Functional fragmentation and the location of multinational firms in the enlarged Europe

Despite the recent advances in the theory of location, the analysis of the role of services surrounding production activity has been largely neglected. This paper analyzes the co-location of a multinational firm's value chain in the enlarged European Union. Depending on its particular characteristics, each function (or activity) would favor different country characteristics. Opposing this dispersion force, vertical linkages between stages can encourage firms to co-locate different activities in the same country. We use recently collected individual firm data on almost 11 000 location choices for a 5 years period and 23 countries. We analyze the determinants of location choice for each activity, including sectoral and functional agglomeration variables. We also illuminate the co-location of functions at the firm level, specifically that of R&D and production.Functional fragmentation, vertical linkages, location choice.

Incomplete Contracts and the Impact of Globalization on Consumer Welfare

We embed a North-South trade model into an incomplete contracts setting where the production of heterogeneous firms can be geographically separated. When a Northern headquarter contracts with a Southern supplier instead of a Northern supplier, the presence of international incomplete contracts may lead to a higher price. As a result, trade liberalization, that induces offshoring, is not necessarily welfare-enhancing for consumers, despite the lower cost of labor in the South. In addition, firms which use the supplier’s component intensively, offshore their supplier in the South using outsourcing. As trade costs fall, less component-intensive firms also offshore, but by vertically integrating their supplier. We argue that this organizational change increases production-shifting in the South, implying that a larger number of varieties will be produced in the South where contracts are incomplete. We show that, this may reduce consumer welfare in both countries.consumer welfare, incomplete contracts, hold-up problem

The Spatial Organization of Multinational Firms

This paper focuses on the ability of the labor market to correctly match heterogeneous workers to jobs within a given industry and the role that globalization plays in that process. Using matched worker-firm data from Sweden, we find strong evidence that openness improves the matching between workers and firms in export-oriented industries. This suggests that there may be significant gains from globalization that have not been identified in the past – globalization may improve the efficiency of the matching process in the labor market. On the other hand, we find no evidence that openness affects the degree of matching in import-competing industries. These results remain unchanged after adding controls for technical change at the industry level or measures of domestic anti-competitive regulations and product market competition. In addition, we find no evidence that technical change has any impact on the degree of matching at the industry level. Our results are also robust to alternative measures of the degree of matching, openness, or the trade status of an industry.Matching, Globalization, Firms, Workers, Multinational Enterprises, International Trade

Incomplete Contracts and the Impact of Globalization on Consumer Welfare

We embed a North-South trade model into an incomplete contracts setting where the production of heterogeneous firms can be geographically separated. When a Northern headquarter contracts with a Southern supplier instead of a Northern supplier, the presence of international incomplete contracts may lead to a higher price. As a result, trade liberalization, that induces offshoring, is not necessarily welfare-enhancing for consumers, despite the lower cost of labor in the South. In addition, firms which use the supplier's component intensively, offshore their supplier in the South using outsourcing. As trade costs fall, less componentintensive firms also offshore, but by vertically integrating their supplier. We argue that this organizational change increases production-shifting in the South, implying that a larger number of varieties will be produced in the South where contracts are incomplete. We show that, this may reduce consumer welfare in both countries.Consumer Welfare, Incomplete Contracts, hold-up problem

Functional fragmentation and the location of multinational firms in the enlarged Europe

URL des Cahiers : https://halshs.archives-ouvertes.fr/CAHIERS-MSEVoir aussi l'article basé sur ce document de travail paru dans "Regional Science and Urban Economics", Elsevier, Volume 36, Issue 5, September 2006, Pages 658-677Cahiers de la Maison des Sciences Economiques 2006.52 - ISSN 1624-0340Despite the recent advances in the theory of location, the analysis of the role of services surrounding production activity has been largely neglected. This paper analyzes the co-location of a multinational firm's value chain in the enlarged European Union. Depending on its particular characteristics, each function (or activity) would favor different country characteristics. Opposing this dispersion force, vertical linkages between stages can encourage firms to co-locate different activities in the same country. We use recently collected individual firm data on almost 11 000 location choices for a 5 years period and 23 countries. We analyze the determinants of location choice for each activity, including sectoral and functional agglomeration variables. We also illuminate the co-location of functions at the firm level, specifically that of R&D and production.Malgré les développements récents de la théorie de la localisation, le rôle des activités de service liées à la production reste peu étudié. Ce papier analyse la localisation des différents éléments de la chaîne de valeur des firmes multinationales au sein de l'Union Européenne. Certaines forces telles que les avantages comparatifs conduisent à la dispersion des fonctions (ou activités) entre les différents pays. A l'opposé, les liens verticaux entres les différentes étapes du processus de production au sein des firmes peuvent conduire les entreprises à co-localiser différentes fonctions dans le même pays. Nous utilisons une base de données de firmes individuelles récemment développée qui fournit plus de 11 000 choix de localisation dans 23 pays. Nous analysons les déterminants de la localisation, notamment avec des variables d'agglomération sectorielle et fonctionnelle. Enfin, nous montrons que les liens verticaux conduisent les firmes à localiser leur production et leur R&D au sein des mêmes pays

