The idea that exchange rate volatility generates additional costs and uncertainty that are detrimental to international trade is widely accepted. This column argues that big, multi-destination firms – which account for the bulk of aggregate exports – reallocate exports across countries as a foreign exchange hedge. When bilateral volatility increases relative to multilateral volatility, exports towards the considered market are hampered, but exports remain mainly unchanged at the macro level.
Jérôme Héricourt, Clément Nedoncelle, 11 June 2016
Manuel García Santana, Josep Pijoan-Mas, Enrique Moral-Benito, Roberto Ramos, 23 May 2016
Spain enjoyed substantial growth in the decade prior to the Global Crisis, despite declining aggregate productivity. Recent research blames the poor productivity on different forms of a ‘financial resource curse’. This column argues that resource misallocation was particularly severe due to corruption and crony capitalism. This suggests future growth will require serious political reforms.
Dalia Marin , Jan Schymik, Alexander Tarasov, 19 March 2016
In the last decades the world economy has seen firms organise production into global value chains, decentralise their systems of command to incentivise workers, and start compensating CEOs with skyrocketing earnings. This column uses new data on German and Austrian firms to show that managerial offshoring to eastern Europe has increased decentralised management by 6.8% in relatively open sectors, but it has lowered the relative wages of executives in Germany and Austria by 4.9%.
Julián Caballero, Ugo Panizza, Andrew Powell, 05 February 2016
The increase in the debt of emerging market non-financial firms has been large. This column argues that to understand the risks, if any, it is important to know the state of corporate balance sheets and what firms have actually been doing. In some cases external debt has been issued to substitute more expensive local debt, in others to finance real investment, and in several countries it has been used to exploit carry trade opportunities. In virtually all cases, however, good information on corporate currency mismatches is hard to obtain. There needs to be better information and better reporting if we are to make headway.
Lorenzo Caliendo, Giordano Mion, Luca David Opromolla, Esteban Rossi-Hansberg, 23 January 2016
Reorganisation doesn’t always create a more efficient and effective firm. This column assesses the extent to which a firm’s physical productivity varies as a result of reorganisation. The results suggest significant variation. For policymakers, studying and understanding the internal organisational responses of firms to firm-specific and economy-wide shocks is essential to understanding the level and distribution of productivity in an economy.
Rui Albuquerque, Miguel Ferreira, Luis Marques, Pedro Matos, 17 January 2016
Previous research has shown that the corporate governance practices of firms are constrained by the legal standards of their country of incorporation. This column explores how an active international market for corporate control can substitute for weak institutions in a host country. Using firm-level data from 22 countries, it shows how cross-border M&A activity improves the governance of non-target firms in the same industry, via peer pressure. These findings provide evidence for corporate governance improvements as a novel positive spillover from FDI.
Jan Hanousek, Evžen Kočenda, Anastasiya Shamshur, 19 July 2015
Understanding the determinants of firm performance is important if we want to improve how we do business. This column presents new research on corporate efficiency in Europe, highlighting the importance of firm characteristics such as firm ownership. Evidence suggests that a mix of majority and minority shareholders drives efficiency.
Hassen Arouri, Caroline Freund, Antonio Nucifora, Bob Rijkers, 03 July 2015
If more firms are established in developing countries, more jobs are created. But which type of firm creates the most jobs? This column presents evidence from Tunisia suggesting that once you’re established as a new and promising firm, it’s harder than it should be to grow and create jobs. Weak firm dynamics and imperfections in the market prevent the best firms from flourishing.
Laura Alfaro, Anusha Chari, Fabio Kanczuk, 22 January 2015
Capital controls are back in fashion. This column discusses new firm-level evidence from Brazil showing that capital controls segment international financial markets, reduce external financing, and lower firm-level investment. They disproportionately affect small, non-exporting firms, especially those more dependent on external finance. This suggests that macro-finance models focusing on aggregate variables are missing an important dimension by abstracting from firm-level heterogeneity.
Florian Mayneris, Sandra Poncet, 13 October 2014
Minimum wage laws are often shown to have little impact on employment as the labour price rise can be offset by lower turnover, lower markups, and heightened efficiency, or ‘cleansing’ effects. This column shows that in a fast-growing economy like China, there is a ‘cleansing’ effect of labour market standards. Minimum wage growth allows more productive firms to replace the least productive ones and forces incumbent firms to become more competitive. Both mechanisms boost the aggregate efficiency of the economy.
