The happy few: The internationalisation of European firms

Intereconomics

Volumn 43, Issue 3, 2008, Pages 135-148

  Mayer, Thierry ^a,b   Ottaviano, Gianmarco I P ^c,d  

^a UNIVERSITÉ PARIS 1 PANTHÉON SORBONNE   (France)

^b CEPR   (United Kingdom)

^c UNIVERSITY OF BOLOGNA   (Italy)

^d BRUEGEL   (Belgium)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 45149121115     PISSN: 00205346     EISSN: 1613964X     Source Type: Journal    
DOI: 10.1007/s10272-008-0247-x     Document Type: Article

References (26)

1. As we focus here on a smaller number of firms, we need to use the exhaustive sample to obtain a representative distribution. The logarithmic transformation is used to enhance the readability of the picture.
2. P. Artus, L. Fontagné: Évolution recente du commerce extérieur français, rapport no 64 du Conseil d'Analyse Economique, Paris 2007, la Documentation Française. Note that this finding must be taken with caution as none of the two French and German datasets we use are exhaustive. The criteria used by the statistical institutes for sampling firms seem fairly comparable, however.
3. Sample selection is less likely to explain the cross-country behaviour of FDI premia as French premia are quite large.
4. In our samples, nearly all FDI-makers are also exporters.
5. http://www.cepr.org/pubs/PolicyInsights/PolicyInsight8.pdf.
6. The theoretical foundations of this empirical relationship have emerged late in time compared with the vast number of empirical applications of gravity. In the last ten years a wide range of theoretical explanations for gravity have become available (see J.E. Anderson, E. van Wincoop: Trade Costs, in: Journal of Economic Literature, Vol. 42, 2004, pp. 691-751 for a survey), and researchers such as Chaney, Helpman et al. and Melitz and Ottaviano have started to investigate the importance of firms' heterogeneity for gravity.
7. (Cf. T. Chaney: Distorted Gravity: The Intensive and Extensive Margins of International Trade?, in: American Economic Review, 2006, forthcoming
8. E. Helpman, M. J. Melitz, Y. Rubenstein: Estimating Trade flows: Trading Partners and Trading Volumes, in: Quarterly Journal of Economics, 2007, forthcoming
9. M. Melitz; G. Ottaviano: Market Size, Trade, and Productivity, in: Review of Economic Studies, Vol. 75, 2008, pp. 295-316).
10. On the empirical side, authors such as J. Eaton, S. Kortum and F. Kramarz: An Anatomy of International Trade: Evidence from French Firms, in: Meeting Papers from Society for Economic Dynamics, No. 197, 2005
11. and A.B. Bernard, J.B. Jensen, S.J. Redding and P. K. Schott: Firms in International Trade, in: Journal of Economic Perspectives, Vol. 21, No. 3, 2007, have investigated those issues for US firms and French firms.
12. We can thus go even further than existing margin decomposition on US internal (R. Hillberry, D. Hummels: Trade Responses to Geographic Frictions: A Decomposition Using Micro-Data, in: European Economic Review, 2005) or external (B. Bernard et al., op. cit.) data. Another early paper decomposing trade patterns into the extensive and intensive margins is J. Eaton et al., op. cit., using French data for the year 1986.
13. All coefficients are highly significant.
14. This is exactly what should be expected from most theoretical foundations of the gravity equation and, in particular, from the ones with differentiated products and imperfect competition, whether with heterogenous firms (T. Chaney, op. cit.; E. Helpman et al., op. cit.; M. Melitz, G. Ottaviano, op. cit.) or not. (S. Redding, A. Venables: Economic Geography and International Inequality, in: Journal of International Economics, Vol. 62, 2004, pp. 53-82).
15. These findings are very similar to the ones by A.B. Bernard et al., op. cit., and R. Hillberry, D. Hummels op. cit., for external and internal US trade flows, respectively.
16. This finding parallels the one by A.B. Bernard et al., op. cit., for US exporters.
17. See M. Melitz, G. Ottaviano, op. cit., for a theoretical formalisation of this idea.
18. A. B. Bernard et al., op. cit., conjecture that this second explanation might be the relevant one to explain their result, but do not investigate it further.
19. One must be cautious in interpreting these results since validating the "quality sorting" hypothesis would imply running the analysis at the firm level and measuring quality more directly. More generally, the average price is a mixed bag of all sorts of underlying product prices, and therefore trade composition effects are likely to blur any story concerning efficiency or quality sorting at the industry or even firm level. Those sorting effects could only be properly uncovered through careful firm or industry level analysis, which goes well beyond the scope of the present descriptive analysis. See R. Baldwin, J. Harrigan: Zeros, Quality and Space: Trade Theory and Trade Evidence, in: NBER Working Paper No. 13214, 2007
20. and M. Crozet, K. Head, T. Mayer: Quality sorting and trade: Firm-level evidence for French wine, in: Mimeo, CEPII, 2007 for more detailed hypotheses on this issue. Deeper investigation is also needed to shed light on additional issues such as the opposite effects of regional trade agreements (RTA) on average export price and average export quantity.
21. For example, K. Head, J. Ries: FDI as an Outcome of the Market for Corporate Control: Theory and Evidence, in: Journal of International Economics, Vol. 74, Issue 1, 2008, pp. 2-20 have recently developed a model of FDI where heterogeneous investors bid to obtain control rights to existing overseas assets. The equilibrium equation for bilateral capital flows closely resembles the type of trade flow gravity equation derived with heterogeneous exporters.
22. In the same spirit, A. Hijzen, H. Görg, M. Manchin: Cross-border mergers and acquisitions and the role of trade costs, in: European Economic Review, 2007, forthcoming, investigate the role of trade costs in explaining the increase in the number of cross-border M&As.
23. See e.g. G. Barba Navaretti, A. J. Venables: Multinational Firms in the World Economy, 2004, Princeton University Press
24. and B. A. Blonigen: A Review of the Empirical Literature on FDI Determinants, in: Atlantic Economic Journal, Vol. 33, 2005, pp. 383-403 for definitions of the two types of FDI and related empirical evidence.
25. In a recent study on the offshoring activities of German firms, C. Buch, M. Schnitzer, C. Arndt, I. Kesternich, A. Mattes, J. Eaton, C. Mugele and H. Strotmann: Analyse der Beweggründe, der Ursachen und der Auswirkungen des so genannten Offshoring auf Arbeitsplätze und Wirtschaftsstruktur in Deutschland, IAW Tübingen 2007, present results for a larger list of determinants, including per capita income and country ratings. In this study, distance becomes a significant determinant of German firms' FDI.
26. See J. Head, K. Ries: "Do trade missions increase trade?", University of British Columbia, mimeo, 2007.