The Global Operations of European Firms:

Something to learn on

South vs. North Europe?

Giorgio Barba Navaretti,

University of Milan and

Centro Studi Luca d’Agliano

Conference on the Triggers of CompetitivnessNational Bank of Belgium, Brussels, December 6, 2011

2Sources: European Commission and Eurostat. Notes: Countries are ranked according to GDP per capita in 1999. GDP per capita, relative to the EA, in PPS.

20

40

60

80

100

120

140

160

EE SK SI MT PT GR CY ES EA FI FR IT DE BE IE NL AT

-18

-12

-6

0

6

12

GDP per capita (relative to EA) in 1999 (LHS)GDP per capita (relative to EA) in 2010 (LHS)Current account deficit (% GDP), average 1999-10 (RHS)

EU growth, competitiveness and current account imbalances

Capital inflows in the right direction, but not to the best use

External imbalances: Things change

source: Barues, Lawson, Radziwill and Lane, OECD WP

Macro Macro and then??

Debate on ’competitiveness’: macro indicators

• Real Effective Exchange Rates (REER)• Unit Labor Costs (ULC)• Export shares• Current Account (in % of GDP)

INDUSTRY?

Source: OECD and IMF. Data for 2010, except Spain 2009

Sectors?

Macro Macro and then??

Nations and sectors do not produce, do not trade, do not compete; it is firms that produce trade and compete.

BUT

• Firms?

Averge firm size

Country Number of firms

AUT 492

FRA 2,973

GER 2,202

HUN 488

ITA 3,019

SPA 2,832

UK 2,156

Total 14,162

EU-EFIGE/BRUEGEL-UNICREDIT DATASET

• Before no statistical information on European firms harmonized across country.

2010 targeting year 2008 (some 2009)

• Detailed information of international operations combined with all other key firm characteristics (including balance sheet data

THE EFIGE SECONDPOLICY POLICY REPORT“The Global Operations of the European Firms”?

MAIN FINDINGS

• Differences in country patterns:• German and French more sophisticated internationalisers

• Spain and Hungary lagging behind

• Italians, higher export propensity

• Firms characteristics affect internationalisation patterns in a remarkably similar way across countries

• Patterns explained mostly by firm characteristics

=> Country differ because they have a different industrial structure

WHAT EXPLAINS EXPORT STATUS?FIRMS’ FEATURES

7%

29%

64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% Firm Characteristics

Sector Effects

Country Effects

NUMBER OF DESTINATIONS OF EXPORTSMANY FIRMS IN FEW COUNTRIES, FEW FIRMS IN MANY COUNTRIES

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48

più

di 5

00

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AUTFRAGERHUNITASPAUK

Numero di destinazioni (più di)

Quota

di esport

ato

ri

Policy: How to shift these distributions to the right?

Country

Share of Firms involved in FDI

and / or IO

Share of Turnover from

FDI and IO, conditional

AUT 11.05 28.4

FRA 8.17 31.7

GER 9.18 31.1

HUN 4.01 34

ITA 6.21 29.7

SPA 4.2 33.6

UK 8.74 45.4

THE GAMES GET TOUGHERGLOBAL PRODUCTION

Few do it, but who does it

does it a lot

French and Germans more than the others

Firm characteristics, the prevailing factor again

A SIMPLE DECOMPOSITION

• To quantify the importance of size and sector, apply to ITA, FRA and SPA the German structure (Germany only as benchmark; no suggestion to become German!)

• Keep fixed a country’s total employment in the manufacturing sector and shift workers across firms and sectors to replicate German structure

• How? Changing the weighting scheme as if sample firms in ITA, FRA and SPA were drawn from German population

• Importantly, keep a country’s export propensity and export share by size and sector classes

EXPORT RISE IF WE APPLY GERMAN INDUSTRIAL STRUCURE, MORE IN ITALY AND SPAIN THAN IN FRANCE(Number of workers constant)

Italy: Most of the

action is size

France and Spain,

industry matters

most

• Industrial structure (distribution of firm characteristics) important for trade imbalances

• Caveat: export not necessarily Nirvana

• => But clearly export competitiveness reflects efficiency and growth of industry and viceversa

• German miracle: did Germany have an industrial structure able to respond to changes in incentives?? • = > Mittelstandt ? Fraunhofer?• For other countries is firms growth important (Italy)?

• Nothing can be forced, but impediments to growth? And does reallocation of resources favour productivity growth?

IMPLICATIONS

FRANCE ITALY SPAIN

Down-sizers 28.71 39.99 23.69

Stable 45.54 28.15 33.41

Up-sizers 25.74 31.86 42.90

USEFUL TO DECOMPOSE FIRMS DYNAMICS (2001-08)

Columns sum to 100Upsizers: firms moving up to higher deciles between 2001 and 2008Downsizers: firms moving down to lower deciles between 2001 and 2008Stable: firms not changing decile between 2001 and 2008Source: EFIGE-Amadeus data

Down-sizers Same class Up-sizers TOTAL

FRANCE

∆LP 01-08 -2.32 4.43 7.41 9.52

Within 3.33 4.32 0.76 8.42

Between -4.31 -0.06 6.58 2.21

Cov -1.34 0.17 0.07 -1.10

ITALY

∆LP 01-08 -2.21 1.94 9.01 8.74

Within 10.9 3.78 2.10 16.80

Between -8.54 -1.33 6.35 -3.52

Cov -4.59 -0.50 0.55 -4.54

SPAIN

∆LP 01-08 -1.60 1.95 8.87 9.21

Within 4.90 3.46 2.13 10.49

Between -3.85 -1.22 6.19 1.12

Cov -2.65 -0.29 0.55 -2.39

How does firm dynamics affect aggregate productivity?

• Addressing the issue of industrial structures is essential for competitiveness and growth and to tackle North-South balances in the Euro area.

• Possible that present structure of incentives in deficit countries does not favour a’ growth conducive’ reallocation of resources

• This cannot be sorted out just with sectoral and macro policies

CONCLUSIONS