nep-bec New Economics Papers
on Business Economics
Issue of 2015‒03‒13
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Productivity, Firm Size, Financial Factors, and Exporting Decisions: The case of Japanese SMEs By OGAWA Kazuo; TOKUTSU Ichiro
  2. Firm Heterogeneity and Location Choice of European Multinationals By Marti, Josep; Alguacil, Maite; Orts, Vicente
  3. Firm heterogeneity in food safety provision: Evidence from aflatoxin tests in Kenya: By Moser, Christine; Hoffmann, Vivian
  4. Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China By Chang-Tai Hsieh; Zheng (Michael) Song
  5. Optimal incentive contracts to avert firm relocation By Martin Pollrich; Robert Schmidt
  6. Trade, Wages, and Collective Bargaining: Evidence from France By Carluccio, Juan; Fougère, Denis; Gautier, Erwan
  7. Firm performance, macroeconomic conditions, and “animal spirits” in a Post Keynesian model of aggregate fluctuations By Shyam Gouri Suresh; Mark Setterfield
  8. Notes on Business Cycle Theory from a Dynamic Stochastic General Equilibrium Perspective By Solomon, Bernard Daniel
  9. Mobility across Firms and Occupations among Graduates from Apprenticeship By Bernd Fitzenberger
  10. Service Trade and Productivity: Firm-level evidence from Japan By MORIKAWA Masayuki
  11. Firms entry, oligopolistic competition and labor market dynamics By Andrea Colciago; Lorenza Rossi
  12. The informal sector in contemporary models of the aggregate economy By Leal-Ordoñez Julio C.
  13. Energy Efficiency in Swedish Industry A Stochastic Frontier Approach By Lundgren, Tommy; Marklund, Per-Olov; Zhang, Shanshan
  14. Intra-Industry Trade with Bertrand and Cournot Oligopoly: The Role of Endogenous Horizontal Product Differentiation By James A. Brander; Barbara J. Spencer
  15. Business cycle fluctuations and the distribution of consumption By De Giorgi, Giacomo; Gambetti, Luca

  1. By: OGAWA Kazuo; TOKUTSU Ichiro
    Abstract: This study is an empirical attempt to compare the exporting behavior of small and medium-sized enterprises (SMEs) with large firms from the viewpoints of export market participation decision (extensive margin) and export volume decision (intensive margin), using firm-level panel data. We find that firm size is an important determinant of both extensive margin and intensive margin decision for SMEs as well as large firms. In contrast, productivity affects only the intensive margin of export for both SMEs and large firms. Quantitatively, the contribution of productivity to export volume is much larger for large firms. Financial factors are also important determinants of export. Liquidity reserve has positive effects on the extensive margin of export for SMEs and large firms. Moreover, financial institutions play an important role in supporting the export activities of SMEs.
    Date: 2015–03
  2. By: Marti, Josep; Alguacil, Maite; Orts, Vicente
    Abstract: In this paper we investigate how the different characteristics of European multinational firms affect their decision tolocate in different foreign markets. Considering the existence of n geographically separated markets with different attributes, in terms of entry or fixed costs, variable production costs and the market potential, our theoretical model shows that both firm and country characteristics determine the location of multinational firms. The model reveals that given the characteristics of the countries, the decision to enter a specific country in order to serve all markets globally will depend on all the sources of a firm’s heterogeneity. In the empirical analysis, we drawn on a dataset comprised of harmonized and detailed firm-level data across European countries for 2008 (EFIGE dataset). The results obtained confirm that firms’ international location decision reflects the underlying dissimilarities of European multinational firms, including the specific industry in which they operate. More specifically, our estimations show that only the most productive European firms invest in Latin America and those that decide to enter North America are more productive than firms that locate in China and India. However, we find that this ranking may vary across industries, depending not only on TFP, but also on the years of establishment and the firms’ human and R&D intensity.
    Keywords: multinational firms, firm heterogeneity, location choices, European FDI
    JEL: D24 F14 F21 F23
    Date: 2015–03–05
  3. By: Moser, Christine; Hoffmann, Vivian
    Abstract: The lack of a reliably safe food supply in developing countries imposes major costs on both public health and market performance. This paper addresses the question of whether and why food processing firms voluntarily invest in food safety in the absence of effective regulatory enforcement. Using data from more than 900 maize flour samples representing 23 distinct brands in eastern and central Kenya, we explore the relationship between price, brand, and aflatoxin contamination. Aflatoxin is a toxin common in maize, groundnuts, and other crops around the world; and although it is unobservable to the consumer, it may be correlated with other quality characteristics. We find a strong negative correlation between price and contamination rates, which is consistent with certain brands investing more in quality to avoid loss of reputational capital.
