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Abstract:
The empirical analysis of the micro links between trade and knowledge diffusion allows us to distinguish among the key predictions of the theoretical literature on endogenous growth. This literature postulates that total factor productivity (TFP) is higher when trade gives access to a wider or more sophisticated range of technologies. The papers reviewed here find considerable evidence that imported technologies positively affect TFP in the importing countries, particularly in developing ones and when technologies are acquired by way of imports of intermediates. It also provides some support for the models that argue that exporting is an efficient learning channel. The role of foreign direct investment is more mixed, likely helping the economy but hurting domestic competitors. Relative factor and machinery costs, skill and technology endowments affect the choice of imported technologies. Although the access to foreign technologies has a positive impact on developing countries' TFP, overall, these countries are shown to purchase older and simpler. But governments' attempts of limiting or guiding technology selection are likely to have a negative effect on growth, because they force producers either to choose sophisticated technologies they are unable to use or they prevent them from getting the most appropriate and efficient technologies. Rather, policies aimed at promoting technological development should strengthen the absorptive capacity of importing countries by addressing the relationship of complementarity between human and physical capital.

Knowledge Flows, Technological Diffusion, Spillovers, Total Factor Productivity, Microeconomics of Economic Growth, RJV's, International Trade, Foreign Direct Investments

Abstract:
This paper examines the link between imported technologies and a country's export performance, as measured by product quality. The analysis is set in the background of the process of regional integration between the EU and its neighbouring developing countries. The underlying question is whether trade integration fosters or dampens learning and technological upgrading. We find that unit values of exports from these countries to the EU rose steadily between 1988 and 1996, relative to the unit values of world exports to Europe. If increases in unit values satisfactorily proxy increases in product quality, then trade integration has fostered product upgrading and technological learning in the sample countries. We find that imported technologies and other sources of knowledge have a strong bearing on this pattern. Technological inflows are captured by the degree of involvement of European companies in export flows from our sample countries (Outward Processing Trade) and by the skill content of the machines imported.

Technology Imports, Export Performance, Regional Integration, Textile Industry

Abstract:
This paper examines the impact of trade and fiscal reforms and of the 1994 devaluation of the CFA franc on enterprise development in Chad and Gabon. These reforms provide a natural experiment to assess the impact of trade liberalisation in countries with a small and backward manufacturing sector. The empirical analysis is based on a new panel data base covering virtually the whole population of manufacturing firms in Chad and Gabon, and containing data spanning from the year before to two years after the reforms. The paper finds that although firms' response to changing incentives was non-negligible, with a shift of output from non tradable to tradable and an increase in productivity, the reform process was unable to generate a virtuous and self-sustained circle, where export expansion brings a generalized productivity increase which in turn feeds on further export growth.

trade liberalisation, enterprise development, output, productivity amd export performance

Abstract:
Do multinationals cooperate in research and development with local firms in developing countries? This paper explores the theoretical underpinnings and provides new empirical evidence of R&D cooperation between firms with asymmetric endowments of knowledge.

Barba Navaretti and Carraro analyze the determinants of interfirm agreements between industrial and developing countries for research and development (R&D) - that is, between firms with asymmetric endowments of knowledge. They develop a model in which a multinational has two options: (1) setting up a subsidiary and competing with a local firm in a duopoly, or (2) implementing an agreement and sharing monopoly profits. The two firms, if they choose the agreement, may also cooperate in R&D. The model shows that:
° The choice of cooperating in R&D is influenced by the intertemporal preferences of the developing country firm, the relative efficiency in R&D of the two firms, and the extent of knowledge spillovers.
° The choice of cooperating in R&D increases both the profitability and stability of the agreement, stability because it affects the long-term trust between the partners.

The empirical analysis is based on a data set of international arm's length agreements, part of which involve joint R&D. Testing the two-choice model supports some of the key theoretical results and assumptions. R&D agreements are particularly likely to emerge when firms are operating in knowledge-intensive industries (where nontangible assets, like knowledge, are large relative to tangible assets), when the partners have a nonhierarchical contractual relationship (they all contribute to the R&D effort), and when technological asymmetries between home and host countries (as proxies of knowledge endowments of the contracting firms) exist but are not too great.

This paper - a product of the International Trade Division, International Economics Department - is part of a larger effort in the department to examine the impact of foreign direct investments on developing countries.

