Causal Link between Exporting and Innovation Activity. Evidence from Slovenian Firms

In this paper we investigate the causal relationship between firm's innovation and exporting activity by using detailed firm-level data on innovation activity, financial variables and information on trade for Slovenian firms in 1996-2002. We employ the bivariate probit regression on a system of innovation and exporting equations as well as matching procedures to tease out the direction of causality between exporting status and innovation activity. Our results suggest a strong positive relationship between exporting and innovation activity in both directions, while results on the impacts of lagged export (or innovation) status on the probability to start innovating (or exporting) are less conclusive. In other words, whereby innovating status increases the probability of exporting it does not increase the probability of becoming a first time exporter, and vice versa. The results remain unaltered also after allowing for discrimination between product and process innovation.DYNREG, firm heterogeneity, innovation, exporting, matching

Recovery and Growth in the Manufacturing Sectors of CEE Transition Economies: Short and Long-Term Efficiency Improving Factors

The first aim of the paper was to explain a cross-sector differences in evolution of gross product of Slovenian manufacturing sectors in the period 1992-98 using different short and long-term factors. Results pointed out great importance of initial conditions (sector orientation to convertible or non-convertible markets, and distorted production structure), as well as structural reforms and macroeconomic and institutional environment. Added long-term factors revealed positive association with short term output growth during the transition period – it is obvious that these factors (FDI, exports, imports of inputs, cooperation) create channels for the transfer of technology, improving the efficiency of production. It turned out also that quality improving exports to the EU countries is significantly positively correlated with the sector output performance. The paper further studies the importance of both direct and indirect means of technology transfer for transition countries and its impact on productivity growth of local firms. Using firm-level data for eight transition countries for the period 1994 - 1998 and employing growth accounting approach, the paper explores the importance of FDI, intra-industry knowledge spillovers from FDI, firm's own R&D accumulation and of international R&D spillovers through trade for firm's TFP growth. Time-invariant firmspecific effects are taken into account using panel data techniques, and potential selection bias for foreign investment decisions is corrected by using a generalized Heckman two-step procedure. After controlling for common economic policy influences and industry effects, our results confirm for five advanced transition countries that technology is being transferred to domestic firms primarily through direct foreign linkages. Evidence on some international R&D spillovers through arm-length trade has been found for four transition countries. Our results also suggest that FDI do not generate positive intra-industry spillovers for domestic firms. Moreover, for three transition countries FDI were found to have significant crowding-out effects for local firms in the same industry.

Knowledge Transfer, Innovation and Growth

Recent empirical work has examined the extent to which national and international spillovers affect the functioning of a firm. Foreign direct investment and trade have been shown to serve as channels for the mediation of knowledge spillovers. The aim of this paper is to analyse whether, and to what extent, firm ability to innovate is induced by firm’s own R&D activity and what is the effect of factors external to firm. We first estimate the impact of firms' internal R&D capital and external R&D spillovers on innovation activity within an integrated dynamic model. In the second step, we proceed to estimate the impact of firms' innovations on productivity growth. Using firm-level innovation and accounting data for a large sample of Slovenian firms from 1996-2002, the paper produces some interesting findings. First, firm R&D expenditures as well as external knowledge spillovers, such as national and international public R&D subsidies, foreign ownership and intra-sector innovation spillovers foster the ability of firms to innovate. Second, innovations resulting from firm’s R&D may contribute substantially to its total factor productivity growth. Here, foreign ownership is shown to have a dual impact on firm’s TFP growth - while it enhances firm ability to innovate it also contributes to TFP growth via superior organization techniques and other channels of knowledge diffusion. These results, however, are not robust to different econometric techniques. By using matching techniques and firm propensity to innovate in order to match innovating firms with otherwise similar non-innovating firms we find no support for the importance of innovation on productivity growth.DYNREG, innovation, external knowledge spillovers, FDI, trade

Time Dependent Efficiency of Free Trade Agreements - The Case of Slovenia and the CEFTA Agreement

In international trade literature there is a common feature that the abolishment of barriers to trade leads to direct expansion of trade flows. Many empirical studies that simulate welfare effects of trade liberalisation explicitly make use of this direct tariff reduction – trade expansion mechanism. On the contrary, this paper explores panel data to analyse the timedependent efficiency of Free Trade Agreements (FTAs). It is shown that trade liberalisation per se needs time to become effective, and that immediately after the enforcement of the FTA the autonomous factors (such as domestic demand for particular import goods) are of great importance. Using an illustrative case of rapid expansion of Slovenian imports from other CEECs in the period 1993–1998, the paper demonstrates that the tariff reductions become effective in the second to third year after enforcement of the FTA. In addition, the relation between tariff reductions and trade expansions is non-linear, which reflects the time needed for new business connections to be established.

From Differences in Export Behavior of Services and Manufacturing Firms in Slovenia

We provide new comprehensive evidence on similarities and differences in export Behavior of Slovenian manufacturing and services firms by using detailed firm-level panel data for Slovenia. Main findings show that export Behavior in these two types of firms is similar and in line with the big picture that is by now familiar from the literature. Slovenian exporting services firms are more productive than non-exporting firms when observed and unobserved heterogeneity are controlled for. Export premia of services firms is even larger than for exporting manufacturing firms. Similarly, pre-entry premia over non-exporters is even larger than for manufacturing firms. We find some evidence of significant learning-by-exporting effects for services firms, but only when using the Levinsohn and Petrin measure of total factor productivity

The Growing Export Performance of Transition Economies: EU Market Access versus Supply Capacity Factors

The paper examines the reasons for the remarkable growth of transition economies’ export performance. We distinguish between foreign/EU market access and internal supply capacity factors. EU market access has been of great importance, while among supply capacity factors, stable institutional setup, structural reforms, and targeted FDI are in the forefront.Export performance, Transition economies of Central and Eastern Europe, (EU) market access, Supply capacity, Institutional setup, FDI.