    Keywords: Food safety, aflatoxins, Mycotoxins, Developing countries, Health, regulation, Policies, firm strategy, voluntary compliance, brand capital,
  4. By: Chang-Tai Hsieh; Zheng (Michael) Song
    Abstract: Starting in the late 1990s, China undertook a dramatic transformation of the large number of firms under state control. Small state-owned firms were privatized or closed. Large state-owned firms were corporatized and merged into large industrial groups under the control of the Chinese state. The state also created many new and large firms. We use detailed firm-level data to show that from 1998 to 2007, (i) state-owned firms that were closed were smaller and had low labor and capital productivity; (ii) the labor productivity of state-owned firms converged to that of private firms; (iii) the capital productivity of state-owned firms remained significantly lower than that of private firms; and (iv) total factor productivity (TFP) growth of state-owned firms was faster than that of private firms. We find the reforms of the state sector were responsible for 20 percent of aggregate TFP growth from 1998 to 2007.
    JEL: N15 O0
    Date: 2015–03
  5. By: Martin Pollrich (Humboldt-Universitaet zu Berlin, Department of Economics); Robert Schmidt (Humboldt-Universitaet zu Berlin, Department of Economics)
    Abstract: A unilateral policy intervention by a country (such as the introduction of an emission price) can induce firms to relocate to other countries. We analyze a dynamic game where a regulator offers contracts to avert relocation of a firm in each of two periods. The firm can undertake a location-specific investment (e.g., in abatement capital). Contracts can be written on some contractible productive activity (e.g., emissions), but the firm's investment is not contractible. A moral hazard problem arises under short-term contracting that makes it impossible to implement outcomes with positive transfers in the second period. The regulator resorts to high-powered incentives in the first period. The firm then overinvests and a lock-in effect prevents relocation in both periods. Paradoxically, the distortion in the first-period contract can be so severe that higher transfers are needed to avert relocationccompared to a (hypothetical) situation without the investment opportunity. Creation Date: 2014-9
    Keywords: moral hazard, contract theory, limited commitment, firrm mobility, abatement capital
    JEL: D82 D86 L51 Q58
  6. By: Carluccio, Juan; Fougère, Denis; Gautier, Erwan
    Abstract: We estimate the impact of international trade on wages using data for French manufacturing firms. We instrument firm-level trade flows with firm-specific instrumental variables based on world demand and supply shocks. Both export and offshoring shocks have a positive effect on wages. Exports increase wages for all occupational categories while offshoring has heterogeneous effects. The impact of trade on wages varies across bargaining regimes. In firms with collective bargaining, the elasticity of wages with respect to exports and offshoring is higher than in firms with no collective bargaining. Wage gains associated with collective bargaining are similar across worker categories.
    Keywords: collective bargaining; exports; firm-level wages; offshoring
    JEL: E24 F16 J51
    Date: 2015–03
  7. By: Shyam Gouri Suresh; Mark Setterfield
    Abstract: We construct a multi-agent system (MAS) model of cyclical growth in which aggregate fluctuations result from variations in activity at firm level. The latter, in turn, result from changes in “animal spirits” or the state of long run expectations (SOLE) and their effect on firms’ investment behavior. We focus on the impact of publicly-available information about macroeconomic conditions – analogous to the press releases of national statistical agencies – on changes in the SOLE and hence the amplitude of aggregate fluctuations. Our results suggest that the amplitude of fluctuations is reduced by extremes of attention or inattention to aggregate economic performance, but that this relationship is subject to complicated (and possibly complex) phase transitions exhibiting extreme sensitivity to initial conditions.
    Keywords: Aggregate fluctuations, cyclical growth, animal spirits, state of long run expectations, sentiment, multi-agent systems
    JEL: C63 E12 E32 E37 O41
  8. By: Solomon, Bernard Daniel
    Abstract: In these notes I go over some basic aspects of the analysis of business cycles and aggregate fluctuations from a dynamic stochastic general equilibrium (DSGE) perspective. I build a cannonical DSGE model with a small number of representative agents and a large set of distortionnary wedges standing for various frictions as an organising framework. I use this model to discuss fundamental properties of business cycle dynamics. I start with some of the basic assumptions common to most applied DSGE models, and the modeling of household and firm behaviour. Then I discuss general equilibrium and the response of the economy to various shocks with flexible prices and wages, as well as ways of applying DSGE models with actual data. Finally I add nominal price rigidities to get the standard New Keynesian model, and discuss some open economy issues, fiscal policy and unconventional monetary policy.
    Keywords: Business cycles, dynamic stochastic general equilibrium
    JEL: E0 E12 E13 E32 E37 E44
    Date: 2015–02–16
  9. By: Bernd Fitzenberger (University of Freiburg, Department of Economics)
    Abstract: This paper estimates the wage effects of mobility across firms and occupations for male workers after apprenticehip in Germany. We employ an instrumental variables approach exploiting variation in regional labor market characteristics. Our estimates imply that pure firm changes and occupation and job changes after graduation from apprenticeship imply average wage losses, whereas an occupation change with the training firm results in persistent wage gains. Our results suggest that for the majority of cases a change of occupation involves a career progression. In contrast, for job switches the loss of firm-specific human capital seems to dominate. Creation Date: 2014-10
    Keywords: Apprenticeship Training, Job Mobility, Occupational Mobility, Wages
    JEL: J62 J24 J30 J31
  10. By: MORIKAWA Masayuki
    Abstract: Studies on the globalization of firm activities have been progressing rapidly, but empirical studies on service trade using firm-level data have been scarce. This paper, using panel data from Japanese firms, analyzes the relationship between service trade and firm characteristics such as productivity and finds the following. 1) The number of firms engaged in service trade is far less than that engaged in goods trade, and the ratio of service trade value to total sales is also small. 2) The share of trade with overseas affiliate firms is larger in service trade than in goods trade. 3) The productivity and wage level of service trading firms are higher than those of domestic firms and goods trading firms. 4) The productivity of firms that export services beyond the boundary of their firm groups is higher than those firms that export services only to their affiliate firms. Collectively, the results suggest that the fixed costs to initiate service trade exceed that to initiate goods trade, thus indicating the potentially important role of policies to liberalize and facilitate service trade.
