Why some regions are more innovative than others

Ajay K. Agrawal, Iain M. Cockburn, Alberto Galasso, Alexander Oettl, 23 December 2013

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A striking feature of economic geography is the large variation in productivity across regions. Moretti (2011) documents that after adjusting for skill composition, average wages in the highest and lowest paying US metropolitan areas differ by approximately a factor of three. Such dispersion is also evident when one compares innovation outcomes across regions.

Topics: Productivity and Innovation
Tags: firm size, innovation activity, inventors

The incredible shrinking Portuguese firm

Serguey Braguinsky, Lee Branstetter, André Regateiro, 10 September 2011

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The Portuguese economy has been making headlines. After months of deteriorating economic circumstances and declining confidence in the nation's ability to make good on its rapidly expanding debts, Portugal became the third Eurozone bailout case.

Topics: Europe's nations and regions, Labour markets, Productivity and Innovation
Tags: firm size, labour-market protection, Portugal, productivity

The impact of the crisis on European firms

László Halpern interviewed by Viv Davies, 1 Jul 2011

László Halpern of the Institute of Economics of the Hungarian Academy of Sciences talks to Viv Davies about a forthcoming report on the impact of the crisis on European business. The report finds considerable heterogeneity across countries and firms - for example, exporters contracted more than non-exporters, while importers suffered less of a decline - and highlights the policy trade-off between the benefits of export-oriented strategies versus outsourcing. The interview was recorded in Nottingham on 7 June 2011. [Also read the transcript.]

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European Firms in a Global Economy (EFIGE) website: http://www.efige.org/

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Viv Davies interviews László Halpern for Vox

June 2011

Transcription of a VoxEU audio interview [http://www.voxeu.org/index.php?q=node/6709] 

 

Viv Davies: Hello, and welcome to Vox Talks, a series of audio interviews with leading economists from around the world. I'm Viv Davies from CEPR. It's the 7th of June, 2011, and I'm talking to Laszlo Halpern, Deputy Director of the Institute of Economics of the Hungarian Academy of Sciences. We discuss work in progress on the third EFIGE project policy report on the impact of the crisis on European firms. The report observes the extent of heterogeneity across countries and firms and the way they were affected by the crisis and questions the tradeoff between export-oriented strategies and outsourcing.

I began by asking Laszlo to outline the objectives of the draft report.

Laszlo Halpern: This report is trying to capture the effect of the crisis on those firms in seven countries who are constituting this research project. The most important findings of our reports are the following: That crisis made some important effect on the behavior of firms in five respects. One is that we found that those firms who are exporting more, they're more affected by the crisis than those firms who were relying more on qualified labor, say, skilled blue collar and white collar were less affected by the crisis in terms of suffering less sales reduction or export reduction.

The most interesting finding is that firms who are able to outsource their production were less touched by the crisis. They suffered less as compared to those who are the target of outsourcing activities.

Then we have also looked at the impact of financial indicators. Say, whether firms were relying more on trade credit and other types of credits. We found that those firms who are relying less on credit, they were impacted less by the crisis.

And finally, we found that the firms who have access to public procurement in forms of different ways, then they were somewhat more advantaged as compared to those firms who didn't have that type of access.

And obviously in this exercise we have found some important country differences. And if we are allowed to interpret our results that those countries who were able to rely on more budgetary expenditure, budgetary outlays were able to defend somewhat more their firms from the collapse that the crisis caused.

Viv: So what do you think was particularly surprising or unexpected about the result from the project?

Laszlo: Well actually, that was quite interesting that in case of these countries, that somehow there was an important differentiation according to which the extent of export collapse compared to the sales collapse was somewhat differentiated. So for example, in countries like Austria and France, exporting firms were more affected by the crisis than firms specializing only for domestic sales. That type of difference was not evident in the case of Spain or Hungary, though the size of the collapse was much larger for Spain and Hungary. But there was no differentiation across exporting versus non exporting firms in case of those countries who suffered the most.

Viv: And to what extent do you think that the impact on the trade between firms was a direct result of government interventions, of government policies? Or did not that come into it?

