Network and Border Effects: Where Do Foreign Multinationals Locate in Germany?

This study assesses the determinants of location choices of foreign multinational firms at the level of German federal states. Adjacency and existing firm networks are assumed to influence the investors’ profits in a given location by overcoming informational disadvantages when entering the new market. A conditional and a nested logit model resemble the structure of the location choice process of individual investors well. By using affiliate-level data between 1997 and 2005, the results confirm that firms react positively to local demand, a common border and existing firm networks, while unit labour costs exhibit the expected negative impact. In the sectoral estimations, it is shown that these effects vary in their relevance among manufacturing and service affiliates, and between upstream and downstream activities.Location choice, multinational firms, nested logit model

Enlarging the EMU to the East: What Effects on Trade?

The purpose of this paper is to assess the implications of the Economic and Monetary Union (EMU) accession of eight Central and Eastern European Countries (CEECs) on their share in EMU-12 imports. Overcoming biases related to endogeneity, omitted variables and sample selection, our results indicate that the common currency has boosted intra-EMU imports by 7%. Under the assumption that the same relationship between the explanatory variables and imports will hold for EMU-CEEC trade, we are able to predict the future impact of the Euro. Our findings suggest that except for the least integrated countries, Poland, Latvia and Lithuania, all CEECs can expect increases in the EMU-12 import share.Central and Eastern European countries, Euro area enlargement, gravity model, panel estimation

Transport Costs in International Trade

This paper claims that distance alone is a poor proxy for international transport costs in gravity equations. We develop a theoretical framework with a manufacturing and a transport sector, where the level of manufacturing exports determines the demand for transport. Above a certain threshold, transport service suppliers find it profit-maximizing to invest into advanced transport technology, which lowers their marginal costs and as a consequence, transport prices. Transport costs therefore vary with the distance between the two locations, and with the endogenous decision to invest in a more efficient technology. We tackle the biases in traditional gravity estimates by using newly collected data on transport prices from UPS and by applying instrument variable estimation techniques. Our results reveal that distance affects trade beyond the transport cost channel. Transport prices, in turn, are influenced by the distance and by the exports between two countries. We find that trading partners with 10% more exports enjoy 0.7% lower transport prices.

Trade Effects of the Europe Agreements

The eastern enlargement of the European Union (EU) brought and will bring full membership to countries whose trade barriers with the EU had to a large extent already been removed under Free Trade Agreements (FTAs) during the 1990s. We employ a theory-based new version of a gravity equation, whose specification allows for an assessment of the impact of the arrangements on extra- and intra-group imports. We find robust evidence that the agreements have substantially increased intra-group trade, in the case of the Czech and Slovak Republic at the expense of the Rest of the World (ROW).Free Trade Agreements; Gravity equation; Central and Eastern Europe; Panel data

Enlarging the EMU to the east: What effects on trade?

The purpose of this paper is to assess the implications of the Economic and Monetary Union (EMU) accession of eight Central and Eastern European Countries (CEECs) on their share in EMU-12 imports. Overcoming biases related to endogeneity, omitted variables and sample selection, our results indicate that the common currency has boosted intra-EMU imports by 7%. Under the assumption that the same relationship between the explanatory variables and imports will hold for EMU-CEEC trade, we are able to predict the future impact of the euro. Our findings suggest that except for the least integrated countries, Poland, Latvia and Lithuania, all CEECs can expect increases in the EMU-12 import share.Central and Eastern European countries, Euro area enlargement, gravity model, panel estimation

Network and border effects: Where do foreign multinationals locate in Germany?

