Multinational Performance and the Geography of FDI:evidence from 46 countries

The literature on multinationality and firm performance has generally disregarded the role of geography. However, the location of FDI assumes particular importance in terms of the link between multinationality at the firm level. The purpose of this paper is to consider the multinationality-performance relationship within the context of greater emphasis on the importance of location, but also emphasising the importance of the location decision. This paper draws on firm-level data covering over 16,000 multinationals from 46 countries over the period of 1997-2007 and allows for different effects upon the performance of the multinational firm depending on the level of development of the host economy. In our results, we find a clear positive relation between multinationality and firm performance. However, investment in developing countries is associated with larger effects on performance than in the case of investment in developed countries. We also find that the return to investing in developing countries is U-shaped. This indicates that multinationals are likely to face losses in the early stage of their investment in developing countries before the positive returns are realized. Overall, our results suggest that the net gains for multinationals from greater geographical diversification have not yet been fully explored. Geographical diversification into developing countries may be an important source of competitive advantages that deserves more serious consideration from business leaders and academics alike. © 2013 Springer-Verlag Berlin Heidelberg.

Does ownership concentration improve M&A outcomes in emerging markets?: Evidence from India

Using firm level data from India, we examine the impact of ownership concentration on post-M&A performance of firms. Our analysis has implications for both the M&A literature, which emphasises the role of agency conflict between managers and owners of widely held companies as a key reason for M&A failures, and the corporate governance literature, especially in the context of emerging market economies. A cautious interpretation of our results suggests that while ownership concentration may reduce the manager–owner agency conflict, it may nevertheless precipitate other forms of agency conflict such that ownership concentration may not necessarily improve post-M&A performance. In particular, our results have implications for the literature on the agency conflict between large (or majority) shareholders and small (or minority) shareholders of a company, especially in contexts such as emerging market economies where corporate governance quality is weak.

A note on a semiparametric approach to estimating financing constraints in firms

In this paper, we present a novel approach to modeling financing constraints of firms. Specifically, we adopt an approach in which firm-level investment is a nonparametric function of some relevant firm characteristics, cash flow in particular. This enables us to generate firm-year specific measures of cash flow sensitivity of investment. We are therefore able to draw conclusions about financing constraints of individual firms as well as cohorts of firms without having to split our sample on an ad hoc basis. This is a significant improvement over the stylized approach that is based on comparison of point estimates of cash flow sensitivity of investment of the average firm of ad hoc sub-samples of firms. We use firm-level data from India to highlight the advantages of our approach. Our results suggest that the estimates generated by this approach are meaningful from an economic point of view and are consistent with the literature. © 2014 © 2014 Taylor & Francis.

The relationship between internationalisation and innovation:internationalisation strategies, foreign firms', patenting behaviour and FDI spillovers

This thesis aims to contribute to the understanding of the relationships between internationalisation and innovation. Based on large comprehensive firm level data from China, this thesis comprises of three empirical chapters examining internationalisation from different aspects. Specifically, the first empirical work studies how firms internationalise. It links the choice of firms’ internationalisation strategies with firm characteristics. Additionally, it re-examines the stepwise internationalisation theory by distinguishing different foreign direct investment (FDI) motives. It proposes two pecking orders of firm performance in internationalisation strategies. The second empirical study investigates what kind of innovation activities internationalised firms do. It analyses the factors that drive foreign firms to patent in an emerging host country context. It stresses the importance of the intellectual property rights protection aspect of business environment at regional level in promoting patents, the role of industry dependence on external finance in shaping foreign firms’ patenting behaviour, as well as links foreign firms’ patent production with FDI motivation. The third empirical research examines the effect of internationalisation by examining the links between inward FDI and domestic innovation in a host country. It specifically examines technology spillovers from inward FDI through the direct lens of innovation (captured by grant patents), instead of adopting the indirect productivity approach widely employed by the literature. Distinguishing different types of innovation, it provides direct evidence of heterogeneous innovation spillovers from FDI.

A strategic perspective of cross-listing by emerging market firms:evidence from Indonesia, Mexico, Poland and South Africa

This paper develops an approach to the analysis of cross-listing that brings together the financial and non-financial benefits of the phenomenon. We employ the real options framework, which offers a detailed characterisation of the strategic issues associated with cross-listing, in the context of internationalisation of emerging market firms. The associated hypotheses are tested using firm-level data from four large emerging market economies with different profiles in terms of institutional quality and financial development. This allows us to extend the existing literature by isolating the relative importance of institutional quality and financial development for the benefits of cross-listing.

