Offshoring of Services and Corruption: Do Firms Escape Corrupt Countries?

In this paper, we analyze how the offshoring of services by Swedish firms is affected by corruption in target economies. The results suggest that firms avoid corrupt countries and that corruption reduces the amount of offshored services. In addition, the sensitivity to corruption is highest for poor countries, and large and internationalized firms are the ones that tend to be the most sensitive to corruption.Corruption; Services; Offshoring; Gravity model; Firm level data

Service-sector competition, innovation and R&D

The central prediction of the Aghion et al. (2005) model is an inverted U-shaped relation between innovation and competition. The model is built on the assumption of a product market and has not yet been empirically tested on service-sector firms. Using detailed firm-level data, we find the inverse U-shaped relation to hold for both small and large service-sector firms. However, non-exporting service firms deviate from the overall pattern. A more detailed breakdown of innovation expenditures shows that the inverse U-shaped pattern holds for both intramural R&D and training, but not for extramural R&D. Finally, as competition increases, small firms tend to seek more strategic alliances with competitors while large firms tend to decrease their collaboration with competitors. To some extent, the behavior of large firms can be due to their greater capacity to handle innovation projects internally and as competition increases, so does the payoff of an edge to competitors.R&D; innovation; competition; service sector

IS CHINA DIFFERENT? A META ANALYSIS OF THE EFFECT OF FOREIGN DIRECT INVESTMENT ON DOMESTIC FIRMS

Empirical evidence suggests that China has benefited from foreign direct investment (FDI). However, an important question that remains unanswered is whether China has benefited more from FDI than other countries in general and other transition and developing countries in particular. This paper investigates this issue by performing a Meta-analysis on a sample of 67 country-specific studies yielding 125 observations that have gauged the nexus between FDI and measures of income growth. The results show that studies on China report relatively high t-values and thus indicate that China may have benefited more than other countries from FDI.Meta-analysis; Foreign direct investment; Economic growth; China

Is There Really an Inverted U-shaped Relation Between Competition and R&D?

We test whether predictions of the Aghion and Howitt (2004) model are supported by firm level data. In particular, we analyze if there is an inverted U-shaped relation between competition and R&D. Results show that the inverted U-shaped relation is supported by the Herfindahl index but not by the price cost margin. Using the Herfindahl index results suggest that breaking up monopolies increases R&D while further increases in competition most likely leads to reduced R&D. Comparing different estimators, we find that time-series based estimators typically result in less clear-cut results, probably driven by a lack of time series variation in measures of competition.R&D; competition; firm size; spillovers

Is There Really an Inverted U-shaped Relation Between Competition and R&D?

We test whether predictions of the Aghion and Howitt (2004) model are supported by firm level data. In particular, we analyze if there is an inverted U-shaped relation between competition and R&D. Results show that the inverted U-shaped relation is supported by the Herfindahl index but not by the price cost margin. Using the Herfindahl index results suggest that breaking up monopolies increases R&D while further increases in competition most likely leads to reduced R&D. Comparing different estimators, we find that time-series based estimators typically result in less clear-cut results, probably driven by a lack of time series variation in measures of competition.R&D; Competition; Firm size; Spillovers

Is There Really a Foreign Ownership Wage Premium? Evidence from Matched Employer-Employee Data

Numerous studies on firm-level data have reported higher average wages in foreign-owned firms than in domestically-owned firms. This, however, does not necessarily imply that the individual worker’s wage increase with foreign ownership. Using detailed matched employer-employee data on the entire Swedish private sector, we examine the effect of foreign ownership on individual wages, controlling for individual and firm heterogeneity as well as for possible selection bias in foreign acquisitions. We distinguish between foreign greenfields and takeovers and compare foreign owned firms with both domestic multinationals and local firms. Our results show a considerably smaller wage premium in foreign owned firms than what has been found in studies conducted at a more aggregate level. Moreover, foreign takeovers of Swedish firms tend to have no or even a negative effect on wages.FDI; Foreign Ownership; Wages; Matched Employer-Employee Data; Propensity Score Matching

Is there Really a Foreign Ownership Wage Premium? Evidence from Matched Employer-Employee Data

Numerous studies based on firm-level data have reported higher average wages in foreign-owned firms than in domestically-owned firms. This, however, does not necessarily imply that the individual worker’s wage increases with foreign ownership. Using detailed matched employer-employee data, we examine the effect of foreign ownership on individual wages, controlling for individual and firm heterogeneity as well as for possible selection bias in foreign acquisitions. We distinguish between foreign greenfields and takeovers and compare foreign ownership with both domestic multinationals and local firms. Our results indicate that employees in foreign-owned firms do not have systematically higher wages than comparable workers in similar Swedish owned firms.FDI; Foreign ownership; Wages; Matched Employer-Employee data; Propensity score matching

ECONOMIC GROWTH AND GROWTH LINKAGES IN CHINA 1994-2003

This paper investigates to what degree neighboring Chinese provinces were linked to each other in terms of economic growth, income levels, and foreign direct investment during the period 1994-2003. When looking at mainland China, we find that both the level of income and the rate of income growth in a province depend on developments in neighboring provinces. However, we find no evidence of any positive interdependence between growth in rich coastal provinces and their immediate inland neighbors. This suggests that there has been little harmonization in economic growth rates between these regions, and that the immediate hinterland of the coastal growth centers might be bypassed as China’s manufacturing sector is moving west.Domestic integration; growth interdependence; China’s Economy

The Dynamics of Offshoring and Institutions

Previous research has recognized that weak institutions can hamper investments and alter patterns of trade. However, little is known about the impact of institutional quality on offshoring. This is surprising, given that offshoring has become an important part of many firms internationalization strategy. This study uses detailed Swedish firm-level data on production and trade in combination with a large set of institutional measures of the target economies to study the relationship between institutional quality and offshoring. The results suggest that weak institutions are negatively related to offshoring in general and to offshoring of R&D-intensive goods in particular. Furthermore, firms that are able to establish long-term contracts do so by starting small and successively deepening their engagements. These results are robust to a large number of econometric specifications and various measures of institutional quality

FDI AND SPILLOVERS IN CHINA: NON-LINEARITY AND ABSORPTIVE CAPACITY

Using a fixed effect variance decomposition model, we estimate SUR models to analyze FDI spillovers from contagion and spillovers from competition on local firms in China. While the former type of spillover mainly depends on the degree of foreign presence in the local industry, the latter kind is related to how foreign and local firms interact. The main conclusion is that FDI has been beneficial for the Chinese economy, but that spillovers are not evenly distributed across firms and industries. Spillovers from contagion tend to exhibit an inverse U-shaped pattern with respect to the degree of foreign presence at the industry level, whereas spillovers from competition exhibit a more linear pattern with respect to the level of technological sophistication in foreign firms. Industries with high absorptive capacity and/or high efficiency are the ones best equipped to take advantage of spillovers from foreign-owned firms. Moreover, there are signs of substantial competition between foreign-owned firms: an increase in the foreign capital share in an industry seems to have a stronger effect on incumbent foreign-owned firms than on domestic firms.Spillovers; China; FDI; Fixed effect variance decomposition