Laszlo: Well actually, this is what we somehow saw in our results. This is only with respect to the public procurement where we attempted to somehow identify some sort of policy on behalf of the government. That was all. Otherwise, we were not able to detect anything on the trade performance of firms related to the state role. Because the questioner, on the basis of what we see, the question on the basis of which we were doing this exercise was not specific enough to investigate what was the role of the state in shaping the export performance of firms.

Viv: And are things changing now since you've collected the data? Do you know if things are changing in terms of the dynamics of trade?

Laszlo: Well, that was a side observation of this investigation. That we have to look for why, for example, these EFIGE countries are not able to go back to the level of the trade that used to be their level before the crisis. And in this respect, the gap between the vast majority of the emerging economies, like China, Brazil, India they are recovering much faster, and they already exceeded their level of their trade activity before the crisis. Which is not the case for, say, these seven countries. And we don't know the reason yet. There might be some comparative advantage type of problem. Or perhaps that there is reallocation of trade activities globally which is going on.

But this exercise, this study was unable to capture that because we didn't have data for that. And we only, like I say, confined our attention to these seven countries.

Viv: And what about the employment impacts of these issues?

Laszlo: Well actually, our initial hypothesis was that, perhaps those firms who are relying on a flexible employment arrangement. For example, a larger share of temporary employee perhaps helped firms to travel through the crisis better. But we found that those firms who had this larger share of temporary employment laid off a larger number of employees than those who didn't have that type of arrangement. So the idea that perhaps this short working time arrangement could have offered better opportunities to firms has somehow been rejected by our data.

Viv: So this particular report comes at, I think it's the third policy report from from the EFIGE project. Where do you think it fits in the general policy direction of the project? And what objectives and what aims do you have in terms of policy influence or policy relevance for the project as a whole?

Laszlo: I think that the overall aim of the project is to say something about the pattern of internationalization of European firms and how to explain which firms are more competitive on global markets. Obviously this is an important aspect of the project, that is, what's happening during the crisis. But this was not the major aim of the project, to explore the crisis. Because when we were putting together questions, we didn't think of the crisis that would happen. Because the project has been prepared much earlier. So then we added these crisis questions to the questionnaire. And that's why we were able to somewhat put together this report, because of that adjustment to the changing situation in the global economy.

So I think that we continue the project. And we are doing different packages exploring the ideas and problems questioned there about the different organizational forms of internationalization, how the technology adjustment is taking place when the firms are entering the international scene. How the innovation is intertwined with this internationalization of firms, and things like that. And how the employment organizational structures are related to the pattern of how the firms become international. And whether it is going together with getting closer to the international frontier of technology, and things like that.

Viv: Laszlo Halpern, thanks very much for talking to us today.

Laszlo: Thank you.

Topics: Industrial organisation, International trade
Tags: European firms, FDI, firm size, outsourcing

Size matters: the global operations of European firms

Gianmarco I.P. Ottaviano interviewed by Viv Davies, 27 Aug 2010

Gianmarco Ottaviano of Bocconi University talks to Viv Davies about 'The Global Operations of European Firms', a report that analyses data on 15,000 firms in seven countries to show that firm size, productivity, skill intensity and the ability to innovate are associated with better export performance, foreign direct investment and outsourcing. He argues that firms can improve their competitiveness within the European single market, but competing effectively in the future will require more than just exporting to neighbouring EU countries. The interview was recorded in Rome on 19 June 2010.

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The policy paper ‘The Global Operations of European Firms’ (Navaretti, Bugamelli, Ottaviano, Schivardi) can be downloaded here.

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Viv Davies interviews Gianmarco Ottaviano for Vox

August 2010

Transcription of an VoxEU audio interview [http://www.voxeu.org/index.php?q=node/5437]

Viv Davies: Hello, and welcome to Vox Talks, a series of audio interviews with leading economists from around the world. I'm Viv Davies from CEPR. It's the 19th of June, 2010, and I'm in Rome at CEPR's annual European Research Workshop in International Trade which is being held jointly with the EFIGE scientific workshop and policy conference. I'm talking to Professor Gianmarco Ottaviano about a recent policy paper he co authored on the global operations of European firms. I began by asking Gianmarco to explain what the paper was about.