Abstract:
This Paper examines the impact of imported technologies on productivity for a sample of developing and transition countries in Central and Eastern Europe and in the Southern Mediterranean. These economies are getting more and more integrated to the European Union. The Paper departs from earlier studies of international technology diffusion as it focuses on the technology embodied in the machines imported. Earlier works had mostly focussed on spillovers of foreign R&D conveyed through trade, without controlling for the characteristics of the goods imported. The Paper jointly estimates the choice of foreign technology and its impact on domestic productivity for a set of manufacturing sectors. The technological level of the machines imported is proxied by an index relating the unit value of the machines imported by a given country to the unit value of the same machines imported by the US. The Paper finds a constant and even increasing gap between the unit value of the machines imported by the US and the machines imported by our sample of developing countries. It shows that this gap is significantly persistent and that it is higher the lower the level of GDP of the importing country. The empirical analysis also finds that productivity growth in manufacturing depends positively on the type of machines imported in a given industry. Consequently, although the choice of developing countries to buy cheaper and less sophisticated machines is optimal, given relative factor prices and their endowments of technology, this choice has a cost in terms of long-run productivity growth.

Trade integration, import of technology, productivity growth

Abstract:
Knowledge, lacking weight and other physical attributes and being intangible, is a hidden factor of production, making economies grow "weightless." But knowledge is also embedded in technology. If, because of low productivity, poor countries keep buying low-technology machines, will they remain stuck in a low-technology, low-growth trap?
Barba Navaretti and Soloaga examine the impact on productivity of technologies imported by a sample of developing and transition economies in Central and Eastern Europe and the Southern Mediterranean—economies becoming increasingly integrated with the European Union.
They depart from earlier studies of technology diffusion by focusing on the technology embodied in the machines imported. Earlier work focused mostly on spillovers from foreign research and development conveyed through trade, without controlling for the characteristics of the goods imported.
The authors jointly estimate the choice of foreign technology and its impact on domestic productivity for a set of manufacturing sectors. They proxy the technological level of the machines imported by using an index relating the unit value of the machines imported by a given country to the unit value of similar machines imported by the United States.
At any point in time between 1989 and 1997, there is a persistent (even increasing) gap between the unit values of the machines imported by the United States and those imported by the sample of developing countries. Although developing economies buy increasingly productive machines, the technology embodied in the machines persistently lags behind that in the machines purchased by the United States—so far as unit values are good proxies of embodied technologies.
Barba Navaretti and Soloaga also find that productivity growth in manufacturing depends on the types of machines imported in a given industry. So although the optimal choice for developing countries is to buy cheaper, less sophisticated machines, given local skills and factor prices, this choice has a cost in long-run productivity growth. If productivity is low, countries buy low- technology machines, but doing so keeps them in a low-technology, low-growth trap.
This paper—a product of Trade, Development Research Group—is part of a larger effort in the group to assess the role of trade in technology diffusion.

Abstract:
This paper is the introduction and summary chapter of the 43 chapter volume entitled Handbook of Trade Policy and WTO Accession for Development in Russia and the CIS. The key policy conclusions of each of the chapters are highlighted in this paper. The Handbook will be published only in Russian in 2005, but an English language version of the majority of the papers described here is available on the website. This paper first explains the potential importance of World Trade Organization (WTO) accession as a development tool, and discusses the recent successful development models and the role of trade policy in their development. The paper then summarizes the three parts of the Handbook. The first part treats trade policy (with applications to Russia and the Commonwealth of Independent States [CIS]). The second part treats World Trade Organization institutions and disciplines, again with Russia and CIS applications. And the third part focuses on various aspects of the impact of WTO accession on Russia. The numerous papers that relate trade policy and WTO accession to experience in Russia and the CIS are likely to be of special interest to native English speakers, since these papers are new to the literature. The papers in the Handbook are intended to be non-technical materials accessible to a wide policy audience. The Handbook forms the basis of a World Bank Institute course on trade policy and WTO accession, which has been delivered and will be delivered again on multiple occasions.