This study assesses the determinants of location choices of foreign multinational firms at the level of German federal states. Adjacency and existing firm networks are assumed to influence the investors' profits in a given location by overcoming informational disadvantages when entering the new market. A conditional and a nested logit model resemble the structure of the location choice process of individual investors well. By using affliate-level data between 1997 and 2005, the results confirm that firms react positively to local demand, a common border and existing firm networks, while unit labour costs exhibit the expected negative impact. In the sectoral estimations, it is shown that these effects vary in their relevance among manufacturing and service affliates, and between upstream and downstream activities

International Sourcing, Product Complexity and Intellectual Property Rights

In this paper, we propose the technological complexity of a product and the level of Intellectual Property Rights (IPRs) protection to be the co-determinants of the mode through which multinational firms purchase their goods. We study the choice between intra-firm trade and outsourcing given heterogeneity at the product- (complexity), firm- (productivity) and country- (IPRs) level. Our findings suggest that the above three dimensions of heterogeneity are crucial for complex goods, where firms face a trade-off between higher marginal costs in the case of trade with an affiliate and higher imitation risks in the case of sourcing from an independent supplier. We test these predictions by combining data from a French firm-level survey on the mode choice for each transaction with a newly developed complexity measure at the product-level. Our fractional logit estimations confirm the proposition that although firms are generally reluctant to source highly complex goods from outside the firm’s boundaries, they do so when a strong IPR regime in the host country guarantees the protection of their technology.Sourcing Decision, Product Complexity, Intellectual Property Rights, Fractional Logit Estimation

International Sourcing, Product Complexity and Intellectual Property Rights

In this paper, we propose the technological complexity of a product and the level of Intellectual Property Rights (IPRs) protection to be the co-determinants of the mode through which multinational firms purchase their goods. We study the choice between intra-firm trade and outsourcing given heterogeneity at the product- (complexity), firm- (productivity) and country- (IPRs) level. Our findings suggest that the above three dimensions of heterogeneity are crucial for complex goods, where firms face a trade-off between higher marginal costs in the case of trade with an affiliate and higher imitation risks in the case of sourcing from an independent supplier. We test these predictions by combining data from a French firm-level survey on the mode choice for each transaction with a newly developed complexity measure at the product-level. Our fractional logit estimations confirm the proposition that although firms are generally reluctant to source highly complex goods from outside the firm’s boundaries, they do so when a strong IPR regime in the host country guarantees the protection of their technology.sourcing decision; product complexity; intellectual property rights; fractional logit estimation

International Sourcing, Product Complexity and Intellectual Property Rights

In this paper, we propose the technological complexity of a product and the level of Intellectual Property Rights (IPRs) protection to be the co-determinants of the mode through which multinational firms purchase their goods. We study the choice between intra-firm trade and outsourcing given heterogeneity at the product-(complexity), firm-(productivity) and country-(IPRs) level. Our findings suggest that the above three dimensions of heterogeneity are crucial for complex goods, where firms face a trade-off between higher marginal costs in the case of trade with an affiliate and higher imitation risks in the case of sourcing from an independent supplier. We test these predictions by combining data from a French firm-level survey on the mode choice for each transaction with a newly developed complexity measure at the product-level. Our fractional logit estimations confirm the proposition that although firms are generally reluctant to source highly complex goods from outside the firm’s boundaries, they do so when a strong IPR regime in the host country guarantees the protection of their technology.Sourcing decision, product complexity, intellectual property rights, fractional logit estimation

Die Aussenhandelspolitik der EU gegenüber China: "China-Bashing" ist keine rationale Basis für Politik

Mit der Verabschiedung einer handelspolitischen Strategie gegenüber China Ende Oktober 2006 richtet sich die Europäische Union (EU) in einem veränderten globalen Wettbewerbsumfeld neu aus. Erstmals wird mit dem Einsatz von Schutzmaßnahmen gedroht, sollte China die multilateralen Vereinbarungen der Welthandelsorganisation (World Trade Organization ? WTO) nicht vollständig umsetzen. Doch hat auch die EU ihre ?Hausaufgaben? in den vergangenen Jahren nicht immer erledigt. Auf die Einfuhrschwemme von Textilien und Bekleidung Anfang 2005 reagierte sie durch die Erhebung neuer Quoten. In diesem Papier argumentieren wir, dass nur eine reziproke Marktöffnung eine stabile Partnerschaft bedingt, bei der beide Seiten vom ohnehin nicht aufzuhaltenden Vormarsch Chinas profitieren können