Ann E. Harrison

Are there positive spillovers from direct foreign investment?: Evidence from panel data for Morocco☆

Abstract Many developing countries now actively solicit foreign investment, offering income tax holidays, import duty exemptions, and subsidies to foreign firms. One reason for subsidizing these firms is the positive spillover from transferring technology to domestic firms. This paper employs a unique firm-level dataset to test for such spillovers in the Moroccan manufacturing sector. We find evidence that the dispersion of productivity is smaller in sectors with more foreign firms. However, we reject the hypothesis that foreign presence accelerated productivity growth in domestic firms during the second half of the 1980s. Using detailed information on quotas and tariffs, we also reject the possibility of a downward bias in estimating technology spillovers because foreign investors may be attracted to protected domestic markets.

Spillovers, foreign investment, and export behavior

Case studies of export behavior suggest that firms who penetrate foreign markets reduce entry costs for other potential exporters, either through learning by doing or through establishing buyer- supplier linkages. We pursue the idea that spillovers associated with one firms export activity reduce the cost of foreign market access for other firms. We identify two potential sources of spillovers: export activity in general and the specific activities of multinational enterprises. We use a simple model of export behavior to derive a logit specification for the probability a firm exports. Using panel data on Mexican manufacturing plants, we find evidence consistent with spillovers from the export activity of multinational enterprises but not with general export activity.

TRADE LIBERALIZATION AND WAGE INEQUALITY IN MEXICO

During the 1980s in Mexico the wage gap between skilled and unskilled workers widened. The authors assess the extent to which this increased wage inequality was associated with Mexicos sweeping trade reform in 1985. Examining data on 2,354 Mexican manufacturing plants for 1984–90 and Mexican Industrial Census data for 1965–88, they find that the reduction in tariff protection in 1985 disproportionately affected low-skilled industries. Goods from that sector, the authors suggest, may have fallen in price because of increased competition from economics with reserves of cheap unskilled labor larger than Mexicos. The consequent increase in the relative price of skill-intensive goods could explain the increase in wage inequality.

Sharing the Costs: The Impact of Trade Reform on Capital and Labor in Morocco

We examine the impact of recent trade reforms. Although employment in the average private sector manufacturing firm was unaffected, there were significant employment losses to exporters and highly affected firms. Parastatals increased employment by hiring low‐paid temporary workers. Many firms did not adjust wages or employment. We examine two possible explanations. First, barriers to labor market mobility could have impeded adjustment. Second, we develop a model of labor demand which allows for imperfect competition and endogenous technological change. Our results suggest that although labor markets were flexible, many firms cut profit margins and raised productivity rather than reducing employment.

Estimating the Impact of Trade and Offshoring on American Workers Using the Current Population Surveys

We link industry-level data on trade and offshoring with individual-level worker data from the Current Population Surveys from 1984 to 2002. We find that occupational exposure to globalization is associated with significant wage effects, while industry exposure has no significant impact. We present evidence that globalization has put downward pressure on worker wages through the reallocation of workers away from higher-wage manufacturing jobs into other sectors and other occupations. Using a panel of workers, we find that occupation switching due to trade led to real wage losses of 12 to 17 percentage points.

Offshoring Jobs? Multinationals and U.S. Manufacturing Employment

Using firm-level data collected by the U.S. Bureau of Economic Analysis, we estimate the impact on U.S. manufacturing employment of changes in foreign affiliate wages. We show that the motive for offshoring and, consequently, the location of offshore activity, significantly affects the impact of offshoring on parent employment. In general, offshoring to low-wage countries substitutes for domestic employment. However, for firms that do significantly different tasks at home and abroad, foreign and domestic employment are complements. These offsetting effects may be combined to show that offshoring by U.S.-based multinationals is associated with a quantitatively small decline in manufacturing employment.

Industrial Policy and Competition

Using a comprehensive dataset of all medium and large enterprises in China between 1998 and 2007, we show that industrial policies allocated to competitive sectors or that foster competition in a sector increase productivity growth. We measure competition using the Lerner Index and include as industrial policies subsidies tax holidays, loans, and tariffs. Measures to foster competition include policies that are more dispersed across firms in a sector or measures that encourage younger and more productive enterprises.

Ownership versus Environment: Disentangling the Sources of Public Sector Inefficiency

An unanswered question in the debate on public-sector inefficiency is whether reforms other than government divestiture can effectively substitute for privatization. Using a 19811995 panel data set of all public and private manufacturing establishments in Indonesia, we analyze whether public-sector inefficiency is primarily due to agency-type problems or to the environment in which public-sector enterprises (PSEs) operate, as measured by the soft budget constraint and the degree of internal and external competition. The results, obtained from fixed-effects specifications, provide support for both models. Ownership matters because, for a given level of government financing or competition, PSEs perform worse than their private-sector counterparts. The environment matters because only PSEs which received government financing or those shielded from import competition or foreign ownership performed worse than private enterprises. The results suggest that the efficiency of PSEs can be increased through privatization, through manipulation of the environment, or through a combination of both approaches.

Labor Markets in Developing Countries: An Agenda for Research

The gap between rich and poor countries has grown over the past century. A hundred years ago, the wealthiest country was 11 times richer ( in per capita income) than the poorest country. By 1985, the ratio of wealth of the richest to the poorest country had grown from 11 to 50. This increase in inequality is a distressing outcome for a globe that seems smaller every day; it is particularly distressing for countries that form the denominator of that wealth ratio. Is this likely to get worse? What can be done to raise the income levels of the poorest countries? Policy prescriptions for the poorest nations are often contradictory. Although providing more employment should alleviate poverty, there is no clear consensus regarding the best policies for expanding employment opportunities in developing countries. Some argue that labor market regulations are necessary to protect the rights of workers and to improve working conditions. Others point out that most regulations discourage firms from hiring workers and thus have the unintended consequence of harming the very people they are designed to protect. Moreover, in developing countries, massive noncompliance is the norm, and regulations like a national minimum wage could simply encourage the expansion of an informal market, where wages are even lower and working conditions even worse. The papers in this issue focus on two issues. The studies by Bell,

Decomposing the Great Trade Collapse: Products, Prices, and Quantities in the 2008-2009 Crisis

The authors identifies a new set of stylized facts on the 2008-2009 trade collapse that they hope can be used to shed light on the importance of demand and supply-side factors in explaining the fall in trade. In particular, they decompose the fall in international trade into product entry and exit, price changes, and quantity changes for imports by Brazil, the European Union, Indonesia, and the United States. When the authors aggregate across all products, most of the countries analyzed experienced a decline in new products, a rise in product exit, and falls in quantity for product lines that continued to be traded. The evidence suggests that the intensive rather than extensive margin mattered the most, consistent with studies of other countries and previous recessionary periods. On average, quantities declined and prices fell. However, these average effects mask enormous differences across different products. Price declines were driven primarily by commodities. Within manufacturing, while most quantity changes were negative, in most cases price changes moved in the opposite direction. Consequently, within manufacturing, there is some evidence consistent with the hypothesis that supply side frictions played a role. For the United States, price increases were most significant in sectors which are typically credit constrained.