Abstract:
This paper provides a cross-country perspective to the firm-level analysis of the relation between foreign ownership and labour demand. We estimate labour demand equations in eleven European countries using dynamic panel data techniques on samples that permit to distinguish the ownership status of firms. We find that the employment adjustment is significantly faster in MNEs' affiliates, irrespective of the country investigated. As for the wage elasticity of labour demand, MNEs show smaller elasticities compared with national firms, and very little variation across countries. Cross-country correlations show that the relative value of wage elasticities in MNEs on that in NEs is positively related to country-level indexes of labour market regulation (employment protection, union presence,...). We interpret the results as follows. MNEs tend to have a more rigid demand for total labour (possibly due to a different skill composition). However, being MNEs relatively "footloose", this difference tends to vanish as the rigidity of employment regulations rises.

multinational firms, labour demand elasticity, employment adjustment costs

Abstract:
This paper examines the relationship between the exposure to foreign trade and productivity growth for a sample of Indian manufacturing firms. By testing a catching up model of productivity growth, it sheds some light on the nature of the relationship between the exposure to foreign competition and productivity growth. It finds a non linear relationship between firms' export share and productivity gains. Productivity growth declines with the share of exports on total sales, up to a threshold ranging between 40 and 50 per cent and it increases thereafter. This result appears to be dominated by the behaviour of firms in traditional sectors like textile and clothing. In more technology intensive sectors, like pharmaceuticals, productivity gains also arise for smaller export shares. One likely explanation of this finding is that being successful in the export market for exporters of traditional products also requires investments in technological upgrading. These investments are less likely to be viable for marginal exporters. In fact, firms with a larger than 50 percent share of exports are also found to be more capital intensive and to use newer machinery than non exporters or marginal exporters. In contrast we find that human capital is not significantly different for different categories of firms.

India, productivity, exports, firm level performance

Abstract:
Trade policy in developing countries often discriminates against imports of secondhand goods. Used machines may make sense when there is complementarity between skills and production technologies and the skill base of the importing country is poor.

Trade policies in many developing countries discriminate - through import bans, licensing requirements, or higher tariff rates. Even Australia adds a $12,000 tariff on used cars. Such discrimination is often motivated by the desire to protect domestic industries from competition from low-priced goods, to avoid becoming a dumping ground for castoffs from high-income countries, or to push domestic industries toward the technological frontier.

But trade restrictions on used capital goods may be inappropriate in countries where low wages and high interest rates call for labor-intensive production processes. Older equipment is likely to be more labor-intensive than new equipment, because technological changes tend to be labor-saving and older equipment requires greater maintenance and presents greater risk of machine downtime.

In this empirical analysis of international trade in production machinery, Barba Navaretti, Soloaga, and Takacs examine choices between new and used equipment, when there is labor-saving technical progress and the skills and technology available in a firm complement each other. They examine U.S. exports of metalworking machine tools by country of destination, classifying machines by vintage technological characteristics. They do so by developing a new method for classifying trade data on machines according to the minimum technological skills necessary to operate them. They are consequently able to use trade data to measure technology transfer. The main findings:

The lower a country's level of development-as measured by such indicators as per capita income, wages, and average education-the greater the share of used equipment imported by the country.

Imports of used machinery are greater, the faster the technical change and the greater the skills required to run the machinery efficiently.
They conclude that technological factors and skill constraints may be far more important than wage and interest-rate differentials in determining a firm's choice of technique in developing countries. Consequently the technological gap between advanced and developing economies rises when machines embody faster technological progress.

Barba Navaretti, Soloaga, and Takacs argue against constraints on imports of used equipment, not for the reason often given in existing literature-inappropriate capital-labor ratios in low-wage countries - but because investing in advanced technologies makes sense only if the countries importing them have the skill to use them.

This paper - a product of the Development Research Group - is part of a larger effort in the group to assess the role of trade barriers on technology diffusion. The authors may be contacted at barba@imiucca.csi.unimi.it, wtakacs@umbc2.umbc.edu, and isoloaga@worldbank.org.

Abstract:
Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialisation of the European economies. However, several recent contributions have shown that the effects on home economies are rarely negative and often positive. Our paper contributes to this literature by examining how outward investments to cheap labour countries affect home activities of a sample of French and Italian firms that turn multinational in the period analysed. The effects of these investments are also compared to the effects of outward investments to developed economies. The analysis is carried out by using propensity score matching in order to build an appropriate counterfactual of national firms. This provides the hypothetical benchmark of what would have happened to domestic activities if firms had not invested abroad. We find no evidence of a negative effect of outward investments to cheap labour countries. In Italy they enhance the efficiency of home activities, with also positive long term effect on output and employment growth. Also for France we find a positive effect on productivity and the size of domestic activity, although not as robust and significant. Investments to developed economies from both countries have essentially scale effects but which do not trickle down on productivity at home.

