Download Effects of export spillovers, FDI, and ownership structures on firms

Effects of export spillovers, FDI, and ownership structures on firms’ performance
Jan Hanousek (Charles University)
Evžen Kočenda (Charles University)
Pavla Vozárová (Prague School of Economics)
INTERNATIONAL TRADE AND INVESTMENT MATTER
TO EUROPE AND EUROPEANS
• European Commission values the benefits of openness:
– Open economies tend to grow faster than closed
economies.
– Trade raises EU growth and gives EU consumers access to a wider variety of goods at lower prices.
– Europe’s openness to foreign direct investment increases
our competitiveness.
• EC is also aware of the drawbacks:
– Whilst remaining vigilant to adjustment costs, Europe must
seize the benefit from more open trade and investment.
– The EU will remain an open economy but we will not be
naive.
Source: Trade, Growth and World Affaris, European Commission Trade, 2010.
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Some numbers…
• …to support previous claims
• FDI in EU declined during the economic crisis but its worldwide share is still about 20%, the economic situation improves and Europe gains confidence for furture investments (OECD, 2015)
• more than 60% of its total FDI flows are intra‐EU investments
• Trade in intermediate goods is now more than two thirds of total trade worldwide (IMF, 2013)
• and accounts for about 55% of the intra‐EU trade alone (OECD, 2013)
IN OUR RESEARCH, WE ADDRESS ISSUES RELEVANT FOR
INDUSTRY STRUCTURE OF THE TARGET ECONOMY
• We focus mainly on the impact of FDI on the host economy.
– The outcome of interest is the performance of domestic firms and the changing market structure.
• We stress the relationship between FDI and international trade.
– We see both as a form of presence of foreign firms in the
domestic market.
– We consider them to be substitutes on horizontal level and
complements on vertical level.
– We claim that we cannot analyze FDI without taking into
account trade (and vice‐versa).
– Comparison of the two allows us to identify the different
impacts of foreign presence on domestic firms.
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THE FIELD IS WELL ESTABLISHED IN ECONOMIC
LITERATURE
• Two types of foreign presence in domestic market: importing
foreign firms and multinational firms engaged in FDI
– Substitutes within industry (Helpman, Melitz & Yeaple, 2004)
– Complements across industries (Bardhan, 2000)
• Two types of impact of foreign presence on domestic firms (Javorcik
& Spatareanu, 2005)
1.
2.
Changing market conditions (competition, demand)
Technological transfers (spillovers)
• Two levels of impact (Markusen & Venables, 1999)
1.
2.
Horizontal (within industry): technological transfers (+), competition
with foreign firms (‐)
Vertical (between industries): technological transfers (+), changing
demand (+/‐)
THERE ARE STILL SIGNIFICANT GAPS THAT OUR RESEARCH AIMS TO FILL
• Most of empirical papers about FDI spillovers do not take into account the effect of competition and/or changing demand (Keller, 2009).
→ Results are inconclusive, as they do not disentangle the two
channels (which may offset or strengthen each other).
• The theoretical support is not unified: theoretical propositions come from different sources.
• The most influential theoretical paper (Markusen & Venables, 1999) that explicitly models horizontal and vertical impact of FDI does not incorporate several important factors.
– Domestic firms cannot coexist with multinationals.
– Producers cannot source their inputs from abroad.
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IN THE PAPER, WE STUDY THE IMPACT OF FDI
ON DOMESTIC SUPPLIERS OF INTERMEDIATE GOODS
• We analyze whether FDI inflow in downstream sector increases the sales of domestic producers of intermediate goods.
• We assume that these producers compete with MNEs and with importers.
• We use data from AMADEUS database (firms) and UN
COMTRADE database (trade flows) and aggregate them at 2‐digit NACE level.
• We establish upstream‐downstream linkages using Eurostat input‐output tables.
• The analysis covers the time period 2001 ‐ 2013 and focuses on both old and new EU countries.