Does a foreign subsidiary's network status affect its innovation activity? Evidence from post-socialist economies

A detailed questionnaire survey among 809 foreign subsidiaries in five post-socialist economies (East Germany, Poland, Romania, Slovenia and Croatia) is used to study determinants of innovation activity of foreign subsidiaries. Survey data comprise traditional firm innovation activity determinants and indicators of a foreign subsidiary status. Our findings demonstrate that foreign subsidiaries are relatively independent as far as innovation activity is concerned, while at the same time subsidiaries with better access to foreign parent companies R&D results are more likely to innovate. Important differences, however, are found in factors that determine product and process innovation: (i) subsidiaries that invest more in R&D exhibit higher probability for product but not for process innovation; (ii) acquisition of external knowledge and company size have significant and positive impact on on process innovation only, (iii) transfer of responsibilities from headquarters to subsidiaries and foreign investor being a MNE is conducive to process innovation; (iv) marketseeking motivation of foreign investors has a negative impact on product innovation status; (v) higher age of subsidiary is positive for its process innovation, i.e. a foreign investor needs some time to initiate innovation activities in a subsidiary.Una minuciosa encuesta realizada a 809 filiales en cinco economías post-socialistas (Alemania Oriental, Polonia, Rumania, Eslovenia y Croacia) ha servido de base para estudiar los factores determinantes de la actividad innovadora de las filiales extranjeras. Los datos de la encuesta incluyen los determinantes tradicionales de la actividad innovadora de las empresas así como los indicadores del estatus de la filial extranjera. Nuestros resultados demuestran que las filiales extranjeras son relativamente independientes en cuanto a su actividad innovadora, mientras que al mismo tiempo las filiales con un mejor acceso a los resultados de I+D de las empresas matrices son más propensas a innovar. Se encuentran, sin embargo, importantes diferencias en los factores que determinan los productos y los procesos de innovación: i) las filiales que más invierten en I + D presentan mayor probabilidad para la innovación en productos, pero no en los procesos; ii) la adquisición de conocimientos externos y el tamaño de la empresa tienen un impacto significativo y positivo únicamente en el proceso de innovación; (iii) la transferencia de responsabilidades desde la sede a las filiales y el hecho de que el inversor extranjero sea una empresa multinacional contribuye a la innovación de procesos; (iv) la motivación de búsqueda de mercados por parte de los inversores extranjeros tiene un impacto negativo sobre el nivel de innovación de productos; (v) una mayor antigüedad de la filial es positiva para su proceso de innovación puesto que un inversor extranjero necesita algún tiempo para iniciar las actividades de innovación en una filial.Empresas transnacionales, inversión directa, redes, actividad innovadora, economias postsocialistas, Transnational firms, direct inversion, networks, innovation activity, post-socialist economies.

Performance on Exports: Continuous Productivity Improvements or Capacity Utilization

Following along the lines of a growing literature on the causal link between export- ing and productivity this paper analyzes the existence of flearning-by-exporting using firm-level data. The paper asks whether, in addition to better perfirming firms self-selecting into exports and multinational production, exporting (multina- tional production) further improves their perfirmance compared with non-exporters. We develop and test a simple model of trade and international production with het- erogeneous firms that generates learning effects through competition in the export markets. The estimations perfirmed on the sample of Slovenian manufacturing enter- prises between 1994 and 2002 indicate that more productive firms tend to self-select into more competitive markets, while there is no conclusive evidence of learning-by- exporting. Although new exporters experienced a surge in productivity in the initial year of exports the effect dissipates as soon as the following year. Confronting the data on factor accumulation with TFP measures indicates that the perceived learning effects may in fact only be a consequence of increased capacity utilization brought forth by the opening of an additional market

Trade liberalization and economic geography in transition countries: Can FDI explain the adjustment patterns of regional wages?

Present paper studies the within-country regional effects of trade liberalization in transition countries. We argue that FDI inflows can be an important factor to accelerate the regional adjustment process in the home country. In order to underspin this theoretically, we first augment the new economic geography models by breaking the implied regional symmetry and by introducing capital as a second factor of production. Major contribution of our approach is that it allows for inter-regional as well as international capital mobility while labor is assumed to be immobile. Numerical simulations of our model indicate that this should contribute to faster convergence of relative regional wages in the smaller region. In addition, we examine the exact adjustment pattern of relative regional wages in five transition countries in the period 1990-2004 after they have liberalized their trade with the EU. First, we show that in four out of five transition countries there is a significant u-shaped adjustment pattern of regional wages after they opened up to foreign trade. And second, we find robust econometric confirmation that in three of the five countries FDI has contributed significantly to faster adjustment of relative regional wages

Growing lemons and cherries? Pre- and post-acquisition performance of foreign-acquired firms in new EU member states

Foreign acquisitions are an increasingly important mode of FDI in the new EU member states (NMS). Using firm-level data and a common estimation framework for seven NMS we study pre-and post-acquisition perfirmance of acquired firms. We find that selection criteria of target firms differ significantly across countries. In some countries the evidence supports the idea of ?cherry picking? with better firms being chosen as targets for acquisition, while in the others ?lemons?with growth potential tend to get selected. Regardless of whether ?cherries?or ?lemons?are targeted, perfirmance of acquired firms improved after the acquisition, whereby the boost in productivity has not been achieved by a reduction in employment, as it even increased, but rather by increased e¢ ciency in the use of labor and especially capital. Additionaly, foreign ownership is found to yield biggest rewards to small less productive firms