Spatial Exporters

In this paper, we provide evidence that expanding firms tend to serve new markets which are geographically close and culturally related to their prior export destinations. We quantify the impact of this spatial pattern using a Chinese firm-level data set. To ensure an exogenous set of potential new destinations (25 EU countries, US and Canada) and an exogenous timing of entry, we focus on firms that benefited from the abrupt end of the textile quota restrictions in 2005. Controlling for firm-product and destination specific effects and accounting for possible multiple new export destinations we show that the probability to export to a country increases by 15 to 38 percent for each prior export destination with a geographical or cultural link with this country.export destination choice, spatial correlation, firm-level customs data, MFA/ATC quota removal

Spatial Exporters

In this paper, we provide evidence that expanding firms tend to serve new markets which are geographically close and culturally related to their prior export destinations. We quantify the impact of this spatial pattern using a Chinese firm-level data set. To ensure an exogenous set of potential new destinations (25 EU countries, US and Canada) and an exogenous timing of entry, we focus on firms that benefited from the abrupt end of the textile quota restrictions in 2005. Controlling for firmproduct and destination specific effects and ac- counting for possible multiple new export destinations we show that the probability to export to a country increases by 15 to 38 percent for each prior export destination with a geographical or cultural link with this country.export destination choice, spatial correlation, firm-level customs data, MFA/ATC quotaremoval

Protectionism through exporting: subsidies with exportshare requirements in China

We study the effect of subsidies subject to export share requirements (ESR) - that is, conditioned on a firm exporting at least a given fraction of its output - on exports, the intensity of competition and welfare, through the lens of a two-country model of trade with heterogeneous firms. Our calibrated model suggests that this type of subsidy boosts exports more and provides greater protection for domestic firms than a standard unconditional export subsidy, albeit at a substantial welfare cost

Innovation union: costs and benefits of innovation policy coordination

In this paper, we document large heterogeneity in innovation policy and performance between old and new EU member states, and present firm-level evidence on the close link between foreign direct investment (FDI) spillovers and eastern European _firms' innovation. Guided by these facts and motivated by the pressing debate on further EU integration, we build a two-region endogenous growth model to analyse the gains from innovation policy cooperation in an economic union. The two regions, the West (the old members) and the East (the new post-2004 members), feature firms competing in innovation for market leadership, are integrated via free trade and costly technology transfer via FDI and have different innovation performance and policy. Calibrating the model to reproduce key features of the EU economy, we compare the outcomes of an East-West R&D subsidy war with a cooperation scenario with unified subsidy across regions, and obtain three main results. First, we find that the dynamic gains spurring from the impact of cooperation on the economy's growth rate are sizable and substantially larger than the static gains obtained internalising the strategic motive for subsidies. Second, our model suggests that the presence of FDI and multinational production alleviates the strategic motive and increases the gains from cooperation. Third, separating FDI and innovation policy generates larger gains from cooperation, a policy complementarity driven by the knowledge spillovers carried by FDI

Twin Peaks

Received wisdom suggests that most exporters sell the majority of their output domestically. In this paper, however, we show that the distribution of export intensity not only varies substantially across countries, but in a large number of cases is also bimodal, displaying what we refer to as twin peaks. We reconcile this new stylized fact with an otherwise standard, two-country model of trade in which firms are heterogeneous in terms of the demand they face in each market. We show that when rm-destination-specific revenue shifters are distributed lognormal, gamma, or Frechet with sufficiently high dispersion, the distribution of export intensity has two modesin the boundaries of the support and their height is determined by a country's size relative to the rest of the world. We estimate the deep parameters characterizing the distribution of export intensity. Our results show that when the conditions for the existence of twin peaks are met, differences in relative market size can explain most of the observed variation in the distribution of export intensity across the world