Ownership control of foreign affiliates:a property rights theory perspective

This paper applies property rights theory to explain changes in foreign affiliates’ ownership. Post-entry ownership change is driven by both firm-level characteristics and by the differences in the institutional environments in host countries. We distinguish between financial market development and the level of corruption as two different institutional dimensions, such that changes along these dimensions impact upon ownership change in different ways. Furthermore, we argue that changes in ownership are affected by the foreign affiliate’s relatedness with its parent’s sector, as well as by the affiliate’s maturity. We use firm level data across 125 host countries to test our hypotheses.

Essays on Job Search and Labor Market Dynamics

This dissertation consists of three separate essays on job search and labor market dynamics. In the first essay, “The Impact of Labor Market Conditions on Job Creation: Evidence from Firm Level Data”, I study how much changes in labor market conditions reduce employment fluctuations over the business cycle. Changes in labor market conditions make hiring more expensive during expansions and cheaper during recessions, creating counter-cyclical incentives for job creation. I estimate firm level elasticities of labor demand with respect to changes in labor market conditions, considering two margins: changes in labor market tightness and changes in wages. Using employer-employee matched data from Brazil, I find that all firms are more sensitive to changes in wages rather than labor market tightness, and there is substantial heterogeneity in labor demand elasticity across regions. Based on these results, I demonstrate that changes in labor market conditions reduce the variance of employment growth over the business cycle by 20% in a median region, and this effect is equally driven by changes along each margin. Moreover, I show that the magnitude of the effect of labor market conditions on employment growth can be significantly affected by economic policy. In particular, I document that the rapid growth of the national minimum wages in Brazil in 1997-2010 amplified the impact of the change in labor market conditions during local expansions and diminished this impact during local recessions.

In the second essay, “A Framework for Estimating Persistence of Local Labor

Demand Shocks”, I propose a decomposition which allows me to study the persistence of local labor demand shocks. Persistence of labor demand shocks varies across industries, and the incidence of shocks in a region depends on the regional industrial composition. As a result, less diverse regions are more likely to experience deeper shocks, but not necessarily more long lasting shocks. Building on this idea, I propose a decomposition of local labor demand shocks into idiosyncratic location shocks and nationwide industry shocks and estimate the variance and the persistence of these shocks using the Quarterly Census of Employment and Wages (QCEW) in 1990-2013.

In the third essay, “Conditional Choice Probability Estimation of Continuous- Time Job Search Models”, co-authored with Peter Arcidiacono and Arnaud Maurel, we propose a novel, computationally feasible method of estimating non-stationary job search models. Non-stationary job search models arise in many applications, where policy change can be anticipated by the workers. The most prominent example of such policy is the expiration of unemployment benefits. However, estimating these models still poses a considerable computational challenge, because of the need to solve a differential equation numerically at each step of the optimization routine. We overcome this challenge by adopting conditional choice probability methods, widely used in dynamic discrete choice literature, to job search models and show how the hazard rate out of unemployment and the distribution of the accepted wages, which can be estimated in many datasets, can be used to infer the value of unemployment. We demonstrate how to apply our method by analyzing the effect of the unemployment benefit expiration on duration of unemployment using the data from the Survey of Income and Program Participation (SIPP) in 1996-2007.

Editor's choice Regional trade agreements and export competitiveness: the uncertain path of Nicaragua’s apparel exports under CAFTA

The Central American Free Trade Agreement (CAFTA) has been a mixed blessing for economic development. While exports to the US economy have increased, dependency may hinder economic growth if countries do not diversify or upgrade before temporary provisions expire. This article evaluates the impact of the temporary Tariff Preference Levels (TPLs) granted to Nicaragua under CAFTA and the consequences of TPL expiration. Using trade statistics, country- and firm-level data from Nicaragua’s National Free Zones Commission (CNZF) and data from field research, we estimate Nicaragua’s apparel sector will contract as much as 30–40% after TPLs expire. Our analysis underscores how rules of origin and firm nationality affect where and how companies do business, and in so doing, often constrain sustainable export growth.

