Delphine Irac

Estimation of a Time Varying NAIRU for France

Among several concepts encompassed by the idea of an equilibrium rate of unemployment (labour mismatch, unemployment trend, non inflationary unemployment, structural unemployment), the NAIRU appears as the most interesting one for a central bank since it focuses directly on inflation. Thus, the paper considers the reduced Phillips equation, assuming a stable relationship between inflation and some kind of demand disequilibrium index, as the most promising starting point to estimate an equilibrium rate of unemployment.

Short-Run Assessment of French Economic Activity Using OPTIM

This paper describes a short-term projection model for French economic activity, OPTIM, the aim of which is twofold. First it gives an early estimate of real GDP growth for the previous quarter, when no figure has yet been released by Insee, the French National Statistical Institute, along with flash estimates for main GDP components (consumption, investment, inventories and external trade) together with a breakdown by sectors (services, manufacturing, construction, equipment, agri-food). This appears particularly useful for the short-run analysis. In this respect OPTIM may be considered as a traditional bridge equation model since it links a particular indicator available generally ahead of the release of the quarterly national accounts with a quarterly aggregate like GDP, consumption…. Second, this tool supplies also estimates for GDP growth and its main components for the current quarter and for the next quarter (i.e two and three quarters respectively following the latest reference period of Insees GDP data release). A pool of (mainly) monthly variables is used, which are, sometimes, directly introduced in the specification but, more often, summarised by the implementation of a principal component analysis (PCA). The largest part of the set of indicators comprises survey data together with monthly traditional indicators (industrial production, consumption in manufactured goods…). But other data (in particular financial data) are also introduced. The outcomes of OPTIM rely on a relatively complex procedure involving about twenty equations and mixing two alternative approaches: a supply approach consisting in a direct modelling of GDP and a demand approach where GDP is the sum of consumption, investment, changes in stocks and net trade (exports minus imports). The discrepancy between these two estimates is distributed according to an original method, yielding a unique GDP estimation. The paper is organised as follows. Section 1 presents the main features of OPTIM. Section 2 deals with data description while section 3 addresses the data assessments issue. In section 4, the main equations are described. Section 5 presents a general assessment of OPTIM in terms of forecasting record. Finally section 6 concludes and proposes some avenues for further developments.

The Determinants of Intrafirm Trade: Evidence from French Firms

How well does the theory of the firm explain the choice between intrafirm and arms-length trade? This paper uses firm-level import data from France to look into this question. We find support for three key predictions of property rights theories of the multinational firm. Intrafirm imports are more likely in capital- and skill-intensive firms, in highly productive firms, and from countries with well-functioning judicial institutions. We bridge previous aggregate findings with our investigation by decomposing intrafirm imports into an extensive and intensive margin and uncover interesting patterns in the data that require further theoretical investigation.

Financial constraints and foreign market entries or exits: firm-level evidence from France

This paper studies the effect of credit constraints on the expansion and survival of firms in foreign markets. It develops a model in which, lower access to external finance, or reduced internal liquidity, hampers the firm ability to finance the recurrent costs to serve foreign markets and decreases firm survival in foreign markets. Additionally, financial constraints act as a barrier to firm export expansion by decreasing the firm ability to finance the entry costs into new export markets; thus, they push firm to avoid losing destinations. We use a unique longitudinal dataset on French firms that contains information on export destinations of individual firms and allows us to construct various firm-level measures of financial constraints to test these predictions. We obtain two main results. First, credit constraints have a negative effect on the number of newly served destinations. Second, higher probability of exit from the export market is also associated with credit constraints; that is consistent with constraints limiting the financing of recurrent export costs.

