Firms in the International Economy

Firms in the International Economy: Firm Heterogeneity Meets International Business

Sjoerd Beugelsdijk
Steven Brakman
Hans van Ees
Harry Garretsen
Copyright Date: 2013
Published by: MIT Press
Pages: 440
  • Cite this Item
  • Book Info
    Firms in the International Economy
    Book Description:

    Despite their common roots, international economics (IE) and international business (IB) have developed into two distinct fields of study. Economists have directed their efforts at formalizing the workings of international trade and investment at the macroeconomic level; business scholars have relied more on data-driven conceptual narratives than mathematical tools. But the recent focus of IE literature on firm heterogeneity suggests that IE would benefit from IB analyses of the behavior and organization of the internationalizing firm. The contributions to this volume investigate ways that insights from IB can enrich IE research in firm heterogeneity.The contributors discuss firm-specific advantages in international trade and investment, considering the firm as the unit of analysis and managerial inputs as a variable in market entry decisions; analyze interactions between a firm and its external environment, including local corporate philanthropy and institutional settings; examine the boundaries of the firm and organizational choices such as the make-or-buy decision; and investigate technology transfer and innovation offshoring, discussing the role of subsidiaries, inventor employment, and other related topics. Although IE and IB look at international firms from different perspectives, these contributions make it clear that there is a potential for a productive exchange of insights and information between the two disciplines.ContributorsLaura Abramovsky, Carlo Altomonte, Sjoerd Beugelsdijk, Bruce Blonigen, Pamela Bombarda, Steven Brakman, Julia Darby, Rodolphe Desbordes, Filippo Di Mauro, María García-Vega, Harry Garretsen, Elena Huergo, Florian Mayneris, Quyen T. K. Nguyen, Verena Nowak, Cheyney O'Fallon, Gianmarco Ottaviano, Michael Pflüger, Filomena Pietrovito, Sandra Poncet, Alberto Franco Pozzolo, Alan M. Rugman, Armando Rungi, Stephan Russek, Davide Sala, Luca Salvatici, Christian Schwarz, Roger Smeets, Jens Suedekum, Hans van Ees, Vincent Vicard, Ian Wooton, Erdal Yalcin

    eISBN: 978-0-262-31447-3
    Subjects: Economics, Management & Organizational Behavior

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Series Foreword
    (pp. vii-viii)

    This book is part of the CESifo Seminar Series. The series aims to cover topical policy issues in economics from a largely European perspective. The books in this series are the products of the papers and intensive debates that took place during the seminars hosted by CESifo, an international research network of renowned economists organized jointly by the Center for Economic Studies at Ludwig-Maximilians-Universität, Munich, and the Ifo Institute for Economic Research. All publications in this series have been carefully selected and refereed by members of the CESifo research network....

  4. Introduction: Firm Heterogeneity, International Economics, and International Business
    (pp. 1-20)

    Despite their common roots and shared interest in globalization, multinationals, and trade and investment patterns, international economics (IE) and international business (IB) have developed as two distinct fields of study. While economists directed their efforts at formalizing the workings of international trade and investment at the macroeconomic level, business scholars attempted to open the black box of the multinational enterprise, relying more on conceptual narratives than mathematical tools. With the advent of new trade theory (Helpman and Krugman 1987; Helpman 2006), the firm was reintroduced as the object of interest in international economics. The recent advancement of the heterogeneous firm...

  5. I Firm-Specific Advantages
    • 1 International Business Theory for International Economists
      (pp. 23-54)
      Alan M. Rugman and Quyen T. K. Nguyen

      The literatures on international business and international economics have diverged over the last fifty years. As shown elsewhere in this volume, research in international business, especially published in theJournal of International Business Studies(which now has a one-year ISI impact factor of 4.2) has virtually no impact on international economics—and vice versa. Why is this? We believe the lack of overlap is due to the following four factors:

      1. The key unit of analysis in international economics is the country, whereas in international business it is the firm. As a result, international business has developed a vibrant and robust...

