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 Competitivness National Bank of Belgium, Brussels, December 6, 2011

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

CountryNumber of firms AUT492 FRA2,973 GER2,202 HUN488 ITA3,019 SPA2,832 UK2,156 Total14,162 EU-EFIGE/BRUEGEL-UNICREDIT DATASET Before no statistical information on European firms harmonized across country 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

NUMBER OF DESTINATIONS OF EXPORTS MANY FIRMS IN FEW COUNTRIES, FEW FIRMS IN MANY COUNTRIES 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 FRA GER HUN ITA SPA UK THE GAMES GET TOUGHER THE GAMES GET TOUGHER GLOBAL 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

FRANCEITALYSPAIN Down-sizers Stable Up-sizers USEFUL TO DECOMPOSE FIRMS DYNAMICS ( ) Columns sum to 100 Upsizers: firms moving up to higher deciles between 2001 and 2008 Downsizers: firms moving down to lower deciles between 2001 and 2008 Stable: firms not changing decile between 2001 and 2008 Source: EFIGE-Amadeus data

Down-sizersSame classUp-sizersTOTAL FRANCE ∆LP Within Between Cov ITALY ∆LP Within Between Cov SPAIN ∆LP Within Between Cov 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