Exporters and International Knowledge Transfer: Evidence From UK Firms

Within the recent literature studying participation in international markets using micro data, a small number have suggested that firms benefit from their exposure to international markets. One channel considered for this role has been investments in R&D. A common finding in this literature is that firms involved in international trade are also more likely to also undertake R&D. In this paper we expand the question to consider whether exporters also differ from non-exporters in the knowledge inputs used for R&D. Using data for UK firms we find that while in general this is so, non-exporters also involve themselves in international knowledge transfer.Exporters, innovation, R&D, international knowledge transfer

Fiscal Policy, Growth and Convergence in Europe

Recent evidence on the impact of fiscal policy – taxes, public expenditures and budget deficits – on long-run growth in OECD countries has adopted the Barro (1990) framework to distinguish between ‘productive’ and ‘unproductive’ expenditures, and ‘distortionary’ and ‘non-distortionary’ taxes. Using estimated long-run growth effects from these fiscal variables, this paper simulates the effects on growth rates of observed fiscal policy changes in the EU. With two exceptions, the individual country growth effects of actual changes in taxes, expenditures and deficits appear plausible at around –0.3 to +0.3 of a percentage point per annum. Few common policy scenarios are apparent in the data however, with key sources of differences between countries being the extent to which distortionary taxes or deficits were used to fund public spending increases and whether additional spending was focussed on ‘productive’ activities. One implication of our results is that the change in the overall share of taxes or spending in GDP or the annual budget surplus/deficit is not a good guide to whether the growth effects of fiscal policy are likely to be positive or negative. The paper also considers whether our growth regression model, which imposes parameter homogeneity across countries, is justified. The evidence suggests this is the case, with a high degree of uniformity across countries. Finally the paper considers whether there is any evidence of ‘fiscal convergence’ across the EU. That is, are growth-affecting fiscal variables becoming more similar over time across the EU? Though data are limited, the answer to this question appears to be negative, with little evidence of unconditional convergence. Countries’ tax or expenditure/GDP ratios do, however, generally revert towards their steady-state paths.Fiscal policy; growth; convergence; taxation; public expenditure

Environmental compliance costs and innovation activity in UK manufacturing industries

We examine the relationship between environmental regulations and innovation, using data from UK manufacturing industry during 2000-2006. We estimate a dynamic model of innovation behaviour, and explicitly account for the likely endogeneity of our measure of the burden of environmental regulations (pollution abatement costs). Our results indicate that environmental R&D and investment in environmental capital are stimulated by greater pollution abatement pressures. However, we do not ?find a positive impact of environmental compliance costs on total R&D or total capital accumulation. New environmental innovations may therefore have a crowding out effect on other potentially more productive investments or avenues for innovation.Innovation, Pollution abatement expenditures, Panel data.

Fiscal Policy, Growth and Convergence in Europe

Recent evidence on the impact of fiscal policy, taxes, public expenditures and budget deficits on long-run growth in OECD countries has adopted the Barro (1990) framework to distinguish between ‘productive’ and ‘unproductive’ expenditures, and ‘distortionary’ and ‘non-distortionary’ taxes. Using estimated long-run growth effects from these fiscal variables, this paper simulates the effects on growth rates of observed fiscal policy changes in the EU. With two exceptions, the individual country growth effects of actual changes in taxes, expenditures and deficits appear plausible at around -0.2 to +0.2 of a percentage point per annum. Few common policy scenarios are apparent in the data however, with key sources of differences between countries being the extent to which distortionary taxes or deficits were used to fund public spending increases and whether additional spending was focussed on ‘productive’ activities. Our results confirm that the change in the overall share of taxes or spending in GDP, or the annual budget deficit, is not a good guide to whether the growth effects of fiscal policy are likely to be positive or negative. The paper also considers whether our growth regression model, which imposes parameter homogeneity across countries, is justified. The evidence suggests this is the case, with a high degree of uniformity across countries. Finally the paper considers whether there is any evidence of ‘fiscal convergence’ across the EU. That is, are growth-affecting fiscal variables becoming more similar over time across the EU? Though data are limited, the answer to this question appears generally to be negative, with little evidence of unconditional convergence. Countries’ tax or expenditure/GDP ratios do, however, generally revert towards their steady-state paths.