Gianmarco Ottaviano: OK, this is a paper that is part of an ambitious project on the European Firms in a Global Economy, and it is being funded by the European Commission. And it's the first time that we have a clear view of how European firms operate in different markets through a comprehensive survey across seven of our European countries. It is a project that involves several research centers in Europe, possibly the top in their field, and also several institutions, central banks, and the OECD. Well, the purpose of this database is really to get a view of how different countries are operating around the world and what is their success in these operations.

And what we find is that there is a lot of asymmetry, a lot of heterogeneity in the way firms behave, but most of all in the way they perform in international markets. This means that, for example, we see that German firms are outperforming other firms along several dimensions, and this is clearly what is bringing their overall performance, the overall performance of Germany ahead of the pack of other countries.

But the key point of this research based on firm level data is that there is something that is not really understood, and has not been really understood so far because of the lack of information, or if you want, a priori, the debate among policymakers and the business community has been shaped.

So when we think about competition internationally, typically we think about countries that are competing, or possibly sectors that are competing, but nations do not compete. It's actually nations do not produce, do not trade, do not compete. It is firms that produce, trade and compete. And the same is true for sectors. It is not sectors that produce, trade, or compete, but it is firms that produce, trade, and compete.

This way this seems like a very simple truth, but this very simple truth makes it clear that understanding the firm level effects is essential to good policymaking. And some dimensions are really driving at the micro level the macro performance of countries.

For example, what comes out is that exporters are typically very different from other firms, or firms that are not active in international markets. They are better along several dimensions, and they're better in terms of productivity, typically also in terms of quality. They tend to be better in innovation, and they tend to hire a workforce that is more qualified.

But most of all, they're bigger than other firms. So size tends to be important and tends to be important in a somewhat sophisticated way.

Viv: So size matters. Why should size matter? I mean isn't the quality of the product more important than the size of the firm?

Gianmarco: So size per se matters not simply because you have to be big. I mean the thing is more sophisticated than that. Being big helps because substantial fixed costs on international operations, which means that if you have to set up...well, if you have to gather information, if you have to search for customers, if you have to reach distant markets, then there are substantial fixed costs that only firms that are big enough, meaning they're able to generate enough turnover, are able to cope with.

And it is not only exporting that makes size important. Even more, producing abroad makes size important. So if you look at these firms, those who are active in international markets through production, through foreign direct investment, they tend to be bigger, and as I said before, better along several dimensions than other firms. In particular, they are better than firms that simply export, but firms that simply export, they are better than firms that are not exporting at all.

Of course this depends on products. Some products are simply non tradable, and so you shouldn't expect this sort of ranking to apply to all sectors. And also you should not expect this ranking to apply to all sectors because there are some product specificities that allow firms in specific sectors to become world leaders even if they're not that big.

So medium sized firms, we see they are market leaders in several niche markets but provided it is indeed a niche market. And so there seems to be these two ways towards competitiveness for firms in global markets.

One is, you grow, you're big, and you can essentially compete in all markets you choose, or you go for quality, you go for innovation, you go for niche markets, and then you can become a leader in your niche and still be very competitive in your niche without being too big or hugely sized.

Viv: So what are the real policy implications for the study? I mean what are the issues that various government departments around Europe should be thinking about and picking up on? What's the message for them?

Gianmarco: So first a caveat is in order, meaning that we have gathered this data through a long process, very detailed, very accurate, statistically solid, and this has taken us a lot of time, meaning that we've started with a questionnaire on which the survey is based. This has been created by a pool of top economists in the field, both through the partnerships that are in this project, but also through the scientific advisory board that is part of the project.

The same time this has been shaped by interaction with the policy advisory board composed by leaders in policymaking and in the business community and this has taken some time. Then we went through this data gathering through a professional data collector, and we just received the full data set.

