We empirically investigate the impact of product quality information asymmetry on firm exports and the sectoral composition of multinational corporation activities. Using Chinese customs data, we find robust evidence that foreign firms perform better than domestic firms in information intensive industries. Foreign advantage in information intensive industries is more pronounced for ordinary trade, in destinations with a higher information barrier, and is present at both the intensive and the extensive margins of exports. This advantage of foreign firms is also present for new exporters, while increasing with firm's exporting experience. We also show that the export advantage of foreign firms in information intensive industries is mainly due to a significant higher export quantity rather than price. Using a large-scale scandal that affected the Chinese dairy industry in 2008 as a natural experiment, we find that the export advantage of foreign firms significantly increased in dairy related industries after the scandal.

Abstract: This paper provides firm-level evidence that credit constraints restrict international trade flows and affect the pattern of foreign direct investment. Using detailed data from China, we show that foreign-owned affiliates and joint ventures have better export performance than private domestic firms, and that this advantage is systematically greater in sectors at higher levels of financial vulnerability measured in a variety of ways. These patterns are manifest in firms' export sales, export product scope and number of export destinations. They are also more pronounced when firms face higher trade costs. This evidence indicates that limited credit availability hinders firms' trade flows, and is consistent with foreign affiliates being less constrained because they can access additional funding from their parent company. Our results further imply that financial frictions and host-country financial institutions affect the sectoral and spatial composition of MNC activity. More broadly, our findings suggest that FDI can compensate for domestic financial market imperfections and alleviate their impact on aggregate growth, trade and private sector development

We develop a model of international trade with export quality requirements and two dimensions of firm heterogeneity. In addition to "productivity", firms are also heterogeneous in their "caliber"--The ability to produce quality using fewer fixed inputs. Compared to single-attribute models of firm heterogeneity emphasizing either productivity or the ability to produce quality, our model provides a more nuanced characterization of firms' exporting behavior. In particular, it explains the empirical fact that firm size is not monotonically related with export status: there are small firms that export and large firms that only operate in the domestic market. The model also delivers novel testable predictions. Conditional on size, exporters are predicted to sell products of higher quality and at higher prices, pay higher wages and use capital more intensively. These predictions, although apparently intuitive, cannot be derived from single-attribute models of firm heterogeneity as they imply no variation in export status after size is controlled for. We find strong support for the predictions of our model in manufacturing establishment datasets for India, the U.S., Chile, and Colombia.

The book assumes an original place in the literature. . . Castellani and Zanfei show that the economic impact of MNEs on innovation and productivity depends on evolutionary features of firms and industries, particularly on the heterogeneity of firm strategies and behaviours. . . this volume contains high-quality, well-written research. . . Simona Iammarino, Research Policy . . . this book offers the reader a well-written and very comprehensive analysis on the link between innovation and internalization which leads to insights into firm heterogeneity. The authors have succeeded in synthesizing the vast body of theoretical and empirical research and given an up-to-date overview of the various issues involved. This is then complemented with their own research findings. . . The book will undoubtedly enrich the debate on the behavior and impact of MNEs. Yama Temouri, Journal of International Business Studies Davide Castellani and Antonello Zanfei, two well-known Italian economists, have brought forth an excellent new book. . . I think this book will serve as a starting-point for many interesting studies, both because of its findings and because of its empirical and theoretical rigour. . . the book lays an excellent and empirically well founded foundation that opens the way for what we need most in research on the international innovatory activities and R&D configurations of MNCs: intrafirm data and the study of intrafirm processes, configurations and specific interactions with the host country environment. The book to me is an important step in moving innovation research forward in this direction. . . I am sure that this book will serve as a thought-provoking starting point for many future studies on firms international innovatory activities and therefore recommend it without any reservation. Marcus M. Keupp, Creativity and Innovation Management Castellani and Zanfei have developed an original and comprehensive analysis of the role of multinational firms in the transfer, creation and diffusion of technology. By developing their view of the multinationals as double network institutions , the authors provide new insights on a variety of key issues at the frontier of economics of international production and innovation. This book is thought-provoking, incisive and topical, and should be required reading for both economists and policymakers alike. Rajneesh Narula, University of Reading, UK Castellani and Zanfei present an in-depth theoretical and empirical analysis of the key issues underpinning the relationship between innovation and multinationality. This book is strongly-recommended reading for any researcher working on innovation or multinationality or the interface between the two. Grazia Ietto-Gillies, London South Bank University, UK This book gets to the root of how and why multinational firms differ in the cross-border creation, transfer and diffusion of technology, and provides fresh evidence on the effects that these differences have on productivity and innovation in the economic systems in which they are active. Davide Castellani and Antonello Zanfei consider multinationals as heterogeneous institutions that combine internal networks of subsidiaries with external networks of collaborative linkages, to bridge different economic and innovation systems. They examine heterogeneity in productivity and innovative behaviour between multinational and national firms, as well as across and within multinationals. The authors argue that not every foreign firm is a good source of externality, and not every domestic firm is equally well placed to benefit from multinationals. It is shown that spillovers from multinationals differ according to the technological profiles, embeddedness and linkage creation of both foreign and domestic firms active in local markets. The book supports this view with empirical evidence based on illustrative case studies, and on econometric analysis using extensive firm-level datasets on multinati