    • 2 Exports versus Foreign Direct Investments: Evidence from Cross-Country Industry Data
      (pp. 55-90)
      Filomena Pietrovito, Alberto Franco Pozzolo and Luca Salvatici

      An interesting feature of the recent process of globalization is the rapid increase of foreign direct investments (FDI), outpacing the simultaneous expansion of armʹs-length trade (exporting). At the end of last century, multinational firms accounted for between two-thirds and three-quarters of world exports and more than one-third of world exports were between affiliated firms (UNCTAD 1999). Since then, global FDI have increased even further, with an expected value of FDI inflows in 2011 around US$1.4 trillion (UNCTAD 2010).

      The link between trade and FDI is strong, as these are possible modes of entering foreign markets. As a matter of fact,...

    • 3 Managerial Characteristics and the Export Decision of Firms
      (pp. 91-124)
      Davide Sala and Erdal Yalcin

      As micro data have become increasingly accessible in recent years, the focus of the analysis in the trade literature has gradually shifted from trade patterns between countries or industries to the engagement of firms into international markets. Several studies (e.g., Bernard and Jensen 1999) have uncovered that even in narrowly defined industries exporters and nonexporters are different along a number of dimensions, namely the productivity level, the turnover, the number of employees, the wages paid, and the value added. The challenge of explaining these pervasive differences between exporters and nonexporters has culminated in what has become known as thenew...

  6. II Firm-Environment Interaction
    • 4 Foreign Firms and Local Communities
      (pp. 127-152)
      Bruce Blonigen and Cheyney OʹFallon

      The effect of foreign direct investment (FDI) on host countries is a topic of much interest to both the academic community and policymakers. FDI has been growing faster than trade over the past couple decades, and multinational enterprises (MNEs) are often seen as potential drivers of innovation and growth not only for the world economy, but especially for the locations where MNE affiliates reside. Indeed, locations often compete for FDI through lowered tax rates and other incentives.¹

      In this chapter, we first provide an overview of the main topics covered by prior literature on the effects of FDI on host...

    • 5 Institutional Quality and FDI to the South
      (pp. 153-172)
      Julia Darby, Rodolphe Desbordes and Ian Wooton

      Foreign direct investment (FDI) was for a long period considered to be a phenomenon of developed, industrialized countries (the ʺNorthʺ). This was especially the case with respect to the nationality of the investing firms, which were almost entirely based in the North, with developing countries (the ʺSouthʺ) being hosts to a significant share of inward FDI flows but investing little themselves in overseas markets. Our research was sparked by the fact that this picture of global FDI flows is no longer accurate. It remains true that the South attracts a significant share of the worldʹs FDI. Figure 5.1 illustrates that...

    • 6 Heterogeneous Export Spillovers to Chinese Domestic Firms: The Role of the Difficulty to Enter the Destination Market
      (pp. 173-202)
      Florian Mayneris and Sandra Poncet

      Recent studies have focused on the role of foreign firms in the surge of Chinese exports over the past twenty years. From a pure quantitative point of view, the analysis of Chinese statistical yearbooks shows that the share of foreign firms in total Chinese exports has grown from 26 percent in 1992 to 57 percent in 2007. From a more qualitative perspective, it is clear that Chinese exports have upgraded in the past few years. Rodrik (2006) finds that the sophistication of Chinese exports is disproportionately high: three times higher than the level predicted by Chinese average income per capita....

  7. III Boundaries of the Firm
    • 7 Intrafirm and Armʹs-Length Trade: How Distance Matters
      (pp. 205-240)
      Pamela Bombarda

      Intrafirm trade and armʹs-length trade play an important role in trade arena.¹ Dunning (1994) shows that a large part of international trade is conducted by multinational firms (MNFs). He estimated that MNFs together with their subsidiaries are responsible for 75 percent of the worldʹs trade commodity. UNCTAD (2001) reports that one-third of world trade is intrafirm trade (trade between MNF headquarters and subsidiaries or among subsidiaries). More recently, Bernard et al. (2007) documented that 90 percent of U.S. exports and imports occurs through multinational firms. Recent studies try to analyze the different behavior of related-party versus armʹs-length trade (Irarrazabal, Moxnes,...

