International Trade and Polarization in the Labor Market

The paper builds an argument that international trade can be one explanation behind polarization of employment in the labor market observed in developed countries such as U.K. and U.S. It considers a small open economy, having production sectors which use three types of labor: high-skill, middle-skill and low-skill. The economy faces an increase in the relative price of the high-skill intensive sector. Using decision rules for choosing middle-skill and low-skill education, it is shown that such a terms of trade shock can lead to higher shares of high-skill as well as low-skill workers in the total workforce. The effects off-shoring on wages and job composition are also studied. That of low-skill and high-skill tasks, not middle-skill tasks, is shown to contribute towards polarization in job composition

International Migration with Heterogeneous Agents: Theory and Evidence

Zwei verwirrende Fakten der internationalen Wanderung sind, dass nur ein kleiner Teil der Bevölkerung der Auswanderungsländer emigriert und dass die Migrationsquoten mit der Zeit kleiner werden. Der Beitrag untersucht dieses Phänomen unter Zuhilfenahme eines Migrationsmodells mit heterogenen Agenten für die temporäre Migration. Im Gleichgewicht existiert eine positive Relation zwischen der Anzahl der Migranten und dem Einkommensdifferential, während der Nettomigrationsfluss versiegt. Infolge dessen sind empirische Migrationsmodelle, die sich auf Nettomigrationsflüsse anstatt auf den Bestand an Migranten beziehen, missspezifiziert. Diese Vermutung scheint sich durch die empirische Untersuchung der Kointegrationsbeziehungen von Fluss- und Bestands-Migrationsmodellen zu bestätigen

Infrastructure and Trade

This paper explores the role that quality of infrastructure has on a country's trade performance, estimating a gravity model that incorporates bilateral tariffs and a number of indicators for the quality of infrastructure. The paper looks at the impact of the quality of infrastructure (road, airport, port and telecommunication, and the time required for customs clearance) on total bilateral trade and on trade in the automotive, clothing and textile sectors. In order to obtain unbiased estimators, multilateral resistances for tariffs and remoteness are introduced in the gravity equation. Moreover, the robustness of the results is tested by estimating a fixed-effect model, where bilateral indexes of the quality of infrastructure are included. The results can be summarised in four main findings: (i) bilateral tariffs, generally neglected in gravity regression of bilateral flows, have a significant negative impact on trade; (ii) quality of infrastructure is an important determinant of trade performance; (iii) port efficiency appears to have the largest impact on trade among all indicators of infrastructure; (iv) timeliness and access to telecommunication are relatively more important for export competitiveness in the clothing and automotive sector respectively

Age and skill bias of trade liberalisation? : heterogeneous employment effects of EU Eastern Enlargement

This study analyses the 2004 Eastern Enlargement to the European Union to obtain evidence on the employment effects of an increase in trade liberalisation. The Enlargement is thought to generate a trade-induced demand shock with no (or only limited) supply effects. Besides the variation over time induced by the Enlargement, identification of the effects is based on a Melitz (2003) type productivity term to differentiate firms by the extent of exposure to the demand shock. The idea is that the effects of the demand shock should be driven by differences in firm-level productivity from the period before the new member countries actually entered the EU. German linked employer-employee data allow to observe the relation of initial establishment productivity with employment changes over a long panel from 1995 to 2009. The estimates show that the Enlargement had a negative effect on establishment-level employment growth, which is driven by increased worker separations and increased job destruction. Besides the overall employment effect, the study focuses on effect heterogeneity across age and skill groups of the workforce. These estimates point to a skill bias in the effect of the Enlargement that disadvantages low- and medium-skilled workers in terms of higher worker separation and job destruction. In addition, lowskilled workers suffer fewer accessions by firms, where against medium-skilled workers enjoy increased accessions and creation of new jobs. Besides this indication for a skill bias, there are no clear indications that point to an age bias in the employment effect of the Eastern Enlargement

Export decisions of services firms between agglomeration effects and market-entry costs

The paper tests the role of agglomeration effects on the export decision of services firms. Recent theories on trade with heterogeneous firms predict that export participation goes along with sunk market-entry costs. Only the more productive firms will be able to overcome these sunk costs. This leads to a process of - ex ante - self selection. These predictions are tested for the services industry, with due account for the possible role of agglomeration effects in large-city areas. Standard empirical tests of the new trade models consistently find productivity-based ex ante self selection by exporters, and this effect is mostly explained by unobserved sunk entry costs that exporters have to absorb in new foreign markets. Recent research by urban economists (e.g. Combes et al., 2012) suggests, however, that operating in large-city areas also goes along with positive productivity sorting. Ignoring this leads to upwardly biased estimates of the effect of foreign market entry costs. A large set of micro-data for establishments in Dutch services is used to investigate this hypothesis. I find evidence that positive productivity self-selection is based on the combined effects of agglomeration and anticipated market-entry cost for export starters. This effect is strongest in markets with more or less homogeneous products. I also find evidence that the productivity self-selection effect (of exporters compared to non-traders) is stronger in non-urban areas and smaller agglomerations

Former Foreign Affiliates: Cast Out and Outperformed?

