Carlo Altomonte

Trade Complexity and Productivity

We exploit a panel dataset of Hungarian firms merged with product-level trade data for the period 1992-2003 to investigate the relation between firms trading activities (importing, exporting or both) and productivity. We find important self-selection effects of the most productive firms induced by the existence of heterogeneous sunk costs of trade, for both importers and exporters. We relate these sunk costs of trade to the relationship-specific nature of the trade activities, entailing a certain degree of technological and organizational complexity. We also show that, to the extent that imports and exports are correlated within firms, failing to control for the importing activity leads to overstated average productivity premia of exporters.

Internationalization and innovation of firms: evidence and policy

We use a representative and cross-country comparable sample of manufacturing firms (EFIGE) to document patterns of interaction among firm-level internationalization, innovation and productivity across seven European countries (Austria, France, Germany, Hungary, Italy, Spain, United Kingdom). We find strong evidence of positive association among the three firm-level characteristics across countries and sectors. We also find that the positive correlation between internationalization and innovation survives after controlling for productivity, with some evidence of causality running from the latter to the former. Our analysis suggests that export promotion per se is unlikely to lead to sustainable internationalization because internationalization goes beyond export and because, in the medium to long term, internationalization is likely driven by innovation. We recommend coordination and integration of internationalization and innovation policies under one roof at both the national and EU levels, and propose a bigger coordinating role for EU institutions.

Global Value Chains during the Great Trade Collapse: A Bullwhip Effect?

This paper analyzes the performance of global value chains during the trade collapse. To do so, it exploits a unique transaction-level dataset on French firms containing information on cross-border monthly transactions matched with data on worldwide intrafirm linkages as defined by property rights (multinational business groups, hierarchies of firms). This newly assembled dataset allows us to distinguish firm-level transactions among two alternative organizational modes of global value chains: internalization of activities (intragroup trade/trade among related parties) or establishment of supply contracts (arms length trade/trade among unrelated parties). After an overall assessment of the role of global value chains during the trade collapse, we document that intra-group trade in intermediates was characterized by a faster drop followed by a faster recovery than arms length trade. Amplified fluctuations in terms of trade elasticities by value chains have been referred to as the bullwhip effect and have been attributed to the adjustment of inventories within supply chains. In this paper we first confirm the existence of such an effect due to trade in intermediates, and we underline the role that different organizational modes can play in driving this adjustment. JEL Classification: F23, F15, L22

Comparative study of FDI in Central and Eastern Europe and the Mediterranean

The European Union (EU) is currently being exposed to strong integration dynamics. However, the full implications of such dynamics for the location of foreign direct investment (FDI) for both the European Union and the bordering countries are not understood. We construct a panel of more than 3500 European multinationals that have invested in Central and Eastern Europe (CEE) and the Mediterranean (MED) over the 1990–1997 period in 48 NACE 3 industries. After controlling for industry and time-specific effects, it is found that Central and Eastern Europe displays a greater potential in the attraction of FDI flows when compared to the Mediterranean region.

Multinational Corporations as Catalyst for Industrial Development: The Case of Poland

In a recent model Markusen and Venables (1999) describe the conditions under which foreign direct investments (FDI) can act as a catalyst for local industrial development. We apply this framework to the case of Poland, allowing for the entry of multinationals in both intermediates and consumption goods industry. We check these assumptions against empirical evidence, exploring agglomeration patterns of multinational and domestic firms at the regional level, and constructing an econometric model able to measure the interactions between the two classes of firms. We find evidence going in the direction of both direct spill-overs and backward and forward linkages between domestic and multinational firms.

Economics and Policies of an Enlarged Europe

Carlo Altomonte and Mario Nava have written a very rigorous text in an accessible and jargon-free style, ensuring easy acquisition of invaluable insights into the European economic set-up and the possible evolution of EU policies, including an update on the reform of the Growth and Stability Pact and of the 2007–13 Financial Perspectives.

Business Groups as Hierarchies of Firms: Determinants of Vertical Integration and Performance

We explore the nature of Business Groups, that is network-like forms of hierarchical organization between legally autonomous firms spanning both within and across national borders. Exploiting a unique dataset of 270,474 headquarters controlling more than 1,500,000 (domestic and foreign) affiliates in all countries worldwide, we find that business groups account for a significant part of value-added generation in both developed and developing countries, with a prevalence in the latter. In order to characterize their boundaries, we distinguish between an affiliate vs. a group-level index of vertical integration, as well as an entropy-like metric able to summarize the hierarchical complexity of a group and its trade-off between exploitation of knowledge as an input across the hierarchy and the associated communication costs. We relate these metrics to host country institutional characteristics, as well as to the performance of affiliates across business groups. Conditional on institutional quality, a negative correlation exists between vertical integration and organizational complexity in defining the boundaries of business groups. We also find a robust (albeit non-linear) positive relationship between a groups organizational complexity and productivity which dominates the already known correlation between vertical integration and productivity. Results are in line with the theoretical framework of knowledge-based hierarchies developed by the literature, in which intangible assets are a complementary input in the production processes.

Import Penetration, Intermediate Inputs and Productivity: Evidence from Italian Firms

We test the impact of import penetration on the productivity of a sample of roughly 35,000 Italian manufacturing firms operating in the period 1996-2003, considering the impact on productivity of both import penetration in the same industry and import penetration in the up-stream industries. We also distinguish the source country of imports. We find that: 1) import penetration has a positive effect on productivity. 2) The effects are much larger for import penetration in up-stream industries than for import penetration in the same industry. 3) Imports from the other European countries and the BRICS have more significant impact on the productivity of Italian firms than imports from the US.

The Hazard Rate of Foreign Direct Investment: A Structural Estimation of a Real-option Model

The hazard rate of investment is derived within a real option model, and its properties are analyzed in order to directly study the relation between uncertainty and investment. Maximum likelihood estimates of the hazard are calculated using a sample of MNEs that have invested in Central and Eastern Europe over the period 1990-1998. Employing a standard, non-parametric specification of the hazard, our measure of uncertainty has a negative effect on investment, but the reduced-form model is unable to control for nonlinearities in the relationship. The structural estimation of the option-based hazard is instead able to account for the non-linearities and exhibits a significant value of waiting, though the latter is independent from our measure of uncertainty. This finding supports the existence of alternative channels through which uncertainty can affect investment.

R&D investments, financing constraints, exporting and productivity

ABSTRACT This paper adds new empirical evidence on the mutual relationships between credit constraints, total factor productivity, Research and Development (R&D) investments and exporting, by jointly considering them in a simultaneous equation framework. Our empirical analysis focuses on a large sample of manufacturing firms from France, Germany, Italy and Spain. Our results confirm the well-known mutual positive correlation among exporting, R&D and firms productivity. They also show the existence of a mutual relationship between exporting, productivity and credit constraints: exporters and high productivity firms are less likely to be credit constrained, while better access to credit is associated with larger productivity and a higher probability of exporting. By contrast, we find no significant relation between investing in R&D and the probability to be credit constrained, conditional on exporting. This suggests that efficiency-improving strategies, mediated by the existence of credit constraints, are at the core of firm growth achieved through exporting and innovation.