My studies focus on the welfare implications of market frictions and policy distortions. This dissertation includes three chapters on international trade and development economics. Based on empirical evidence found in data, I build and estimate theoretical models which can be used further to quantify policy implications. My research includes both positive and normative analysis.In Chapter 1, I study how information asymmetry affects trade and what is the policy implication. The problems of moral hazard and adverse selection can seriously impede the development of export markets for firms from less developed countries. Importing firms have little recourse in developing country courts should their suppliers provide sub-quality goods, and they face great difficulty in distinguishing good firms from bad ones. My paper is the first to develop and estimate a dynamic structural model that incorporates both features of asymmetric information, namely moral hazard and adverse selection. In the model, the information asymmetry is high for new entrants but then gradually fades as idiosyncratic fixed cost shocks drive inefficient firms from the market. Thus, a firm's tenure in export markets is a signal of its efficiency, and consequently the price that it can obtain rises with tenure. Market-wide shocks to fixed costs, as occur when product safety regulations are imposed, flatten the price-tenure gradient as they disproportionately induce inefficient firms to exit. Using a triple-difference strategy, I show that these predictions hold in firm-level Chinese export data. This variation in the data also allows me to estimate my model and use it for counterfactual analysis. I show that the problem of information asymmetry is severe for Chinese entrants into export markets and that the problem is made worse by government export subsidies. Reducing these subsidies would raise aggregate export profits for Chinese firms.In Chapter 2, I study the welfare implication of location-based policies in a general equilibrium framework. Location-based policies are put in place in many countries to promote local economies. Based on Chinese Manufacturing Survey data, we see that there exist significant differences in corporate income tax rates across regions and across industries within a region. Hence, the location-based policy that we study here is the preferential corporate income tax rate that is offered by local Chinese governments to attract firms. We use a general equilibrium model, that takes into account both the creation and diversion of economic activity across space, to study the welfare implications of this policy in China. Our model is characterized by two agglomeration forces: Marshallian externalities and input-output linkages. Heterogeneous firms choose their production locations based on the above forces of agglomeration, the corporate income tax rate, wages and market access. After calibrating the model to the data, we find that this policy reduces aggregate welfare by 0.26% relative to the scenario in which corporate income taxes are equal across regions and across industries within a region. Both agglomeration forces play an important role. Preferential tax rates in underdeveloped areas attract firms away from more developed areas, thereby preventing them from exploiting the efficiency gains due to agglomeration. If agglomeration was not considered, then the welfare loss would have been underestimated by 59%.In Chapter 3, using high quality administrative data on Greece we show that class size has a hump shaped effect on achievement. We do so both nonparametrically and parametrically, while controlling for potential endogeneity and allowing for quantile effects. We then embed our estimates for this relationship in a dynamic structural model with costs of hiring and firing.We argue that the linear specification form used in past work may be why it found mixed results. Our work suggests that while discrete reductions in class size may have mixed effects, discrete increases are likely to have very negative effects while marginal changes in class size would have small negative effects.We find optimal class sizes around 27 in the absence of adjustment costs and achievement maximizing ones around 15, and firing costs much larger than hiring costs consistent with the presence of unions. Despite this, reducing firing costs actually reduces achievement. Reducing hiring costs raises achievement and reduces class size. We show that class size caps are costly, and more so for small schools, even when set at levels well above average.

This Handbook adopts a traditional definition of the subject, and focuses primarily on the explanation of international transactions in goods, services, and assets, and on the main domestic effects of those transactions. The first volume deals with the "real side" of international economics. It is concerned with the explanation of trade and factor flows, with their main effects on goods and factor prices, on the allocation of resources and income distribution and on economic welfare, and also with the effects on national policies designed explicitly to influence trade and factor flows. In other words, it deals chiefly with microeconomic issues and methods. The second volume deals with the "monetary side" of the subject. It is concerned with the balance of payments adjustment process under fixed exchange rates, with exchange rate determination under flexible exchange rates, and with the domestic ramifications of these phenomena. Accordingly, it deals mainly with macroeconomic issues, although microeconomic methods are frequently utilized, especially in work on expectations, asset markets, and exchange rate behavior. For more information on the Handbooks in Economics series, please see our home page on http://www.elsevier.nl/locate/hes

This volume presents insights from Brazil, China, India, Pakistan, Sri Lanka and Turkey to enlighten scholars by unearthing the nature, drivers, barriers and determinants of entrepreneurship in emerging markets

In a modern world with rapidly growing international trade, countries compete less based on the availability of natural resources, geographical advantages, and lower labor costs and more on factors related to firms' ability to enter and compete in new markets. One such factor is the ability to demonstrate the quality and safety of goods and services expected by consumers and confirm compliance with international standards. To assure such compliance, a sound quality infrastructure (QI) ecosystem is essential. Jointly developed by the World Bank Group and the National Metrology Institute of Germany, this guide is designed to help development partners and governments analyze a country's quality infrastructure ecosystems and provide recommendations to design and implement reforms and enhance the capacity of their QI institutions.

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