The literature has documented a positive effect of foreign ownership on firm performance. But is this effect due to a one-time knowledge transfer or does it rely on continuous injections of knowledge? To shed light on this question we focus on divestments, that is, foreign affiliates that are sold to local owners. To establish a causal effect of the ownership change we combine a difference-in-differences approach with propensity score matching. We use plant-level panel data from the Indonesian Census of Manufacturing covering the period 1990-2009. We consider 157 cases of divestment, where a large set of plant characteristics is available two years before and three years after the ownership change and for which observationally similar control plants exist. The results indicate that divestment is associated with a drop in total factor productivity accompanied by a dec line in output, markups as well as export and import intensity. The findings are consistent with the benefits of foreign ownership being driven by continuous supply of headquarter services from the foreign parent

Learning from Trade Through Innovation: Causal Link Between Imports, Exports and Innovation in Spanish Microdata

The paper explores the learning from trade hypothesis. Standardized research approach searchs for learning effects from trade focusing solely on exports, whereby firm's learning effects are accounted in the firm of total factor productivity improvements. In contrast, this papers defines a firm learning from trade in tfirms of introduction of either new products or processes induced by its import and export links with foreign markets. By using microdata for a large sample of Spanish firms, including data on innovation and trade, we find clear sequencing between imports, exports and innovation. The results suggest that firms learn primarily from import links, which enables them to innovate products and processes and to dress up for starting to export. In a sequence, exporting may enable firms to introduce further innovations. These positive learning effects from trade, however, seem to be limited to small and partially medium firms only. On the other side, firms that are closer to the relevant technological frontier seem to benefit more from trading activities in tfirms of innovation than the technological laggard firms

Home Firm Performance After Foreign Investments and Divestitures

Being international' has nearly become an undisputed aim for firms in a globalized world. Several papers find a positive relationship between foreign direct investment (FDI) and the home performance of firms. In this paper we address the 'FDI - export' relationship to better understand this pattern. Furthermore, by presenting first results on firm's post-divestiture employment growth at home we are able to provide a more comprehensive view on fi rm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference-in-difference estimator to analyze the performance dynamics of French firms that invested abroad or carried out foreign divestitures during the period 2000-2007. FDI has on average a positive home firm eff ect in terms of export share, operating turnover and employment. Industry differences reveal that firms in high-tech industries experience a strong increase in their home performance, whereas firm performance in low-tech industries increases only moderately in post-investment periods. In contrast, the divestiture impact on the post-divestiture performance is rather negligible.Der Artikel untersucht die Entwicklung des Firmenerfolgs von französischen Firmen im Heimatmarkt nach ausländischen Markteintritts- und Marktaustrittsentscheidungen im Zeitraum 2000-2007. Hierzu wird ein Propensity Score Matching Verfahren in Kombination mit einem Differenzen-in-Differenzen Schätzer angewandt. Firmen, die erstmalig einen ausländischen Markt über Direktinvestitionen betreten, verfügen im Durchschnitt in den Folgejahren über höhere Exportintensität, Umsatzentwicklung und Beschäftigungswachstum als vergleichbare Firmen, die zum selben Zeitpunkt nicht ins Ausland gegangen sind. Insbesondere Firmen aus Hochtechnologiebranchen profitieren von einer überproportional positiven Firmenentwicklung im Heimatmarkt. Im Gegensatz dazu wirkt sich ein Rückzug aus ausländischen Märkten nur geringfügig auf die Unternehmensentwicklung im Inland aus

Home Bank Intermediation of Foreign Direct Investment

This paper investigates the benefits of banks' direct investment in foreign subsidiaries and branches for non-financial multinationals. The paper builds on the literature on international banks which has primarily focused on the implications for host countries, rather than for its international clients, and on the literature on foreign direct investment (FDI), which emphasizes significant costs of investment. Using a new detailed data set of non-stationary sector-level outward FDI, this paper finds that the volume of FDI by home market banks boosts FDI by non-financial firms from the same home market. Domestic and third-country foreign banking provide imperfect substitutes, especially in countries that are corrupt or have weak rule of law. The result rests on banks' FDI in local branches and subsidiaries rather than cross-border lending. These findings are consistent with a role for home market multinational banks in intermediating information asymmetry in opaque foreign markets. The sale of a major international bank to third-country counter parties during the recent crisis may thus result in persistently lower volumes of outward FDI from the bank's home market