From Unemployment to Sustainable Livelihoods in Ottawa's Technology Sector (Working Paper 44)

Since submission of the draft report to the OECD‐LEED Program on 30 June 2007, a unique seven‐years retrospective study of the unemployed high technology workers was released by Statistics Canada.1 Drawing upon Statistics Canada’s confidential Longitudinal Worker File – itself constructed from four administrative data sources that linked Records of Employment and tax filer information by the Social Insurance Number and firm‐level data by a company identifier – this study was able to identify and trace the re‐employment of those permanently laid off in the high‐tech industry by location. The findings are stunning.

Effects of subsidizing the first employee – Empirical evidence from Finland

Small businesses form a significant share of all businesses and employ a large share of all employees. Therefore, governments are often interested in subsidizing them and especially employment in smaller firms. Nonemployer firms have received special interest, especially in Finland, due to their large share of all businesses. It has been argued that the government should encourage them to hire by subsidizing employment. However, there is no evidence on the effectiveness of such policies. In general, there is surprisingly little evidence on how small firms react to employment subsidies or of employment subsidies targeted according to firm characteristics. The subject of this thesis is the effects of subsidizing the first employee. While theoretical background suggests the subsidy might have efficiency gains, because there might be market inefficiencies that lead to too little employment in small firms. The focus of this research, however, is on the empirical evidence. There was a regional subsidy for hiring the first employee in Finland between 2007 and 2011. Nonemployer firms in the subsidy area were eligible for a wage subsidy for two years when they hired the first employee. The design of the subsidy enables studying the effects in a natural experiment framework that are nowadays popular in public economics. It can be shown that the area without the subsidy provides a good counterfactual to the area where the subsidy was available. Therefore, the effects of the subsidy can be estimated with difference-in-differences method. This method compares the change in the subsidy area to the change in the area without the subsidy. The data used is firm level data spanning from 2000 to 2013. The data is provided by the Finnish Tax Administration including tax declarations by all Finland based companies. The effects for hiring decisions are estimated by examining the effects for alternative variables such as employment, wage expenditure and turnover. According to the results, the subsidy did not have statistically significant effect on any of the variables of interest. Therefore, it can be concluded that the subsidy did not increase hires in nonemployer firms. This implies that the labour demand elasticity of nonemployer firms is very small. The results are in line with previous literature on the effectiveness of general employment subsidies in Scandinavia that suggest that labour demand elasticity is rather small resulting in small or no effects of employment subsidies. However, my research provides new evidence on labour demand of nonemployer firms especially that has not been studied before. The results are in line with the observation that most nonemployer firms are self-employed persons who are not interested in growing their business to employ others as well, but only provide for themselves. Because of this employment subsidies to the self-employed are not particularly well targeted. The theoretical grounds for the subsidy actually hold for other small firms as well, so it can be argued the subsidy would be more effective if it was extended for hiring the first few employees.

Essays on Uncertainty, Imperfect Information, and Investment Dynamics

Understanding how imperfect information affects firms' investment decision helps answer important questions in economics, such as how we may better measure economic uncertainty; how firms' forecasts would affect their decision-making when their beliefs are not backed by economic fundamentals; and how important are the business cycle impacts of changes in firms' productivity uncertainty in an environment of incomplete information. This dissertation provides a synthetic answer to all these questions, both empirically and theoretically. The first chapter, provides empirical evidence to demonstrate that survey-based forecast dispersion identifies a distinctive type of second moment shocks different from the canonical volatility shocks to productivity, i.e. uncertainty shocks. Such forecast disagreement disturbances can affect the distribution of firm-level beliefs regardless of whether or not belief changes are backed by changes in economic fundamentals. At the aggregate level, innovations that increase the dispersion of firms' forecasts lead to persistent declines in aggregate investment and output, which are followed by a slow recovery. On the contrary, the larger dispersion of future firm-specific productivity innovations, the standard way to measure economic uncertainty, delivers the ``wait and see" effect, such that aggregate investment experiences a sharp decline, followed by a quick rebound, and then overshoots. At the firm level, data uncovers that more productive firms increase investments given rises in productivity dispersion for the future, whereas investments drop when firms disagree more about the well-being of their future business conditions. These findings challenge the view that the dispersion of the firms' heterogeneous beliefs captures the concept of economic uncertainty, defined by a model of uncertainty shocks. The second chapter presents a general equilibrium model of heterogeneous firms subject to the real productivity uncertainty shocks and informational disagreement shocks. As firms cannot perfectly disentangle aggregate from idiosyncratic productivity because of imperfect information, information quality thus drives the wedge of difference between the unobserved productivity fundamentals, and the firms' beliefs about how productive they are. Distribution of the firms' beliefs is no longer perfectly aligned with the distribution of firm-level productivity across firms. This model not only explains why, at the macro and micro level, disagreement shocks are different from uncertainty shocks, as documented in Chapter 1, but helps reconcile a key challenge faced by the standard framework to study economic uncertainty: a trade-off between sizable business cycle effects due to changes in uncertainty, and the right amount of pro-cyclicality of firm-level investment rate dispersion, as measured by its correlation with the output cycles.

