Sourcing Decisions and Firm Adjustments in the Global Economy

165 Pages·2016·1.21 MB·English

by  Philippe Fromenteau

INFORMATION TECHNOLOGY, COMPETITION
AND TRADE:
SOURCING DECISIONS AND FIRM
ADJUSTMENTS IN THE GLOBAL ECONOMY
INAUGURAL-DISSERTATION
zurErlangungdesGradesDoctoroeconomiaepublicae(Dr. oec. publ.)
anderLudwig-Maximilians-UniversitätMünchen
2016
vorgelegtvon
PHILIPPE FROMENTEAU
Referentin: Prof. Dr. DaliaMarin
Korreferent: Prof. Dr. GabrielFelbermayr
Promotionsabschlussberatung: 16. November2016
2
DatumdermündlichenPrüfung: 9. November2016
Berichterstatter: Prof. Dr. DaliaMarin,Prof. Dr. GabrielFelbermayr,Prof. Dr. UweSunde
Acknowledgements
During the course of writing this thesis I benefitted from extraordinary academic and per-
sonalsupportbynumerouspeoplewhomIwouldliketothank.
First,IwouldliketothankmysupervisorProf. DaliaMarinforhercontinuoussupport
andpatience. Herhelpfuladviceandacademicguidancewerefundamentalformyresearch
andshapedmyunderstandingofeconomics. Furthermore, Iwouldliketoextendmygrat-
itude to Prof. Gabriel Felbermayr who kindly accepted to be my second examiner and to
Prof. UweSundewhoIamhappytohaveasmythirdexaminer.
Inparticular,mythanksgotomyco-authorsandcolleaguesJanSchymikandJanTscheke
with whom it was a great pleasure to conduct joint research resulting in chapter III of this
thesis. Finally, I would like to extend my thanks towards my further current and former
colleaguesattheChairofInternationalEconomics: AndreasBackhaus,PhilippHerkenhoff,
Lei Hou, Norman Loeckel, Henrike Michaelis, Michael Seitz, Alexander Tarasov and Eva
Tehua. Their personal support, valuable comments and fruitful discussions concerning my
research contributed much to this thesis. Without our enjoyable conversations, especially
thosebeyondeconomics,writingthisthesiswouldhavebeenmuchlessfun.
The Department of Economics at the University of Munich and the Munich Graduate
School of Economics (MGSE) provided an inspiring research environment which gave me
thechancetointeractwithmanyinterestingpeopleandexceptionaleconomists. Tobeapart
ofthefacultywasagreatexperience.
This thesis would have never been written without the support from my family. Most
notably,Iwouldliketoexpressmydeepestgratitudetowardsmyparentsfortheirpatience,
continousencouragementandforalwaysbelievinginme.
3
Contents
I Preface 12
II InformationTechnologyandGlobalSourcing 17
II.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
II.2 ASimpleModelofInformationTechnologyandGlobalSourcing . . . . . . . 22
II.2.1 Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
II.2.2 PartialEquilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
II.2.3 InformationTechnologyandOffshoring . . . . . . . . . . . . . . . . . . 29
II.2.4 InformationTechnologyandtheModeofFirmOrganization . . . . . . 30
II.2.5 EmpiricalPredictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
II.3 EmpiricalEvidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
II.3.1 DataDescription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
II.3.2 InformationTechnologyandtheGeographyofImports . . . . . . . . . 39
II.3.3 InformationTechnologyandtheModeofOrganization . . . . . . . . . 45
II.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
A.1 FiguresandRobustness . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
A.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
A.3 Theory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
III ImportCompetitionandtheCompositionofFirmInvestments 71
III.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4
CONTENTS 5
III.2 TheoreticalFramework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
III.2.1 DemandandIndustryStructure . . . . . . . . . . . . . . . . . . . . . . 76
III.2.2 ProductionandInvestmentDecision . . . . . . . . . . . . . . . . . . . . 77
III.2.3 TheImpactofImportCompetitiononInvestmentComposition . . . . 79
III.2.4 HeterogeneousInvestmentResponsesacrossFirms . . . . . . . . . . . 80
III.2.5 TheImpactofMarketSizeonInvestmentComposition . . . . . . . . . 81
III.3 EmpiricalAnalysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