Quality Selection, Chinese Exports and Theories of Heterogeneous Firm Trade

Recent models of international trade have identified product quality as an important determinant of bilateral trade flows. Yet relatively little is understood about the relationship between the characteristics of the export market and the quality of products. In this paper we examine this link using Chinese data. We find evidence that product unit values vary with standard gravity variables in a different manner across sectors of the Chinese economy, and run contrary to earlier findings for the U.S. These results are not compatible with existing heterogeneous firm trade models such as Melitz (2003) model and its extension to include product quality by Baldwin and Harrigan (2007). To explain these differences we propose a heterogeneous firm trade model with quality differences and spatial price discrimination based on Melitz and Ottaviano (2007).product quality, heterogeneous firms, Chinese exports

Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?

We consider whether pollution-intensive FDI tends to outflow from a country which maintains stringent environmental regulations and into countries with weak environmental regulations. We consider this issue by incorporating the predictions from the recent heterogeneous firm models of international trade into an empirical model of outward FDI by UK firms. We find that environmental regulations are not a robustly significant determinant of the internationalisation decision, but a pollution-intensive multinational enterprise’s location decision will be affected by the environmental regime in place in the host country. Any deterrent effect is however highly conditional upon other factors, notably corruption.Pollution haven; Foreign investment; Environmental regulation

Absorptive Capacity and Frontier Technology: Evidence from OECD Manufacturing Industries

This paper investigates whether differences in absorptive capacity help to explain cross-country differences in the level of productivity. We utilise stochastic frontier analysis to investigate two potential sources of this inefficiency: differences in human capital and R&D for nine industries in twelve OECD countries over the period 1973-92. We find that inefficiency in production does indeed exist and it depends upon the level of human capital of the countryÕs workforce.Evidence that the amount of R&D an industry undertakes is also important is less robust. Classification- JEL: O3, O4absorptive capacity, human capital, R&D, SFA

Optimal Education Policies and Comparative Advantage

We consider the optimal education policies of a small economy whose government has a limited budget. Initially, the economy is closed and the government chooses its education policy to maximize welfare under autarky. Then the economy trades with the rest of the world. Lastly, the government chooses a new education policy that maximizes welfare under trade. Is it ever optimal for the government to choose its new policy so that it reverses the economy’s comparative advantage? We find that if the budget stays fixed when it is optimal to ‘move up the skills chain’ it is not feasible. In such a case a foreign loan is welfare improving. A move in the opposite direction can be optimal and when it is optimal it is also feasible.patterns of trade, education policy, welfare

Firm Heterogeneity and the Geography of International Trade

A key distinction which has emerged from heterogeneous firm models of international trade is that of exporting at the intensive and extensive margins. Empirically however, the two are often conflated, leading to biased estimates of the impact of falling trade costs. This paper exploits detailed firm level data, which includes information on the destination of exports to investigate causal links between enterprise productivity and the number of markets a firm serves as well as the relative size of those markets. Our focus is Sweden’s Food and Beverage sector, which is not only highly open, but has been subject to policy induced changes in trade costs (as well as falling natural barriers) over our sample period. We have data on almost 10,000 firm / time / destination observations across 6 years and 138 destinations. Our results confirm that conflating adjustment at the internal and external margins does bias trade resistance effects. Combining detailed firm specific information with data on destination characteristics confirms the importance of a range of country specific characteristics (including exchange rate risk) and facilitates the estimation of both distance and market size elasticities, from firm level data.trade costs, firm characteristics, destination characteristics, market size, distance

Exchange Rate Uncertainty and Export Decisions in the UK

Using data on UK manufacturing firms, we examine the effects of exchange rate uncertainty on firm decisions on export market entry and export intensity. The use of micro data and new measures of exchange rate uncertainty enable us to test for hysteresis effects in a new way and to test the sensitivity of results to a range of different measures. The results show that exchange rate uncertainty has little effect on firms’ export participation but a significant impact on export intensity.Exchange rate uncertainty, export share, hysteresis effects