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

The Spatial Random Effects and the Spatial Fixed Effects Model. The Hausman Test in a Cliff and Ord Panel Model

This paper studies the spatial random effects and spatial fixed effects model. The model includes a Cliff and Ord type spatial lag of the dependent variable as well as a spatially lagged one-way error component structure, accounting for both heterogeneity and spatial correlation across units. We discuss instrumental variable estimation under both the fixed and the random effects specification and propose a spatial Hausman test which compares these two models accounting for spatial autocorrelation in the disturbances. We derive the large sample properties of our estimation procedures and show that the test statistic is asymptotically chi-square distributed. A small Monte Carlo study demonstrates that this test works well even in small panels.Spatial econometrics, Panel data, Random effects estimator, Within estimator, Hausman test

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

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

Spatial Convergence of Regions Revisited: A Spatial Maximum Likelihood Systems Approach

This paper suggests that one should account for the endogeneity of important explanatory variables and the persistence of technology shocks when analyzing spatial convergence among regions.Specifically, it is argued that a systems approach is called for that includes the average growth rate and the initial income level as the endogenous variables. For 212 European regions the estimation results reveal a substantial correlation between the disturbances of the equation explaining initial income per capita and that of its subsequent average growth rate. Moreover, the estimated speed of convergence is found substantially higher in a systems framework. This holds true for both spatial conditional and unconditional convergence

Capital Structure, Corporate Taxation and Firm Age

This paper analyzes the relationship between capital structure, corporate taxation and firm age. We adapt a standard model of optimal capital structure choice under corporate taxation, focusing on the financing and investment decisions a young firm is typically faced with. Our model allows to derive testable hypotheses about the relationship between corporate taxation, a firm's age and its debt to asset ratio. To test these hypotheses empirically, we use a cross-section of 405,000 firms from 35 European countries and 126 NACE 3-digit industries. In line with previous research, we find that a firm's debt ratio increases with the corporate tax rate. Further, we observe that older firms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical expectation, we find a positive interaction effect between corporate taxation and firm age, indicating that the impact of corporate taxation on debt is increasing over a firm's life-time.Corporate taxation; Capital structure; Firm age

Are there Border Effects in the EU Wage Function?

We estimate a linear approximation of the market potential function for Europe as derived in geography and trade models. Using a spatial econometric estimation approach, border effects are identified by a differential impact of other regions purchasing power, depending on whether two regions are located within the EU15 or outside the EU15. We find that intra EU15-borders have an insignificant but external borders a significant effect on regional wage structures. We illustrate the magnitude of EU external border effects by simulating the enlargement of the EU in May 2004. Our results suggest a large impact of the border for new member states, but a relatively small one for old members.market potential, border effects, spatial econometrics

Employment in Domestic Plants and Foreign Affiliates: A Note on the Elasticity of Substitution

For high wage countries, such as Austria, employment growth in foreign affiliates abroad is commonly expected to substitute for jobs at home. Estimates from bilateral data on the foreign and domestic activities of Austrian manufacturing firms over the period 1990-1996, covering the 10 most important host countries and 7 industrial sectors, indicate a significant and elastic substitution at the margin between employment at home and employment in foreign affiliates. However, this does not hold true of affiliates in Eastern Europe and there are significant differences across sectors. The size of total demand, as well as plant specific relative labour productivity, are also important determinants of relative labour demand

Export Orientation, Foreign Production, and the Growth of Medium Sized and Large Manufacturing Firms

Using data on large and medium sized Austrian manufacturing firms this paper analyzes empirically in which way a high degree of export orientation and foreign production abroad, as two modes of serving foreign markets, are related to the growth performance of domestic production. Robust median regressions do not suggest that foreign production adversely affects firm growth at the domestic location. Exports to non-EU countries, in combination with foreign production, especially contribute to growth at the domestic location