    • 8 Make or Buy: On the Organizational Structure of Firms with Asymmetric Suppliers
      (pp. 241-276)
      Verena Nowak, Christian Schwarz and Jens Suedekum

      Final goods producers differ widely in their sourcing strategies for intermediate inputs. For example, Nike mostly collaborates with external subcontractors, whereas Intel keeps the vast majority of components within the boundaries of the firm and thus relies heavily on vertically integrated suppliers that are directly owned and controlled by the mother company.¹ Most firms, however, actually pursue a hybrid sourcing strategy and choose different organizational modes for different suppliers.² In the production of the S40, for example, Volvo outsources such parts as the side mirror, the fuel tank, and the headlights, whereas other components (such as the main engine) are...

    • 9 Global Value Chains during the Great Trade Collapse: A Bullwhip Effect?
      (pp. 277-308)
      Carlo Altomonte, Filippo Di Mauro, Gianmarco Ottaviano, Armando Rungi and Vincent Vicard

      The Great Trade Collapse is one of the most striking features of the recent global financial crisis, with the ongoing recovery still driving a wedge between output and trade. Apart from its magnitude, the fall in trade during the crisis has also been quite homogeneous across all countries: more than 90 percent of Organisation for Economic Cooperation and Development (OECD) countries have exhibited simultaneously a decline in exports and imports exceeding 10 percent. The fall has also been very fast, with trade virtually grinding to a halt in the last quarter of 2008. All these findings have led to qualifying...

  8. IV Innovation and Technology Transfer
    • 10 Multinationalsʹ Technology Transfers and Firmsʹ Performance
      (pp. 311-334)
      María García-Vega and Elena Huergo

      Foreign direct investment (FDI) has dramatically increased in the last few years all over the world. Many studies show that FDI can provide positive externalities to local economies (Markusen 1995; van Pottelsberghe and Lichtenberg 2001 , among others). One possible reason is that multinational enterprises (MNEs) transfer technology to their foreign subsidiaries that can be partly appropriated by local firms.¹ Although the impact of FDI to local firms has been extensively analyzed (e.g., Findlay 1978; Fosfuri, Motta, and Rønde 2001; Girma and Wakelin 2001 ; Haskel, Pereira, and Slaughter 2007; Glass and Saggi 1999, 2002; Keller and Yeaple 2009), the...

    • 11 Innovation Offshoring and Inventor Substitution
      (pp. 335-368)
      Roger Smeets and Laura Abramovsky

      Since the 1980s, there has been substantial growth in the share of activities that multinational firms (MNEs) locate or relocate outside their home country. Initially, mainly so-called blue-collar production activities were being offshored to low-wage locations (Hummels, Ishii, and Yi 2001), followed by white-collar service jobs (Amiti and Wei 2009). More recently, MNEs have also appeared to be increasingly offshoring high-skill intensive innovation activities. UNCTAD (2005) reports an increase in foreign affiliate R&D expenditures (as a share of total business R&D) from 10 percent in 1993 to 16 percent in 2002. Linking patents from the European Patent Office (EPO) to...

    • 12 Heterogeneous Firms, Trade, and Economic Policy: Insights from a Simple Two-Sector Model
      (pp. 369-398)
      Michael Pflüger and Stephan Russek

      The robust empirical finding that exporting firms are not only rare but also systematically different from firms that merely serve domestic consumers has challenged both the old Ricardian and neoclassical trade theories as well as the new trade theories along the lines of Krugman, Brander, and Spencer. To account for the empirical fact that exporting firms are typically larger and more productive than nonexporters, a new generation of trade models was developed that takes the heterogeneity of firms in terms of their productivity into account.¹ Seminal models have been developed by Melitz (2003), Bernard et al. (2003), and Yeaple (2005).²...

  9. List of Contributors
    (pp. 399-400)
  10. Index
    (pp. 401-432)