Multinational firms, productivity, propensity score matching

Abstract:
This paper examines the impact of trade and fiscal reforms and of the 1994 devaluation of the CFA franc on enterprise development in Chad and Gabon. These reforms provide a natural experiment to assess the impact of trade liberalization in countries with a small and backward manufacturing sector. The empirical analysis is based on a new panel data base covering virtually the whole population of manufacturing firms in Chad and Gabon, and containing data spanning from the year before to two years after the reforms. The paper finds that although firms response to changing incentives was non-negligible, with a shift of output from nontradable to tradable and an increase in productivity, the reform process was unable to generate a virtuous and self-sustained circle, where export expansion brings a generalized productivity increase which in turn feeds on further export growth.

Abstract:
Foreign activities of MNEs have important effects on home economies. The debate is ambiguous: concerns that foreign investments deplete domestic economies are often coupled with the pride for doing good business in foreign countries. This paper addresses this question by defining the appropriate counterfactual: what would have happened to investing firms if they had not invested abroad? It applies propensity score matching to derive these hypothetical performance trajectories from a sample of national firms which have never invested abroad. For a sample of Italian firms, it finds that investments improve growth of total factor productivity and output. It also finds no significant effects on employment. These results support the view that foreign investments strengthen rather than deplete home activities.

Multinational firms, productivity, propensity score matching

Abstract:
Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialisation of the European economies. However, several recent contributions have shown that the effects on home economies are rarely negative and often positive. Our paper contributes to this literature by examining how outward investments to cheap labour countries affect home activities of a sample of French and Italian firms that turn multinational in the period analysed. The effects of these investments are also compared to the effects of outward investments to developed economies. The analysis is carried out by using propensity score matching in order to build an appropriate counterfactual of national firms. This provides the hypothetical benchmark of what would have happened to domestic activities if firms had not invested abroad. We find no evidence of a negative effect of outward investments to cheap labour countries. In Italy they enhance the efficiency of home activities, with also positive long term effect on output and employment. For France we find a positive effect on the size of domestic activity. Investments to developed economies from both countries have essentially scale effects which eventually trickle down on employment and productivity at home.

Multinational firms, productivity, propensity score matching

Abstract:
This paper examines whether the export decision of firms is affected by their ownership structure, specifically it looks at whether family control is an obstacle to entering foreign markets. The underlying assumption is that family firms are risk averse. Risk aversion may be an obstacle to entering foreign markets, as far as these are perceived as more volatile and risky than the domestic one, particularly when such choice entices bearing relatively high sunk costs. We develop an illustrative theoretical model that shows how the combination between high risk aversion and low initial productivity may hinder family firms' decision to enter foreign markets, particularly distant ones. The empirical analysis, based on a detailed panel data set of Italian firms covering the years from 1995 to 2003, confirms such predictions by showing that family controlled firms do indeed export less than other type of companies even after controlling for firm heterogeneity in productivity, size, technology and access to credit.

family control, trade, trade performance, risk, Italy

Abstract:
This paper examines whether the export decision of firms is affected by their ownership structure, specifically it looks at whether family control is an obstacle to entering foreign markets. The underlying assumption is that family firms are risk averse. Risk aversion may be an obstacle to entering foreign markets, as far as these are perceived as more volatile and risky than the domestic one, particularly when such choice entices bearing relatively high sunk costs. We develop an illustrative theoretical model that shows how the combination between high risk aversion and low initial productivity may hinder family firms' decision to enter foreign markets, particularly distant ones. The empirical analysis, based on a detailed panel data set of Italian firms covering the years from 1995 to 2003, confirms such predictions by showing that family controlled firms do indeed export less than other type of companies even after controlling for firm heterogeneity in productivity, size, technology and access to credit.

exports, family firms, firm structure, foreign markets

Abstract:
This Paper provides a cross-country perspective to the firm-level analysis of the relation between foreign ownership and labour demand. We estimate labour demand equations in 11 European countries using dynamic panel data techniques on samples that permit to distinguish the ownership status of firms. We find that the employment adjustment is significantly faster in MNEs' affiliates, irrespective of the country investigated. As for the wage elasticity of labour demand, MNEs show smaller elasticities compared with national firms, and very little variation across countries. Cross-country correlations show that the relative value of wage elasticities in MNEs on that in NEs is positively related to country-level indexes of labour market regulation (employment protection, union presence,...). We interpret the results as follows: MNEs tend to have a more rigid demand for total labour (possibly due to a different skill composition). MNEs being relatively 'footloose', however, this difference tends to vanish as the rigidity of employment regulations rises.