So this publication we're talking about is the first based on this data set that has been given to us just at the end of May.

This means that more than telling now what are the things that policymakers or government should be doing, what we are able to tell is we're probably--we have to search and how to exploit this study to shed light on this issues that has to be searched.

So the crisis has brought policy action to the forefront. I mean for a while we thought that the markets could work on their own, and now government see a bigger order, bigger responsibility, if you want, for their actions.

And while governments are trying to find ways to help the economy and the business community out of the crisis, old ghosts are materializing again, so we start...we see more and more talks about sectoral policies, sectoral interventions, and picking the winner approaches to policymaking.

And these are things that have not worked in the past and probably will not work in the future. And indeed what seems to come out from the study of this firm level information is that sectoral policies seems to be much less important than horizontal structural policies promoting innovation cooperating in organizational change.

In other words, rather than trying to fix problems or issues that are sector-specific, the priority should be given to fixing problems that are horizontal across sectors and so are in some way creating barriers to firms in terms of innovation, again, quite updating the organizational change.

Viv: So the study you've undertaken is a component of a much larger collaborative project that's being undertaken by a number of European research institutions, and it extends over several years. What's next for the project? Where do you expect to take it from here?

Gianmarco: So indeed, this study is just the first product of a much bigger project that is called EFIGE, meaning "European Firms in a Global Economy." Subtitle is "Internal Policies for External Competitiveness." This is a project, a large scale project financed by the European Commission under the Seventh Framework Programme. And this Programme, I mean this Seventh Framework is the EU chief instrument used for funding research that will go on, well starting 2007, and will go on until 2013.

So EFIGE, European Firms in a Global Economy, has several partners that are participants into the project. Some of them are leading research centers around Europe. Others are big institutions like the Bank of Belgium, the Bank of Spain, the Bank of France, the Bundesbank, the Bank of Italy, the OECD. We have a private partner, which is UniCredit, the largest Italian bank, and CEPR is part of this big project coordinated by Bruegel, a think tank in Brussels.

The main output, or if you want, intermediate output, of this project has been the creation of a firm level data set across the biggest European markets, and a couple of smaller markets and this dataset that collects information about the global operations of Europeans firms, but not only that, also information about the local operations.

And this type of information is not available in standard balance sheets, and that is why the service is being created in a way that the new information arising from the survey will be matched with balance sheet information. So the idea here is really to have the instrument, the data set, to portray the full picture of Europeans firms and their international competitiveness.

Where the project will go from here.I mean it's a complex project. There would be scientific output. There has been already a lot of scientific output because the topics and the idea that you should get into firm level data to see, to understand how the aggregate economy works is an idea that is at the frontier of current research into international economics.

And this means this the output of this project is going to be at the frontier of scientific research. At the same time, the interest of the European Commission and all the institutional partners is to get new ideas, new insights, that are able to shape the policy interaction between the business community, the academic community, and the policymakers.

And so together with this scientific output, there is going to be a policy output. The study that has just been presented is probably the first output of this effort, and reports will come in the next years addressing different bottlenecks that are preventing the full exploitation of the competitiveness of European firms.

At the same time, this policy output will be linked to important policy events. And the reason is that the project is being shaped by the interaction and engagement of stakeholders from the business community, the policy community, and the academic community.

And two significant events have already taken place in Spain hosted by the Bank of Spain, and in Italy also by the Bank of Italy. And these events have really brought together business, policy, and academic communities.

Next year a similar event will take place in the UK, and we hope to engage the UK government and business community in helping to further develop the policy recommendations and the policy insights that are coming out from this large scale project precisely because it is a common effort, not only of academics, but of business leaders and leading policymakers to use this new available information in terms of data sets to shape the future competitiveness of European firms.

Viv: Gianmarco, thank you very much for talking to us today. I look forward to hearing the policy results of the project and how it advances in the future. Thanks very much indeed.

Gianmarco: And thank you very much for this interview.

Viv: Thank you.

Topics: Industrial organisation
Tags: European firms, FDI, firm size, outsourcing

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