Globalisation, Productivity and Technology
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| Programme Coordinator: Dr Richard Kneller "Firms have to adjust constantly to the challenges posed by globalisation. Understanding these adjustments are of immense scientific and policy interest." |
The Globalisation, Productivity and Technology programme examines the impact of globalisation on the behaviour of firms in terms of production choices, productivity and other aspects of firm performance. Research focuses on the role of international outsourcing (or offshoring), exporting and foreign direct investment for firm performance and research uses both theoretical modelling and econometric analysis of large micro level data sets. Much of the work is based on firm data for the UK. However, research also looks at other countries, for example Ireland, Sweden and Ghana. This is partly to provide a comparative aspect to our work but also because access to micro data and the coverage in terms of variables is limited in the UK.
Some current research activities:
International outsourcing and firms’ productivity and innovation activity
(Holger Görg and Alex Hijzen)
A recent analysis uses plant level data to investigate the effect of firms’ outsourcing activities, in particular of services, on their productivity performance. The rationale is that outsourcing of some ‘non-core’ activities allows firms to restructure production towards more skill-intensive activities and this may lead to improvements in productivity. The econometric analysis supports this conjecture. Interestingly, plants that are also on export markets are those that gain the most from international outsourcing. Follow-up work using similar data investigates the link between international outsourcing and innovation and shows evidence that outsourcing leads to restructuring of activities in the firm and improves innovation activity (measured in terms of R&D expenditure).
The impact of exporting on firm performance
(David Greenaway, Richard Kneller, Holger Görg, Alessandra Guariglia, Mauro Pisu, Zhihong Yu)
Recent work has focussed on measuring the entry cost of exporting to understand why some firms export and others do not. Although trade costs are essential to describe different export choices, little is known about them. Recent work provides evidence on one particular aspect of overseas trading costs. Using firm level data for UK manufacturing firms the research finds that improvements in the business environment of foreign countries leads to an increase in the export intensity of established exporters rather than additional export market entry; and that exports responded most to changes in the rules governing ownership, labour market regulation and international capital markets. A related paper investigates whether government support can increase exporting activity (for example, through lowering entry costs). That analysis shows that, provided grants are large enough, they can encourage already exporting firms to compete more effectively on the international market. However, there is little evidence that grants encourage non-exporters to start exporting.
The effects of inward foreign direct investment on the UK economy
(Holger Görg, Peter Egger, David Greenaway, Richard Kneller, Zhihong Yu)
Econometric investigation shows that any positive impact of ownership change is predominantly due to change in technical efficiency, rather than pure scale effects, and that productivity effects are not confined to the year of acquisition, and tend to persist. Also, takeovers of domestic firms are accompanied by substantial increases in wages for skilled and unskilled workers in the firm but only if the foreign acquirer is US owned. No such effect is evident if the acquirer is from another EU country. A related paper uses similar data to look at the competitive effect of inward FDI. It finds robust evidence that greenfield FDI has a disciplining effect on domestic firms price-cost margins, whilst acquisition FDI increases price-cost margins.
The GPT Programme has consistently proven to be particularly relevant for the outreach activities of GEP, with recent work covered in The Financial Times and The Times. Researchers are currently working on a project on the economic impact of offshoring on the UK economy, commissioned by Norwich Union. Also, researchers have been involved in work funded by UK Trade and Investment to investigate the relative benefits of UKTI support for trade and investment and the link between exporting and innovation in the UK.
Future research will continue along those lines, focusing particularly on international outsourcing and exporting and interactions among these two types of internationalisation. One particular way in which research should progress is by looking more closely at the destinations to which firms export or outsource. Arguably, very different effects might be expected for a firm exporting to the US or Thailand, or a firm outsourcing parts of production to Germany or China. As with other work, it is important that theory evolves in line with empirics in order to inform the econometric approach to be taken.