Ejaz Ghani, William Kerr, Stephen O'Connell, 02 October 2014
Numerous countries have implemented seat reservations for women in politics over the past decades. Starting in the early 1990s, India’s flagship decentralisation reform instituted one-third seat reservations for women in local governance bodies. This column suggests that this political empowerment increased women’s economic empowerment through at least one channel, i.e. small-scale entrepreneurship. These findings suggest that political empowerment policies for women may additionally have beneficial economic effects in the longer run.
Chiara Criscuolo, Peter Gal, Carlo Menon, 26 May 2014
Young firms are known to play a central role in job creation. This column presents the results of a new OECD project on the dynamics of employment (DynEmp) based on an innovative methodology using firm-level data. It confirms that young firms play a central role in creating jobs, and in enhancing growth and innovation. Public policies can help by enabling firms to experiment, and by fostering the reallocation of resources towards the most productive firms. Structural reforms to product, labour, and capital markets, as well as bankruptcy laws that do not overly penalise failure, are particularly relevant.
Leonardo Iacovone, Vijaya Ramachandran, 07 February 2014
There is an urgent need for job creation in Africa yet something seems to be stunting firm growth. This column shows that African firms are about 20% smaller than their counterparts in other locations. It suggests small firms put the brake on growth as the burden of dealing with government and labour costs may increase with size, or perhaps as they start facing trust issues between managers and workers.
Danielken Molina, Marc Muendler, 27 May 2013
Exporting is essential for economic development. But can firms move from local sales to export sales? How do firms prepare for exporting? This column presents new research showing that worker mobility is an important mechanism by which exporter knowledge spreads through the economy.
Alex Edmans, Vivian Fang, Emanuel Zur, 16 February 2013
The stock market is a powerful tool for controlling corporations’ behaviour. But which is better, a highly liquid market or a number of large blockholders? This column argues in favour of liquidity. Evidence suggests that policymakers should not reduce stock liquidity through greater regulation. While the idea that liquidity encourages short-term trading – rather than long-term governance – sounds intuitive, deeper analysis shows that liquidity is beneficial because it encourages large shareholders to form in the first place, and allows shareholders to punish underperforming firms through selling their stake.
Andrea Ariu, 23 December 2012
International trade is traditionally thought of as goods crossing borders. Trade in services, however, is becoming increasingly important for high-income countries. This column, using Belgian firm-level data from 1995-2005, argues that trade in goods and services differ deeply in key aspects such as firm participation rates, size and frequency of shipments, entry and exit rates in foreign markets and in growth strategies.
Laura Alfaro, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew Newman, 02 December 2012
Increasingly, people are pointing the finger of blame for economic woe at large firms. This column argues that organisation design is often affected by government trade policy. If firm organisation design has implications for consumer welfare (in terms of prices and quality of product), evidence suggests that governments should make sure that in future, trade policy and corporate governance policy are more complementary.
Thierry Mayer, Florian Mayneris, Loriane Py, 28 September 2012
Since the 1980s governments in the US, UK and France have been implementing ‘enterprise zones’ to tackle inequalities within cities. This column examines the latest French experiment in the 2000s. It suggests that the zones were largely successful in attracting small firms, but that this was mostly due to opportunistic relocation within municipalities.
Lorenzo Caliendo, Ferdinando Monte, Esteban Rossi-Hansberg, 31 August 2012
Firms that reorganise production to grow account for almost 40% of the value added created in the manufacturing sector. They add layers of management, increase by 7% the average hours worked in the firm, and reduce the average wage at pre-existing layers of managers or workers by 11%. This column presents new stylised facts about the way firms organise production and explains how recent advances in economic theory can help to understand these findings.
Chad Syverson, 25 June 2010
This column summarises a wealth of literature that tries to understand what determines productivity, which is often referred to as a measure of our ignorance. It concludes with a call for more data – including currently unmeasured aspects of business’s production practices such as producer-level prices. While collecting more data is costly, this column argues that there is much to be gained in exchange.