III.3.1 Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
III.3.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
III.3.3 BaselineResults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
III.3.4 FirmHeterogeneity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
III.3.5 ReorderingandOmittingInvestmentCategories . . . . . . . . . . . . . 92
III.3.6 AlternativeFinancialChannels . . . . . . . . . . . . . . . . . . . . . . . 93
III.3.7 DifferentiatingbetweenImportCompetitionandMarketAccess . . . 94
III.3.8 The Impact of China’s WTO Accession on the Composition of Firm
InvestmentsintheUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
III.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
B Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
B.1 FiguresandRobustness . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
B.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
B.3 CalculationoftheMarginalEffects . . . . . . . . . . . . . . . . . . . . . 108
IV Low-wageCountryImportCompetitionandFirms’PricingStrategy 110
IV.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
IV.2 TheoreticalandEmpiricalBackground . . . . . . . . . . . . . . . . . . . . . . . 114
IV.3 DataSourcesandMeasurement . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
IV.3.1 MeasuringImportCompetition . . . . . . . . . . . . . . . . . . . . . . 117
IV.3.2 DataonthePricingStrategyofFirms . . . . . . . . . . . . . . . . . . . 117
IV.3.3 FirmandProductLevelControls . . . . . . . . . . . . . . . . . . . . . 119
IV.4 EmpiricalStrategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
CONTENTS 6
IV.4.1 EconometricSpecification . . . . . . . . . . . . . . . . . . . . . . . . . . 121
IV.4.2 Causality: EndogeneityandIVStrategy . . . . . . . . . . . . . . . . . . 122
IV.4.3 BaselineResults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
IV.4.4 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
IV.5 SectorandFirmHeterogeneity . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
IV.5.1 TheoreticalandEmpiricalBackground . . . . . . . . . . . . . . . . . . 130
IV.5.2 EconometricSpecificationandResults . . . . . . . . . . . . . . . . . . . 132
IV.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
C Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
C.1 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
C.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Bibliography 151
List of Tables
II.1 Prediction 1 - Impact of Information Technology and Complexity on the Ge-
ographyofImports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
II.2 Prediction2-ImpactofInformationTechnologyandComplexityontheSourc-
ingMode . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
A.1 Prediction 1 - Impact of Information Technology and Complexity on the Ge-
ographyofImports. RobustnessCheck1-OLSRegression . . . . . . . . . . . 53
A.2 Prediction 1 - Impact of Information Technology and Complexity on the Ge-
ography of Imports. Robustness Check 2 - Number of Imported Goods Re-
strictedtothe75%Percentile. OLSRegression . . . . . . . . . . . . . . . . . . 54
A.3 Prediction 1 - Impact of Information Technology and Complexity on the Ge-
ographyofImports. RobustnessCheck3-RoutineIntensity,Institutionsand
AlternativeMeasuresofInformationTechnology . . . . . . . . . . . . . . . . 55
A.4 Prediction 2 - The Impact of Information Technology and Complexity on the
SourcingMode. RobustnessCheck: RoutineIntensity,InstitutionsandLinear
ProbabilityModel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
A.5 ListofCountriesintheData . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
A.6 TopandBottom10CountriesinInformationTechnologyInfrastructure . . . 57
A.7 CorrelationsofTaskIntensities . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
A.8 TopandandBottom10MostandLeastComplexIndustries . . . . . . . . . . 59
A.9 SummaryStatistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
A.10VariableDescriptionsandDataSources . . . . . . . . . . . . . . . . . . . . . . 61
7
LISTOFTABLES 8
III.1 ImportCompetitionandInvestmentComposition-BaselineResults . . . . . 88
III.2 Import Competition and Investment Composition - Heterogeneous Invest-
