Globalisation and Productivity Growth Theory and Evidence Edited by Holger Görg, David Greenaway and Richard Kneller Globalisation and Productivity Growth This page intentionally left blank Globalisation and Productivity Growth Theory and Evidence Edited by Holger Görg, David Greenaway and Richard Kneller Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham Selection and editorial matter © Holger Görg, David Greenaway and Richard Kneller 2005 Individual chapters © contributors 2005 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published in 2005 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world. PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN-13: 978–1–4039–3499–4 hardback ISBN-10: 1–4039–3499–1 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Globalisation and productivity growth : theory and evidence / edited by Holger Görg, David Greenaway, and Richard Kneller. p. cm. Includes bibliographical references and index. ISBN 1–4039–3499–1 (cloth) 1. Industrial productivity. 2. Investments, Foreign. 3. International business enterprises. 4. Exports. 5. Globalization – Economic aspects. I. Title: Globalization and productivity growth. II. Görg, Holger. III. Greenaway, David. IV. Kneller, Richard. HC79.I52G57 2005 338Ј.06Ј09051—dc22 2005048114 10987654321 14 13 12 11 10 09 08 07 06 05 Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne Contents List of Tables vii List of Figures ix Acknowledgements x Notes on Contributors xi 1 Introduction and Overview 1 Holger Görg, David Greenaway and Richard Kneller Part I Aggregate Productivity Growth 2 Globalisation and Aggregate Productivity Growth 9 Michael Henry and Chris Milner 3 Liberalisation and Aggregate Productivity Growth 28 David Greenaway and M. Emranul Haque Part II Cross Border Investment and Productivity 4 Foreign Direct Investment and Productivity Growth: Theory 49 Ben Ferrett 5 Empirical Evidence on Foreign Ownership and Productivity Growth 79 Sourafel Girma, Steve Thompson and Peter Wright 6 Multinational Enterprises and Spillovers 92 Holger Görg and Alexander Hijzen Part III Exporting and Productivity 7 Exporting and Productivity Growth: Theory 117 Rod Falvey and Zhihong Yu 8 Empirical Evidence on Exporting and Productivity Growth in the UK 136 David Greenaway and Richard Kneller v 9 Multinationals, Exporting and Overseas Production 156 Sourafel Girma, Richard Kneller and Mauro Pisu Index 177 vi Contents List of Tables 2.1 Results of OLS regressions cross section estimations – dependent variable: TFP growth (average 1980–90) 14 2.2 Results of OLS regressions cross section estimations – dependent variable: TFP growth (average 1980–90) 15 2.3 Instrumental variables (2SLS) regressions cross section estimations – dependent variable: TFP growth (average 1980–90) 17 2.4 Instrumental variables (2SLS) regressions cross section estimations – dependent variable: TFP growth (average 1980–90) 18 2.5 Panel estimates (1960–90) 5-year averages – dependent variable: TFP growth 21 2.6 Panel estimates (1960–90) annual – dependent variables: TFP growth 23 3.1 Components of liberalisation episodes: the Papageorgiou et al. study 37 3.2 Elements of recent trade liberalisations 39 5.1 Average employment, wages and labour productivity of domestic- and foreign-owned firms in UK manufacturing industry 82 5.2 The impact of ownership on labour productivity 84 5.3 The impact of ownership on total factor productivity 86 5.4 The impact of ownership changes on wage rates by type of acquisition 87 6.1 Summary statistics 101 6.2 Descriptive statistics by export behaviour, 1988–96 102 6.3 Summary statistics by nationality of ownership 103 6.4 Basic regression results by export activity 105 6.5 Regression results by export and domestic market orientation MNEs 106 6.6 Regression results with absorptive capacity and intangible assets 108 6.7 Regression results by nationality 109 7.1 Summary of model differences 128 8.1 Percentage difference between exporters and non-exporters and their statistical significance 138 vii 8.2 Probability model of exporting 141 8.3 Transitions in and out of exporting 142 8.4 Characteristics of new exporters versus established exporters and non-exporters 142 8.5 Probit model of export market entry 143 8.6 Probit model of export market entry: agglomeration effects 145 8.7 Sample characteristics of exporters and non-exporters in a matched sample of firms 150 8.8 Effect of export market entry on firm performance for a matched and unmatched sample of firms 151 9.1a World merchandise exports/GDP 166 9.1b Foreign assets/world GDP 166 9.2 Summary statistics 171 9.3 The determinants of MNEs’ exports (UK) 171 viii List of Tables List of Figures 4.1 North–South FDI flows in general equilibrium à la Solow 52 4.2 Game tree for simplified Fosfuri/Motta/Rønde model 59 4.3 The MNE’s equilibrium period-1 choices 61 4.4 Equilibrium industrial structures in the international duopoly game 64 4.5 Equilibrium industrial structures 68 7.1 Flow chart showing productivity uncertainty and firm entry/exit 125 7.2 Productivity heterogeneity and with-in industry reallocation 126 9.1 Probability density of productivity and firm choice 163 ix [...]