Risk Insurance in a Transition Economy: Evidence from Rural Romania

We test the hypothesis of Pareto optimal risk-sharing in a transition economy using a new dataset on a representative sample of 364 rural households from Romania. We identify income shocks as instances of adverse weather, crop and animal diseases, as well as illness and unemployment spells. Despite limited participation of Romanian rural households in formal insurance and credit markets, we fail to reject the hypothesis of full insurance of total non-durable consumption and its components. Survey responses indicate that the main channels of consumption smoothing are self-insurance (for adverse weather, crop and animal diseases), public transfers (for unemployment spells), and to a lesser extent, family ties. We find that adverse weather is associated with higher growth rates of non-food expenditures. Furthermore, richer households are better able to cope with crop failure than poorer households. An alternative explanation to our not rejecting the hypothesis of full insurance is that some shocks to consumption (e.g., illness) play the role of preference shifters of the utility function.

Competition, R&D, and the Cost of Innovation

This paper proposes a model in the spirit of Aghion et al. (2005) that encompasses the magnitude of the impact of competition on RD at the extreme end, in certain sectors, the curve is so at that competition policy is not an appropriate tool for boosting the research effort of firms.

Total factor productivity and the decision to serve foreign markets: Firm level evidence from France

This paper examines productivity differences between firms doing foreign direct investment (FDI) and domestic firms on a sample of 28,133 continuing French firms over the period 1996-2002. The main contribution of this paper is to scrutinize the links between the different modes of globalization (exporting vs. setting up an affiliate overseas) and address the question of causality between productivity and global expansion. Comparing domestic firms and extra-firm exporters of goods, we find that pre-entry selection is more important than post-market-entry effects. Pre-entry boosts to productiVity are interpreted as a reflection of sunk cost to exporting in our framework while the absence of post-entry productivity effects is interpreted as an absence of learning effects associated with exporting. This result does not seem to fully hold for exports of services, which we consider as a partial evidence of foreign knowledge spillovers at work in the exports of services; more in-depth investigation would be probably fruitful to identify the dynamics of the diffusion process.

Revisiting the Proximity-Concentration Trade-Off: Distance and Horizontal Foreign Direct Investment in OECD Countries

This paper provides new insights in the link between distance and Foreign Direct Investment (FDI) in OECD countries. We find that the impact of distance on flows and stocks of FDI, controlling for exports, is negative and strongly significant, in line with gravity models, whereas in a standard proximity-concentration framework the impact should be positive. We propose a harmonized theoretical framework, allowing for distance increasing fixed costs, to reconcile these conflicting conclusions. This model is tested using alternative measures of distance (geographical/monetary/financial/legal/cultural) on OECD countries (1997-2001) and the impact of cultural distance appears strongly predominant in this setup.

Access to new imported varieties and total factor productivity: Firm level evidence from France

This paper aims at providing causal evidence on the effects of expanded imported varieties on total factor productivity (TFP) using French firm level data. Our strategy is to build an exact index of increase in varieties -using the Broda, Greenfield and Weinstein (2006) methodology. This index captures the impact of new varieties on total factor productivity within a Dixit-Stiglitz framework based on a Constant Elasticity of Substitution production function. We argue that measurement problems are central to the question we try to address. We deal with this issue using alternative instrumental variables strategies. First, we work with sectoral variety index in order to reduce the effect of outliers. Secondly, working with estimated bilateral imports rather than observed ones, we are able to adjust the variety index for measurement errors and find a strong impact of this index on TFP. New varieties that enter the production function appear as weakly substitutable- with an elasticity of substitution ranging from 1.25 and 1.5 - and conducive to significant TFP growth.

Impact of research tax credit on R&D and innovation: evidence from the 2008 French reform

This paper presents an ex post evaluation of the 2008 reform of the French research tax credit. The tax scheme was massively overhauled, with a switch to a pure volume-based design, leading to a large increase in the number of firms applying and an important increase in the cost of the scheme. Given the timing and the characteristics of the reform, measuring its causal impact is challenging. We have relied on four unique sources of data – R&D surveys, administrative tax data, firm characteristics and patent datasets – to assess how French firms have reacted to these changes in incentives. Our empirical strategies rest on combining difference in differences with matching methods and taking advantage of the particular way the 2008 reform has affected incentives to invest in R&D. Our results suggest a positive effect of the 2008 reform on R&D at both the intensive margin and extensive margin, but a possible lower impact on innovation than could have been expected.