Download presentation

The Location of Industrial
Activities After EU
Enlargement:
A Sectoral Approach
By Laurent Ferrara and Alain Henriot
Centre d’Observation Économique (COE)
de la Chambre de Commerce et d’Industrie de Paris
2nd Euroframe Conference on Economic Policy Issues in the European Union
Trade, FDI and relocation: challenges for employment and growth in the European Union?
Vienna, 3 June 2005
http://www.coe.ccip.fr
The context
 EU enlargement …
• The end of the transition process …
•… and the beginning of a new phase (a common legal framework for
EU-25)
• Relocation of industrial activities across EU members?
http://www.coe.ccip.fr
The theoretical background
• FDI exploit international differences in factor prices
• FDI exploit firm specific assets
=>
• Vertical FDI: geographically separates the stages of production.
The primary motivation is factor savings
• Horizontal FDI: replicates activities at home and abroad. The
primary motivation is access to markets
http://www.coe.ccip.fr
The econometric model
• A gravity model
• Explaining the turnover of foreign affiliates:
« Measuring Globalisation »: a OECD database
http://www.coe.ccip.fr
The econometric model
log(CAij) =  + j + 1 log(GDPi) + 2 log(GDPj) + 3 log(DISij) +
4 (log(CSi) - log(CSj)) + 5 UEij + 6 LCij + ij ,
log(CAij) is the logarithm of the firms turnover of country j in the host country i
log(GDPi) is the logarithm of the host country GDP (in current US dollars),
log(GDPj) is the logarithm of the investor country GDP(in current US dollars),
log(DISij) is the logarithm of the distance between the host and the investor
countries,
log(CSi) and log(CSj) are respectively the wage costs in current dollars for the host
and investor countries,
UEij is a dummy variable taking 1 when the two countries are EU25 members and
zero otherwise,
LCij is a dummy variable taking 1 in the case of common language between host
and investor.
http://www.coe.ccip.fr
Results on manufacturing industries
(M1)
(M2)
All countries
EU25 as host
countries (1)
Intercept
-5.158*
-4.611*
(-5.15)
(-3.83)
0.979*
1.010*
(14.87)
(13,44)
0,883*
0,865*
(6,49)
(6,48)
-0,839*
-0,915*
(-9.25)
(-7.43)
log(CSi) –
-0.216
-0.187
log(CSj)
(-1.48)
(-1.41)
LCij
1.239*
1.194*
(4.16)
(4.16)

0.7929
0.7713

1.186
1.063
R2
0.729
0.742
AIC
908
719
N. Obs
266
222
log(GDPi)
log(GDPj)
log(DISij)
http://www.coe.ccip.fr
Results on manufacturing industries
Potential turnover: CA*=exp (log(CAij))
Hungary
0.0
0.5
1.0
1.5
2.0
2.5
hu
al
be
ca
es
eu
fr
it
ja
pb
se
su
uk
http://www.coe.ccip.fr
Results on manufacturing industries
Potential and realised turnover : Poland
12,00
10,00
8,00
Potential
6,00
Realised
4,00
2,00
0,00
al as au be ca co da es eu fi fr ir
it ja lu no pb po se su uk
http://www.coe.ccip.fr
Results on manufacturing industries
Turnover of German firms in various countries (potential* or realised)
(billions of US dollars) (1999, 2001 or 2002 - 2002 for potential)
35
30
25
20
15
10
5
0
fr
it
uk es cz pl pl* pb cz* po se da hu* ir ro* rs* fi
sl* bl* no
http://www.coe.ccip.fr
Sectoral results
• Random effects on sectors
Intercept
Food
-8.643
Motor Veh. -8.324
Wood
-9.652
Chem.
-8.163
Equi.
-8.477
Text.
-10.602
GDP Host
1.0141
0.9840
1.0272
1.0013
0.9344
1.0689
GDP Inv
0.2899
0.2899
0.2899
0.2899
0.2899
0.2899
lang Wage cost diff.
0.8624
-0.21045
0.8624
-0.53093
0.8624
-0.81519
0.8624
-0.05381
0.8624
-1.63629
0.8624
-0.80436
http://www.coe.ccip.fr
Conclusion
• FDI theory is validated : both market access variables and costs
differential have a significant impact
• New members will play a significant role as host countries
•The sectoral distribution of FDI in those countries may be affected by the
sector sensitivity at wage cost
• Differentiation of industries in the European space?
– Concentration of sectors characterised by scale economies
– Clusterisation of high tech industries (but undetermined
geographically
– Growing specialisation of labour intensive sectors in low wage
countries (among them NM)
http://www.coe.ccip.fr