... interactions 1 2 Holger Görg, David Greenaway and Richard Kneller 1.1 Aggregate productivity growth We begin, by way of context with two chapters on aggregate productivity growth In the first chapter, Michael Henry and Chris Milner note the longstanding debate about the nature of the correlation between aggregate openness and (aggregate) total factor productivity growth One dimension of this debate centres... productivity is generally far more important to the process than factor accumulation Globalisation and productivity growth are inextricably linked On the one hand, globalising more could provide a boost to productivity, for example, by stimulating more competition; on the other hand, improved productivity could promote more globalisation by giving firms the necessary edge to enter global markets The papers... their relationships to productivity growth He examines both the links between these alternative forms of FDI flows and industry performance; and how FDI flows help shape national productivity distributions across plants Both can inform empirical investigation In Chapter 5 Sourafel Girma, Steve Thompson and Peter Wright review empirical evidence on foreign takeovers and productivity growth Their starting... Part I Aggregate Productivity Growth This page intentionally left blank 2 Globalisation and Aggregate Productivity Growth Michael Henry and Chris Milner 2.1 Introduction The relationship between trade openness and growth is a contentious issue Advocates of free trade and outward oriented trade policies have advanced both theoretical and empirical evidence demonstrating that greater openness results in... 2001); the time period and country coverage (Wacziarg, 2001); the direction of causality between trade and growth (Harrison, 1996) and the absence of a convincing theoretical framework linking commercial policy and trade orientation to growth (Edwards, 1993, 1998) 9 10 Michael Henry and Chris Milner Missing so far from the debate is a concern with the way in which productivity growth is measured Yet,... that they are Globalisation and Aggregate Productivity Growth 13 consistent with the hypothesis that more openness (less trade distortions) is associated with higher rates of TFP growth ␮ is a disturbance term and i indexes 93 developed and developing countries Edwards uses weighted least squares (WLS) and instrumental variable weighted least squares (IVWLS) to estimate Equation (1), and generally... conditions on TFP growth, the results are mixed There is support for conditional convergence in regressions 1 and 3, and for the initial stock of human capital at the start of each period explaining differences in TFP growth in regressions 1 and 2 However, in regressions 1 there is an unexpected negative sign on the variable that proxies for human capital.9 Globalisation and Aggregate Productivity Growth 21... spillovers 1.3 Exporting and productivity The literature on links between exporting and productivity has exploded in recent years, with a growing number of empirical studies on a growing number of countries, and the development of theoretical models which embed firm level exporting activity In Chapter 7 Rod Falvey and Zhihong Yu focus on theoretical models of links between exporting and productivity They... productive before they enter export Introduction and Overview 5 markets Another possible channel is learning by exporting: exposure to foreign competition leads to the adoption of new technologies, new techniques, and so on, leading to a productivity boost after entry Falvey and Yu also review and evaluate new models which link exporting and industry productivity growth Here the key channels are competitive... Economics and Director of the Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham M Emranul Haque is Research Fellow, Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham Michael Henry is Research Fellow, Aston University Business School Alexander Hijzen is Research Fellow, Leverhulme Centre for Research on Globalisation and . Greenaway and Richard Kneller Part I Aggregate Productivity Growth 2 Globalisation and Aggregate Productivity Growth 9 Michael Henry and Chris Milner 3 Liberalisation and Aggregate Productivity Growth. Globalisation and Productivity Growth Theory and Evidence Edited by Holger Görg, David Greenaway and Richard Kneller Globalisation and Productivity Growth This page intentionally. left blank Globalisation and Productivity Growth Theory and Evidence Edited by Holger Görg, David Greenaway and Richard Kneller Leverhulme Centre for Research on Globalisation and Economic