mentResponsesAcrossFirms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
III.3 Import Competition and Investment Composition - The Impact of China’s
WTOAccession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
B.1 AlteringInvestmentCategories . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
B.2 AlternativeFinancialChannels . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
B.3 ImportCompetitionandAccesstoForeignMarkets . . . . . . . . . . . . . . . 103
B.4 DepreciationRatesofInvestments . . . . . . . . . . . . . . . . . . . . . . . . . 104
B.5 VariableDescriptionsandDataSources . . . . . . . . . . . . . . . . . . . . . . 107
IV.1 Impact of Import Competition from China on Firms’ Pricing Strategy: LPM
and2SLSEstimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
IV.2 Impact of Import Competition from China on Firms’ Pricing Strategy: LPM
and 2SLS Estimation with Sample Restricted to Firms Represented with Bal-
anceSheetData . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
IV.3 Impact of Import Competition from China on Firms’ Pricing Strategy: Sector
HeterogeneityinR&DIntensity. LPMand2SLSEstimation . . . . . . . . . . 133
IV.4 Impact of Import Competition from China on Firms’ Pricing Strategy: Firm
HeterogeneityinCapitalIntensity. LPMand2SLSEstimation . . . . . . . . . 135
C.1 ImpactofImportCompetitionfromChinaonFirms’PricingStrategy. Robust-
nessCheck1-ImportCompetitionfromtheRestoftheWorld . . . . . . . . . 138
C.2 ImpactofImportCompetitionfromChinaonFirms’PricingStrategy. Robust-
nessCheck2-2008-2009CrisisPeriodExcludedfromtheSample . . . . . . 139
C.3 ImpactofImportCompetitionfromChinaonFirms’PricingStrategy. Robust-
nessCheck3-ProbitEstimation-AverageMarginalEffects . . . . . . . . . . 140
C.4 ImpactofImportCompetitionfromChinaonFirms’PricingStrategy. Robust-
nessCheck4-DirectionofPriceChange: OLSand2SLSEstimation . . . . . 141
C.5 Change in Average Import Competition and the Share of Price Decreases in
TotalPriceChangesBeforeandAfterChina’sAccessiontotheWTOin2001 . 143
LISTOFTABLES 9
C.6 FractionofPriceIncreases,UnchangedPricesandPriceDecreasesontheGer-
manManufacturingMarketComparedtothePreviousMonth . . . . . . . . . 144
C.7 SummaryStatisticsontheAverageNumberofAnnualPriceAdjustmentsby
Firm-ProductCombination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
C.8 SummaryStatistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
C.9 VariableDescriptionsandDataSources . . . . . . . . . . . . . . . . . . . . . . 147
C.10 Impact of Import Competition from China on Firms’ Pricing Strategy: Sector
HeterogeneityinR&DIntensity. FirstStageRegressions . . . . . . . . . . . . . 148
C.11 Impact of Import Competition from China on Firms’ Pricing Strategy: Sector
HeterogeneityinR&DIntensity. FirstStageRegressions . . . . . . . . . . . . 149
List of Figures
A.1 TheImpactofInformationTechnologyonOffshoring . . . . . . . . . . . . . . 51
A.2 TheImpactofInformationTechnologyontheSourcingMode . . . . . . . . . 52
B.1 TheImpactofTougherCompetitionontheCompositionofInvestments . . . 100
B.2 TheImpactofanIncreaseinMarketSizeontheCompositionofInvestments 100
B.3 SharesofInvestmentCategoriesinTotalInvestments . . . . . . . . . . . . . . 104
B.4 SharesofInvestmentCategoriesoverTime . . . . . . . . . . . . . . . . . . . . 105
B.5 AverageRateofDepreciationoverTime . . . . . . . . . . . . . . . . . . . . . . 105
B.6 ShareofChineseinTotalUSImports . . . . . . . . . . . . . . . . . . . . . . . 106
IV.1 China’sShareofWorldManufacturingExportsandChina’sShareofImports
inGermanManufacturing,1995-2012 . . . . . . . . . . . . . . . . . . . . . . 115
C.1 Representativeness of the Data: Share of Increases in Domestic Sales Prices
andDomesticOutputPriceInflationinGermanManufacturing,1995-2012 . 142
C.2 China Import Competition in Germany and China Import Tariffs to the EU
SingleMarketintheManufacturingSector . . . . . . . . . . . . . . . . . . . . 144
C.3 DevelopmentofAverageChinaImportCompetitionintheGermanManufac-
turing Sector and Average MFN Tariff Rates to the EU Single Market, 1995 -
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
10