Multinational firms, labour demand elasticity, employment adjustment costs

Abstract:
This Paper examines which firms from a heterogeneous pool are more likely to join together and form a research joint venture (RJV). It differs from previous contributions as it introduces a set of realistic hypothesis on the characteristics of research co-operation and information sharing. Research paths can be substitute or complementary. This affects the nature of and consequently the gains from co-operation. The model shows that gains from co-operation are likely to be larger in the second case, as the probability of making a discovery is higher. This Paper also assumes that firms do not share information voluntarily if they do not co-operate only when the firms' products are substitute. If the firms' products are complementary there may be gains in sharing information also under non co-operation. This eliminates the gains from co-operation arising from information sharing. If this is the case, RJVs are more likely to be formed between firms producing substitute products. If we combine these two results we have the prediction that firms co-operate in research when they produce substitute products and when they follow complementary research paths. The empirical analysis carried out on a sample of European RJVs confirms and supports this prediction. The model also carefully explores the role of asymmetries in costs between the two firms. It shows that larger initial asymmetries reduce the information-sharing gains from RJV-formation but increase the research co-ordination gains. This result is supported by the empirical analysis, which shows that gains from RJV formation are largest for intermediate levels of asymmetry.

Abstract:
We propose and solve a simple model of firm-level decisions to offshore production stages of lower skill intensity than that of activities that remain in the domestic location. In theory, offshoring is optimal only for the more productive among heterogeneous firms if it entails a fixed cost. In a large sample of Italian firms, offshoring - especially of intermediate production stages - is indeed more prevalent among firms that are larger and more productive, and is predicted by arguably relevant firm-level characteristics. We also document that offshoring decreases the share of unskilled employment in domestic production facilities as well as firms' propensity to employ immigrant workers, and we discuss the possible determinants and policy implication of the latter finding.

Offshoring, immigration, employment

Abstract:
We propose and solve a simple model of firm-level decisions to offshore production stages of lower skill intensity than that of activities that remain in the domestic location. In theory, offshoring is optimal only for the more productive among heterogeneous firms if it entails a fixed cost. In a large sample of Italian firms, offshoring - especially of intermediate production stages - is indeed more prevalent among firms that are larger and more productive, and is predicted by arguably relevant firm-level characteristics. We also document that offshoring decreases the share of unskilled employment in domestic production facilities as well as firms propensity to employ immigrant workers, and we discuss the possible determinants and policy implication of the latter finding.

Foreign Direct Investment, Migration, Outsourcing, Skilled Labour

Abstract:
This paper examines the link between imported technologies and a country's export performance, as measured by product quality. The analysis is set in the background of the process of regional integration between the European Union (EU) and its neighbouring developing countries. The underlying question is whether trade integration fosters or dampens learning and technological upgrading. We find that unit values of exports from these countries to the EU rose steadily between 1988 and 1996, relative to the unit values of world exports to Europe. If increases in unit values satisfactorily proxy increases in product quality, then trade integration has fostered product upgrading and technological learning in the sample countries. We find that imported technologies and other sources of knowledge have a strong bearing on this pattern. Technological inflows are captured by the degree of involvement of European companies in export flows from our sample countries (outward processing trade (OPT)) and by the skill content of the machines imported.

Technology imports, export performance, regional integration, textile industry

Abstract:
This paper investigates institutions for the creation and transmission of knowledge as efficient resource allocation mechanisms. By looking at Science and Technology it develops a two-way classification. Science is a non-market allocation mechanism, where knowledge is treated as a pure public good and where the rule of priority provides an incentive scheme for disclosure. Technology is a market allocation mechanism, where knowledge is treated as a private good and where patents and copyrights preserve property rights. The distinction between these two entities is based on the institutional arrangements involving the allocation of resources for enquiry, not on the differences in the objects and methods of inquiry. The paper compares the rule of priority and patenting as alternative incentive schemes. It also discusses whether it is optimal for society to preserve two different institutions, partly rival and partly complementary, and examines the major policy implications.