Manufacturing Labor Share Decline, Foreign Demand and ...

Motivation Data and Stylized Facts Theory Empirical Framework Results Conclusion

Manufacturing Labor Share Decline, Foreign Demand andSuperstar Exporters

Ludovic Panon

Sciences Po

December 4, 2019

1 / 26


Motivation

• Labor share and international trade

{Import side: usual focusExport side: limited empirical evidence

• Ambiguous link between export demand and labor share

• Important economic and political question because of increasing trade integration

• What is the impact of the export side of international trade on the labor share?

2 / 26


This Paper

1 New mechanism: foreign demand growth reduces manufacturing labor share

— Disproportionate growth of low-labor share exporters

— Negative effect on labor share of exporters

2 Quantification

3 / 26


Theoretical Framework

• Marshall’s Second Law of Demand =⇒ larger firms have lower labor share

• Foreign demand rise increases market size and competition

• Output reallocation towards larger firms

4 / 26


Empirical Framework

• Identification: exogenous shift-share firm-level foreign demand measure

• Foreign demand growth explains 3% of observed reallocation effect

• Between and within-firm effects: 0.5 pp decrease in manufacturing labor share (12% of totalchange)

5 / 26


Related Literature

• Labor Share Decline: Elsby et al. (2013); Karabarbounis and Neiman (2014); Autor et al.(2017); De Loecker and Eeckhout (2017, 2018); Aghion e al. (2019); Lashkari et al. (2019);Mertens (2019); Reshef and Santoni (2019)

— Contribution: Role of foreign demand

• Variable Markups and Trade in Monopolistic Competition: Krugman (1979); Zhelobodko etal. (2012); Mayer et al. (2016); Mrazova and Neary (2017)

— Contribution: Heterogeneous effect of foreign demand on firm growth and labor share

• Demand and Firm Growth: Hottman et al. (2016); Parenti et al. (2017); Aghion et al. (2018)

— Contribution: Quantify role of foreign demand on labor share

6 / 26


Outline of the Talk

1 Motivation

2 Data and Stylized Facts

3 Theory

4 Empirical Framework

5 Results

6 Conclusion

7 / 26


Data Sources

• French firm-level data for manufacturing sector from 1994 to 2001:

— Fiscal files (firm-level): FICUS

— Firm-year-product-country trade data from French customs

— Bilateral trade flows at HS6 level from CEPII (BACI-Comtrade)

• Keep exporting firms in manufacturing (Sectors 15-37 NAF Rev.1)Sample Selection Period

8 / 26


Export Increase Exports/GDP Exports by Industry

120

140

160

180

200

220

Expo

rt S

ales

(Bill

ions

)

1994 1995 1996 1997 1998 1999 2000 2001Year

9 / 26


Manufacturing Labor Share Decline Macro Data OECD Countries

53

54

55

56

57

58

Labo

r Sha

re (i

n %

)

1994 1995 1996 1997 1998 1999 2000 2001Year

10 / 26


Decomposition of Labor Share Changes

• Manufacturing labor share:LSt = ∑

iωit︸︷︷︸

Value-added weight

LSit (1)

• Change between t− 1 and t can be decomposed into four effects:

1 Within-firm effect: distribution of firm-level labor shares might shift downards

2 Between-firm (reallocation) effect: output (value-added) reallocation towards low-labor sharefirms

3 Entry

4 Exit

Decomposition FHK Decomposition MP Decomposition

11 / 26


Importance of Between-Firm ComponentFHK Exporters FHK Whole Sample MP Exporters MP Whole Sample

-6

-4

-2

0

2

4

Cum

ulat

ive

Cha

nge

1994 1995 1996 1997 1998 1999 2000 2001Year

Aggregate Within Between Entry-Exit

12 / 26


Superstar Exporters Have a Lower Labor Share

Statistic Labor ShareInternationalization Measure Above Median Top 25 % Top 10 % Top 1 %

(1) (2) (3) (4)Export intensity 70.7 69.5 67.5 64.1ln Export sales 70 67.9 64.8 58.8ln # Products exported 70.4 69.6 68.5 65.5ln # Destinations served 70 69 67.5 63.4