Capital structure, risk and asymmetric information : theory and evidence

This paper proposes a principal-agent model between banks and firms with risk and asymmetric information. A mixed form of finance to firms is assumed. The capital structure of firms is a relevant cause for the final aggregate level of investment in the economy. In the model analyzed, there may be a separating equilibrium, which is not economically efficient, because aggregate investments fall short of the first-best level. Based on European firm-level data, an empirical model is presented which validates the result of the relevance of the capital structure of firms. The relative magnitude of equity in the capital structure makes a real difference to the profits obtained by firms in the economy.

Measuring the costs of FTA utilization : evidence from transaction-level import data of Thailand

In this study, we measure the utilization costs of free trade agreement (FTA) tariff schemes. To do that, we use shipment-level customs data on Thai imports, which identify not only firms, source country, and commodity but also tariff schemes. We propose several measures as a proxy for FTA utilization costs. The example includes the minimum amount of firm-level savings on tariff payments, i.e., trade values under FTA schemes multiplied by the tariff margin, in all transactions. Consequently, the median costs for FTA utilization in 2008, for example, are estimated to be approximately US$2,000 for exports from China, US$300 for exports from Australia, and US$1,000 for exports from Japan. We also found that FTA utilization costs differ by rule of origin and industry.

Knowledge stocks, knowledge flows and innovation: Evidence from matched patents and innovation panel data

Successful innovation depends on knowledge – technological, strategic and market related. In this paper we explore the role and interaction of firms’ existing knowledge stocks and current knowledge flows in shaping innovation success. The paper contributes to our understanding of the determinants of firms’ innovation outputs and provides new information on the relationship between knowledge stocks, as measured by patents, and innovation output indicators. Our analysis uses innovation panel data relating to plants’ internal knowledge creation, external knowledge search and innovation outputs. Firm-level patent data is matched with this plant-level innovation panel data to provide a measure of firms’ knowledge stock. Two substantive conclusions follow. First, existing knowledge stocks have weak negative rather than positive impacts on firms’ innovation outputs, reflecting potential core-rigidities or negative path dependencies rather than the accumulation of competitive advantages. Second, knowledge flows derived from internal investment and external search dominate the effect of existing knowledge stocks on innovation performance. Both results emphasize the importance of firms’ knowledge search strategies. Our results also re-emphasize the potential issues which arise when using patents as a measure of innovation.

Contributions towards smart cities : exploring block level census data for the characterization of change in Lisbon

The interest in using information to improve the quality of living in large urban areas and its governance efficiency has been around for decades. Nevertheless, the improvements in Information and Communications Technology has sparked a new dynamic in academic research, usually under the umbrella term of Smart Cities. This concept of Smart City can probably be translated, in a simplified version, into cities that are lived, managed and developed in an information-saturated environment. While it makes perfect sense and we can easily foresee the benefits of such a concept, presently there are still several significant challenges that need to be tackled before we can materialize this vision. In this work we aim at providing a small contribution in this direction, which maximizes the relevancy of the available information resources. One of the most detailed and geographically relevant information resource available, for the study of cities, is the census, more specifically the data available at block level (Subsecção Estatística). In this work, we use Self-Organizing Maps (SOM) and the variant Geo-SOM to explore the block level data from the Portuguese census of Lisbon city, for the years of 2001 and 2011. We focus on gauging change, proposing ways that allow the comparison of the two time periods, which have two different underlying geographical bases. We proceed with the analysis of the data using different SOM variants, aiming at producing a two-fold portrait: one, of the evolution of Lisbon during the first decade of the XXI century, another, of how the census dataset and SOM’s can be used to produce an informational framework for the study of cities.