    Date: 2015–03
  11. By: Andrea Colciago; Lorenza Rossi
    Abstract: Using U.S. quarterly data we provide VAR evidence showing that a positive productivity shock leads to a persistent decrease in the unemployment rate and in the price markup, together with an increase in aggregate profits. In response to the shock the labor share of income decreases on impact and overshoots its long run trend before reverting to equilibrium. To address these facts, we propose a model where Cournot competition and firms' entry in the goods market interact with search and matching frictions in the labor market. The price markup countercyclicality delivered by our model is a key factor to jointly account for the empirical facts we documented.
    Keywords: Firms' Entry; Oligopolistic competition
    JEL: L11 E32
    Date: 2015–03
  12. By: Leal-Ordoñez Julio C.
    Abstract: I review a contemporary branch of the informal sector literature that focus on understanding the way firm behavior is affected by the presence of informality and how such distortions have an impact on aggregate variables. The authors in this group all make use of dynamic general equilibrium (DGE) models. I focus on models with heterogeneous firms and a cost of informality that is increasing with firm size: reducing informality entails a tradeoff because there are some distortions associated with the formal sector and some others with the informal. Quantitative evaluations of this tradeoff using these models show that, in general, reducing informality brings gains. In conclusion, substantial progress has been made in understanding informality and its consequences through the use of DGE models with heterogeneous firms. More research is needed to understand how informality affects the economy when other sources of heterogeneity are considered.
    Keywords: informality, literature survey, dynamic general equilibrium, heterogeneous firms, distortions, productivity.
    JEL: E26 O17 O40
    Date: 2014–11
  13. By: Lundgren, Tommy (CERE); Marklund, Per-Olov (CERE); Zhang, Shanshan (CERE)
    Abstract: This paper estimates firm level energy efficiency and its determinants in 14 sectors of Swedish manufacturing by using stochastic frontier analysis (SFA). We derive energy demand frontiers both from cost minimizing and profit maximizing perspectives. To account for firms’ heterogeneity, Greene’s true random effects model is adopted. Results show that, from both firm behavior perspectives, there is room to improve energy efficiency in all sectors of Swedish manufacturing. The EU ETS seem to have had a moderate or no effect on Swedish firms’ efficient use of energy. Moreover, we found that energy intensity or energy productivity (energy use over production value) is not an appropriate proxy for energy efficiency.
    Keywords: energy demand; energy efficiency; manufacturing; stochastic frontier analysis; true random effects
    JEL: D22 D24 L60 Q41
    Date: 2014–09–12
  14. By: James A. Brander; Barbara J. Spencer
    Abstract: This paper investigates the effect of endogenous horizontal product differentiation on trade patterns and the gains from trade under Bertrand and Cournot oligopoly. Firms differentiate their products to mitigate competition, but only if the investment required is not too high. Investment in product differentiation takes place in a much wider range of cases and results in a greater difference between products under Bertrand than Cournot competition. In our model, trade in homogeneous products never takes place under Bertrand competition: Bertrand firms export only if they differentiate their products. Cournot firms may trade in either homogeneous or differentiated products. If there is trade, consumers tend to be better off with Bertrand than Cournot competition due to greater product differentiation and more aggressive pricing, but higher levels of investment can raise Bertrand profit above Cournot profit and also above the monopoly profit at autarky when investment costs are sufficiently low.
    JEL: F12 L1 L13
    Date: 2015–03
  15. By: De Giorgi, Giacomo (Federal Reserve Bank of New York); Gambetti, Luca
    Abstract: This paper sheds new light on the interactions between business cycles and the consumption distribution. We use Consumer Expenditure Survey data and a factor model to characterize the cyclical dynamics of the consumption distribution. We first establish that our approach is able to closely match business cycle fluctuations of consumption from the National Account. We then study the responses of the consumption distribution to total factor productivity shocks and economic policy uncertainty shocks. Importantly, we find that the responses of the right tail of the consumption distribution, mostly comprising more highly educated individuals, to shocks that drive cyclical fluctuations are larger and quicker than in other parts of the distribution. We note that the cost of business cycle fluctuations is larger than that found using aggregate consumption and that the shocks we analyze reduce consumption inequality on impact.
    Keywords: consumption; inequality; cost of business cycles; heterogeneity; aggregate shocks; structural factor model; FAVAR
    JEL: C3 D12 E21 E63
    Date: 2015–03–01

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