INTERNATIONAL TRANSMISSION OF BUSINESS CYCLES. ESRI Research Bulletin 2010/3/2

Increased international economic integration over the past two decades has stimulated a growing academic and policy interest in the analysis of the international transmission of business cycles. There has been renewed interest recently in this research topic notably in relation to the current global financial and economic crisis. In an increasingly integrated world economy, understanding the extent to which business cycles propagate across countries and regions and their underlying factors is highly important to investors and policy makers. Furthermore, in the case of monetary unions, business cycle synchronisation is taken as an indication of a low probability of asymmetric shocks and so of a low cost of losing independence over monetary and exchange rate policies

Patterns and determinants of business cycle synchronization in the enlarged European Economic and Monetary Union

This paper provides empirical evidence about the degree of business cycle synchronization between the euro area countries and eight new European Union member states. We analyze the direct and indirect effects of similarity of economic structures and trade intensity on the co-movement of fluctuations of economic activity across these countries and find that bilateral similarity of economic structures and trade intensity were positively and significantly associated with business cycle correlations. This result is robust to different estimation techniques. Similarity of economic structures had an additional indirect positive effect on business cycle synchronization via its positive effect on trade intensity. The bilateral business cycle correlations are found to be endogenous with respect to bilateral similarity of economic structures and bilateral trade intensity suggesting that the new European Union countries will better satisfy the Optimum Currency Area criteria after the adoption of the euro.European Economic and Monetary Union, optimum currency area, international transmission of business cycles.

The Impact of Foreign Direct Investment to China on Foreign Direct Investment to Other Countries. ESRI Research Bulletin 2012/4/3

China has recently become a leading destination for foreign direct investment (FDI). The surge of FDI to China has followed its opening to the world economy and selective easing of capital controls. While the main motivation driving the increased inflows of foreign investment to China has been the availability of a large pool of low-cost labour, in recent years there has been a shift of inward FDI in China towards high-tech industries and services

Determinants of ICT Adoption: Evidence from Firm-Level Data

We analyse factors driving ICT adoption at firm level using data from Irish manufacturing firms over the period 2001-2004. Our results indicate that the adoption of ICT has been uneven across firms, industries and space. On average, other things equal, firms with more skilled workers, firms operating in ICT-producing and ICT-using industries, and firms located in the capital city region have been relatively more successful in adopting and using ICT. We find positive technology spillovers from firms that have adopted ICT located in the same region and industry. To a certain extent, patterns of ICT adoption are different for domestic and foreign-owned firms, in particular with respect to the effects of international competitive pressure and firm size.Human capital/ICT adoption/Industrial structure/Technology spillovers

MACROECONOMIC DIFFERENTIALS AND ADJUSTMENT IN THE EURO AREA. ESRI Research Bulletin 2009/3/1

In a monetary union such as the Euro Area, monetary policy can only address common shocks. Adjustment to asymmetric shocks – country specific shocks or common shocks which affect countries in different ways – cannot take place through monetary policy, nominal interest rates or exchange rates but must take place through other mechanisms. Theory suggests four main channels through which equilibrium can be restored: a) market-driven price and output adjustment; b) policy induced fiscal adjustment; c) risk-sharing against country-specific shocks through fiscal transfers and financial integration; and d) labour mobility

Determinants of firms' inputs sourcing choices: the role of institutional and regulatory factors. ESRI WP599, September 2018

Using the theoretical framework of global sourcing with firm heterogeneity, we examine determinants of inputs sourcing choices of manufacturing firms established in the EU countries. To this purpose, we combine information on the ownership structure and company accounts from the Orbis data set with input-output data from the World Input-Output Tables (WIOT) and with information on institutional and regulatory factors at country level provided by international organisations. Our research findings indicate that manufacturing firms that source inputs intra-firm via foreign direct investment (FDI) across EU countries are larger, more productive, more intensive in tangible and intangible capital and less intensive in skills than manufacturing firms that source inputs at arm’s length. The probability of integrating inputs by manufacturing firms across EU countries is positively linked with the strength of legal systems, flexibility of labour markets and negatively linked to corporate tax rates and financial development in host countries. Less efficient insolvency procedures are associated with a higher probability of sourcing inputs intra-firm via FDI relative to arm’s length sourcing. The probability of sourcing inputs via FDI is negatively linked to sectoral restrictions to FDI and positively linked to the impact of service regulations on downstream industries

Patterns and determinants of business cycle synchronization in the enlarged European Economic and Monetary Union

This paper provides empirical evidence about the degree of business cycle synchronization between the euro area countries and eight new European Union member states. We analyze the direct and indirect effects of similarity of economic structures and trade intensity on the co-movement of fluctuations of economic activity across these countries and find that bilateral similarity of economic structures and trade intensity were positively and significantly associated with business cycle correlations. This result is robust to different estimation techniques. Similarity of economic structures had an additional indirect positive effect on business cycle synchronization via its positive effect on trade intensity. The bilateral business cycle correlations are found to be endogenous with respect to bilateral similarity of economic structures and bilateral trade intensity suggesting that the new European Union countries will better satisfy the Optimum Currency Area criteria after the adoption of the euro

Is FDI into China Crowding Out FDI into the European Union?

We estimate an augmented gravity panel model to analyse the effects of FDI into China originating in OECD countries on FDI into EU and other countries over the period 1990-2004. Our results suggest that on average, ceteris paribus, over the analysed period, FDI inflows into China have been complementary to FDI inflows into EU15 countries but they have substituted FDI into the new EU countries in Central and Eastern Europe. In particular, small economies such as Bulgaria and the Baltic countries have been affected negatively by the surge in the FDI into China. This FDI diversion appears in the case of efficiency-seeking FDI.DYNREG, Foreign direct investment, China, European Union

Boosting Innovation and Productivity in Enterprises: What Works?

A return to economic growth and higher employment requires growth in the number and sustainability of Irish enterprises. Innovation at enterprise level is essential for sustainability and competitiveness and plays a major role in increasing overall productivity. Understanding the determinants of enterprise innovation and how it affects productivity is important for designing effective innovation policies. The tight fiscal constraints and the urgency of achieving successful outcomes require that government policies aimed at enhancing enterprise innovation and raising productivity need to be very effective. This paper draws on recent international theoretical and empirical literature based on enterprise level data to explore four questions: Does innovation contribute to higher productivity? Which types of enterprises invest in innovation? Which enterprises have higher innovation expenditure per employee? Which types of enterprises are more likely to innovate successfully? We then look at what these findings imply for policy in relation to indigenous enterprises, whether the current policy mix is appropriate and how it might become more effective.Productivity

The impact of investment in innovation on productivity: firm level evidence from Ireland. ESRI WP571, September 2017

This paper examines the relationship between investment in innovation and productivity across firms in Ireland. We estimate a structural model using information from three linked micro data sets over the period 2005-2012 and identify the relationships between investment in innovation, innovation outputs and productivity. Our results indicate that innovation is positively linked to productivity. This result holds for all types of innovation and for both R&D and non-R&D expenditures. The innovation-related productivity gains range from 16.2 per cent to 35.4 per cent. The strongest link between innovation and productivity is found for firms with R&D spending and with product innovation