The Competitiveness Research Network

Policy-making institutions such as the European Commission, the ECB and the OECD often use unit labor costs as a measure of international competitiveness. The goal of this paper is to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm-level data for the period 1999-2010 to analyze the impact of unit labor costs on exports. We use exports adjusted for their import content. We find a statistically significant negative effect of unit labor costs on export performance of firms with an estimated elasticity of the intensive margin of exports ranging between -0.2 and -0.4. This result is robust to various specifications, including firm, time and sector fixed effects and estimation approaches. We find that this elasticity varies between sectors and between firms, with firms that are more labor-intensive having a higher elasticity of exports with respect to unit labor costs. The micro data also enable us to analyze the impact of unit labor costs on the extensive margin. Our results show that higher unit labor costs reduce the probability of starting to export for non-exporters and increase the probability of exporters stopping. While our results show that unit labor costs have an impact on the intensive margin and extensive margin of firm-level exports, the effect is rather low, suggesting that passthrough of costs into prices is limited or that demand for exported products is not elastic. The latter is consistent with recent trade models emphasizing that not only relative costs, but also demand factors such as quality and taste matter for explaining firm-level exports

De omvang van het overheidsbeslag in België.

Deze studie gaat de omvang van het overheidsbeslag in België na voor de periode 1992-2009 op basis van zowel een macro- als een micro-economische benadering. Gemeten als de verhouding tussen de overheidsuitgaven en het Bruto Binnenlands Product (BBP) bedraagt het overheidsbeslag in België in 2009 via de macro-economische benadering 54.3%. Dit is nog beneden het recordniveau van 58% midden jaren ’80, maar benadert opnieuw het niveau van 1993 (55%) toen het uitvoeren van de Maastricht criteria om tot de euro te kunnen toetreden een prioriteit werd om het overheidsaandeel aanzienlijk te verminderen. De daaropvolgende sterke afname van de overheidsuitgaven in de jaren ‘90, werd de jongste jaren zo goed als volledig omgebogen (in 2006 bv. bedroeg het overheidsbeslag slechts 48%). Internationaal bevindt België zich bovenaan de ranglijst, enkel vooraf gegaan door Zweden, Finland, Frankrijk en Denemarken met respectievelijk 54.9, 56, 56 en 58.8%. Echter, deze landen hebben een veel lagere schuldgraad dan in België en recent onderzoek toont aan dat wanneer de schuldgraad boven de kritische waarde van 90% stijgt, de economische groei sterk vermindert. Onze analyse suggereert eveneens dat de overheidsuitgaven niet verder kunnen stijgen, eens er een schuldgraad van 90% is bereikt.

How do exporters react to changes in cost competitiveness?

Policy-making institutions such as the European Commission, the ECB and the OECD often use unit labor costs as a measure of international competitiveness. The goal of this paper is to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm-level data for the period 1999-2010 to analyze the impact of unit labor costs on exports. We use exports adjusted for their import content. We find a statistically significant negative effect of unit labor costs on export performance of firms with an estimated elasticity of the intensive margin of exports ranging between -0.2 and -0.4. This result is robust to various specifications, including firm, time and sector fixed effects and estimation approaches. We find that this elasticity varies between sectors and between firms, with firms that are more labor-intensive having a higher elasticity of exports with respect to unit labor costs. The micro data also enable us to analyze the impact of unit labor costs on the extensive margin. Our results show that higher unit labor costs reduce the probability of starting to export for non-exporters and increase the probability of exporters stopping. While our results show that unit labor costs have an impact on the intensive margin and extensive margin of firm-level exports, the effect is rather low, suggesting that passthrough of costs into prices is limited or that demand for exported products is not elastic. The latter is consistent with recent trade models emphasizing that not only relative costs, but also demand factors such as quality and taste matter for explaining firm-level exports

The Competitiveness Research Network

Policy-making institutions such as the European Commission, the ECB and the OECD often use unit labor costs as a measure of international competitiveness. The goal of this paper is to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm-level data for the period 1999-2010 to analyze the impact of unit labor costs on exports. We use exports adjusted for their import content. We find a statistically significant negative effect of unit labor costs on export performance of firms with an estimated elasticity of the intensive margin of exports ranging between -0.2 and -0.4. This result is robust to various specifications, including firm, time and sector fixed effects and estimation approaches. We find that this elasticity varies between sectors and between firms, with firms that are more labor-intensive having a higher elasticity of exports with respect to unit labor costs. The micro data also enable us to analyze the impact of unit labor costs on the extensive margin. Our results show that higher unit labor costs reduce the probability of starting to export for non-exporters and increase the probability of exporters stopping. While our results show that unit labor costs have an impact on the intensive margin and extensive margin of firm-level exports, the effect is rather low, suggesting that passthrough of costs into prices is limited or that demand for exported products is not elastic. The latter is consistent with recent trade models emphasizing that not only relative costs, but also demand factors such as quality and taste matter for explaining firm-level exports

Regional State Aid Control in Europe: A Legal and Economic Assessment

This paper provides a legal and economic analysis of the European rules for regional State aid according to Article 107 (1) and (3) TFEU. It summarizes the historical evolution and the trends of regional aid rules and describes the economic rationale behind them. The main principles are discussed with reference to recent academic research, leading cases and the State Aid Modernization initiative ("SAM"). The current rules for the assessment of compatibility as laid down in the General Block Exemption and the Regional Aid Guidelines 2014 are critically reviewed in light of these principles

The Effectiveness of Investment Subsidies. Evidence from a Regression Discontinuity Design

© 2016, Springer Science+Business Media New York. This paper analyzes the effects of an investment subsidy program for small- and medium-sized enterprises in Flanders from 2004 to 2009. The subsidies were awarded according to a ranking system that favored young, growing and productive firms with a strong cash flow, granting subsidies to the highest scoring firms until the depletion of funds. The nature of this allocation system creates a sharp cutoff in granting the subsidy according to the score, allowing us to estimate the causal impact of the subsidies using a regression discontinuity design. We find a positive effect on firm-level investment, employment, output and productivity for the firms that were granted the subsidy, but only for the small firms. However, the effect is small relative to the cost of the subsidy.status: publishe

Productivity gains after outward FDI: evidence from Slovenia

This paper analyzes whether firms that engage in outward foreign direct investment, experience productivity gains in their domestic plants. To this end, we apply the methodology of De Loecker (2013) to firm-level data on the Slovenian manufacturing industry from 1994 to 2002. Our findings indicate that firms that invested abroad experience a higher productivity growth than firms that did not, controlling for many relevant variables such as past productivity, export status and industry of the firm. The gains only occur for investments outside of former Yugoslavia. They are larger for initially more productive firms and only occur some years after the investment.status: Published onlin