FDI on Home-Country Employment in a Low-Cost Transition Economy

The current extensive literature on the home-country employment effect of FDI focuses almost exclusively on the case of investments from high-income and high labour cost home countries. In our paper we analyse the home-country employment effect in Estonia as a lowcost medium-income transition economy. The data from the population of Estonian firms between 1995 and 2002 was studied with regression analysis and propensity score matching in order to construct an appropriate counterfactual for the firms that have invested abroad. The results indicate that in general, outward FDI had a positive impact on the home-country employment growth. Concerning direct investors (domestic firms investing abroad) and indirect investors (foreign-owned firms investing abroad), the former group had a stronger homecountry employment effect due to their smaller pre-investment size and because the subsidiaries of indirect investors are served from other locations rather than from Estonia. The positive employment effect was much stronger in the case of investments made after 1999 due to the better macro-economic performance of Estonia from the year 2000 onwards. Services firms demonstrated a stronger home-country employment effect than manufacturing firms. Our results imply that the logic of the outward investments from low-cost transition and developing economies differs from that of high-income countries.http://deepblue.lib.umich.edu/bitstream/2027.42/57253/1/wp873 .pd

Foreign direct investment and innovation in Central and eastern Europe : evidence from Estonia

A growing literature is trying to analyse the productivity gap between domestic and foreign firms with differences in innovation indicators. In our paper we analyse the relationship between inward and outward FDI at either company or industry level and the innovation behaviour of companies in Estonia. We use company-level data from three waves of the Community Innovation Surveys, which are combined with financial data from the Estonian Business Register and FDI data from the balance of payments statistics. For the analysis we apply a structural model involving equations on innovation expenditure, innovation outcome and productivity, and also innovation accounting and propensity score matching approaches. Our results show that the higher innovation output of foreign owned companies vanishes after various company characteristics are controlled for, but there were significant differences in innovation inputs such as the higher use of knowledge sourcing and the lower importance of various impeding factors. Outward investment has a positive influence on innovativeness among both domestic and foreign owned companiesinnovation, internationalisation, foreign direct investments, catching-up countries

The Impact of Outward FDI on Home-Country Employment in a Low-Cost Transition Economy

The current extensive literature on the home-country employment effect of FDI focuses almost exclusively on the case of investments from high-income and high labour cost home countries. In our paper we analyse the home-country employment effect in Estonia as a lowcost medium-income transition economy. The data from the population of Estonian firms between 1995 and 2002 was studied with regression analysis and propensity score matching in order to construct an appropriate counterfactual for the firms that have invested abroad. The results indicate that in general, outward FDI had a positive impact on the home-country employment growth. Concerning direct investors (domestic firms investing abroad) and indirect investors (foreign-owned firms investing abroad), the former group had a stronger homecountry employment effect due to their smaller pre-investment size and because the subsidiaries of indirect investors are served from other locations rather than from Estonia. The positive employment effect was much stronger in the case of investments made after 1999 due to the better macro-economic performance of Estonia from the year 2000 onwards. Services firms demonstrated a stronger home-country employment effect than manufacturing firms. Our results imply that the logic of the outward investments from low-cost transition and developing economies differs from that of high-income countries.outward foreign direct investments, employment effects of FDI, Central- and Eastern Europe, transition.

Reasons for Low Part-Time Employment in Eastern Europe – Any Role for Low Wages?

Many Eastern European countries are characterized by high wage inequalities and a relatively low proportion of labour force being employed on a part-time basis, yet there seem not be so far made any studies on the part time pay penalty. In this article we analyse whether there are any differences in the average wages of part-time and full-time employed in Estonia, a small Eastern European catching up economy. We use Estonian Labour Force Survey data from years 1997-2007; the part time wage gap is estimated by using Oaxaca-Blinder wage decompositions and propensity score matching. The results are quite different for males and females. For females the raw wage gap is in favour of part-timers. After taking into account various worker characteristics, the wage gap becomes even larger. For males the full-time raw premium exists, but it is to a large extent explained by the different labour market characteristics

The Impact of Start-up Grants on Firm Performance in Estonia

As in economic theory start-up enterprises have been seen as important sources of growth, the government support measures to enterprises have been a common practice around the world for decades. As the governmental support to enterprises is often of a considerable amount of money there is a need to assess its efficiency. In the present article we study the impact of Estonian start-up grants distributed in 2002 and 2003 on various indicators of firm performance with econometric methods, namely propensity score matching. We use the data from the Estonian Business Register in order to study the impact of start-up grants on various economic indicators like the number of employees, turnover, equity, fixed assets and firm survival. The results showed that the start-up grants proved to affect positively the number of employed people and turnover, yet the impact on productivity was negative. One implication of the study is that it is difficult to achieve different goals to the same extent with a single governmental gran

The Paradox of the Baltic States: Labour Market Flexibility but Protected Workers?

This article assesses the strictness of employment protection legislation and its actual enforcement in the Baltic States. We use information from the applicable legislation as well as employer surveys, data on the coverage of labour legislation and the practice of law enforcement. Overall strictness is close to the average of EU countries and relatively well aligned with EU regulations; individual and collective dismissals are relatively heavily and temporary forms of employment relatively weakly regulated. However, effective flexibility is increased by problems of enforcement: there is much evidence of violations of statutory regulations at enterprise level. In addition, the proportion of the workforce actually covered by the regulations is relatively low. In the Baltic States temporary employment is more widespread, implying a higher level of flexibility than the EU average