THERE ARE 5 CHANNELS THROUGH WHICH
DOWNSTREAM FDI AFFECTS DOMESTIC SUPPLIERS
1. Changing proportion of intermediate goods supplied by domestic producers
– may be replaced by MNEs in the upstream sector
2. Technological spillover (direct FDI effect)
3. Change in sales of consumer goods
– FDI in downstream sector usually boosts production of
consumer goods ‐ more inputs are needed
– on the other hand, MNEs may be more efficient and may
need less inputs
4. Change in imports
– MNEs in downstream sector may source from abroad
5. Change in exports
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ALL 5 CHANNELS ARE STUDIED WITHIN A FIXED EFFECT MODEL (USING INTERACTION TERMS)
•
•
•
•
•
•
Indices M and D … multinational and domestic firms only
SI … sales of intermediary goods
FDI … FDI in consumer goods sector
SC … sales of consumer goods
II … imports of interediary goods
EI … exports of intermediary goods
Western countries
Foreign presence * downward FDI
Downward FDI
Downward sales * downward FDI
Imports * downward FDI
Exports * downward FDI
Domestic sales
Domestic sales
‐3.769***
‐3.668***
(0.596)
(0.399)
‐2.794
‐1.835
(2.709)
(2.658)
0.241
0.195
(0.269)
(0.287)
‐0.308
0.116
(0.188)
(0.212)
0.549*
(0.305)
Foreign sales
0.000***
(0.000)
(0.000)
Downward sales
1.923***
0.923***
(0.052)
(0.052)
Imports
Exports
Year effects
R2
0.000***
‐0.007
‐0.114
(0.070)
(0.130)
‐0.116
0.068
(0.088)
(0.071)
Yes
Yes
0.615
0.612
5
Eastern countries
Foreign presence * downward FDI
Downward FDI
Downward sales * downward FDI
Imports * downward FDI
Exports * downward FDI
Domestic sales
Domestic sales
‐1.835***
‐1.843***
(0.403)
(0.399)
2.249*
2.217*
(1.201)
(1.181)
‐0.164
‐0.162
(0.181)
(0.178)
‐0.334
‐0.387**
(0.259)
(0.181)
‐0.064
(0.229)
Foreign sales
Downward sales
Imports
Exports
Year effects
R2
0.000***
0.000***
(0.000)
(0.000)
1.094***
1.092***
(0.052)
(0.051)
0.287
0.309*
(0.191)
(0.179)
0.046
0.027
(0.116)
(0.097)
Yes
Yes
0.523
0.522
Key results
• foreign firms in the downstream sector tend
to replace domestic suppliers of intermediary
goods by other MNEs in the country
• increased production in the downstream
sector increases the demand for intermediary
goods independently on whether foreign firms
are present in the downstream sector or not
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Key results
• Export spillovers exist (backward spillover
effect)
• foreign customers really seem to be beneficial
for their domestic suppliers
• the increase of foreign presence by one
percentage point leads to increase of sales of
domestic suppliers (including exports) by 2 percent
Substitution in new EU
• in old EU we do not observe a negative substitution effect with respect to imports
– signals that foreign firms operating in developed
markets find local supplies of sufficiently high quality
(no need to import them)
• The same holds for the absence of positive spillover effect
– markets are already developed ‐ no reason for any
significant improvement due to MNE (they are
comparable with their domestic competitors)
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Substitution in new EU
• auxiliary regression: additional effect of
downward FDI ‐ the increase of productivity in the downstream sector
•
0
1
• Results:
– strong positive correlation between FDI and productivity in the downstream sector
– FDI presence indeed should increase the demand
for intermediary goods both in old and new EU
Conclusions
• FDI inflow has a significant effect on domestic firms in the upstream
sectors:
– both for what concerns changing market structure and productivity
improvements. • because of higher productivity in the sector that hosts incoming multinational enterprises, the demand for intermediary goods rises, which is positive for suppliers of these goods
• Unfortunately, the extent to which domestic suppliers benefit from
this increased demand is limited by increased competition with
other MNEs operating in the sector of intermediary goods, which
are preferred by multinational customers and substitute the
domestic production
• In new EU countries, this substitution effect is further intensified by increased competition with importers
• On the other hand, those domestic firms that are able to stand this
double competition receive additional benefits stemming from their
interaction with downstream MNEs in form of productivity
spillovers.
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