# Firms 29,220 14,610 5,844 585

Regression Analysis T-Tests

13 / 26


Marshall’s Second Law of Demand

• Inverse demand elasticity: σp(xi) := − ∂p(xi)/∂xip(xi)/xi

• MSLD: The inverse demand elasticity increases in xi:∂σp(xi)

∂xi> 0

• Proposition 1: More productive firms charge higher markups and have a lower labor share.Consumers Side Markups and Labor Share Firms Side

14 / 26


Market Size Increase and Reallocation

• Market size increase:dΠdL

LΠ

=∂Π∂L

LΠ︸︷︷︸

+︸︷︷︸Market size effect

+∂Π∂λ

λ

Π︸︷︷︸−

× dλ

dLLλ︸︷︷︸

+︸︷︷︸Competition effect

(2)

• With additively separable preferences:

dΠdL

LΠ

{> 0 for larger firms< 0 for smaller firms

(3)

• Proposition 2: A market size increase drives the labor share down through a reallocation of outputtowards large, low-labor share firms.

15 / 26


Implications for Markups

• Reallocation and aggregate markups (De Loecker et al., 2018; De Loecker and Eeckhout, 2018)

• Firm-level markups should decrease and within-firm labor share should increase

16 / 26


Testing for Reallocation

• Foreign demand growth =⇒ superstar exporters grow disproportionately more?

• Value-added: appropriate measure of firm growth given labor share definition

LSt = ∑i

ωit︸︷︷︸Value-added weight

LSit

17 / 26


Econometric Specification (Between-Exporter Effect)

• Estimate the following specification in first-differences:

∆ ln VAit =αRank∆Demandit + βRank∆Demandit × Superstarit0

+ γRankSuperstarit0+ ∆δkt + ∆ψit

(4)

— VAit: value-added of a firm i in year t

— Demandit: growth rate of foreign demand

— Superstarit0: internationalization measure

— ∆δkt: industry-year fixed effects

18 / 26


Econometric Specification (Within-Exporter Effect)

• Estimate the following specification in first-differences:

∆LSit =ζRank∆Demandit + χRank∆Demandit × Superstarit0

+ ρRankSuperstarit0+ ∆δkt + ∆υit

(5)

— LSit: labor share of a firm i in year t

— Demandit: growth rate of foreign demand

— Superstarit0: internationalization measure

— ∆δkt: industry-year fixed effects

19 / 26


Identification: Shift-Share Measure

• Destination country j’s total imports of product p (HS 6 level):

Mjpt = ∑l∈L\{France}

Xljpt (6)

• Firm-level foreign demand measure:

∆̃ForeignDemandit = ∑j,p

Xijpt0

Xit0︸︷︷︸Share

Mjpt −Mjpt−112 (Mjpt + Mjpt−1)︸︷︷︸

Shift

(7)

• French exports are purged from (6)

• Shares are plausibly exogenous

20 / 26


Superstar Exporters Grow Disproportionately More

-.02

0

.02

.04

.06

.08

VA G

row

th to

For

eign

Dem

and

Gro

wth

Ela

stic

ity

1 10 20 30 40 50 60 70 80 90 99Percentiles of Log Export Sales

Estimates Average Asian Crisis Russian Crisis Performance Plot Export Intensity Plot Export Sales21 / 26


Superstar Exporters’ Labor Share Decreases More

-2

-1.5

-1

-.5

0

.5

Labo

r Sha

re C

hang

e to

For

eign

Dem

and

Gro

wth

Ela

stic

ity

1 10 20 30 40 50 60 70 80 90 99Percentiles of Log Export Sales

Average22 / 26


Robustness

• Controlling for domestic sales and offshoring Go

• Future demand shocks and pre-trends Go

• Exclusion of extreme years Go

• Exclusion of key industries Go

• Alternative firm size measures Go

• Alternative lag structure Go

• Sample of survivors Go

• Outsourcing Go

• Alternative time period Go

23 / 26


Quantification Results

• Use estimates to compute predicted change in manufacturing labor share arising from foreigndemand growth

— Predicted changes within and between firms

• Foreign demand growth explains 3% of observed reallocation towards low-labor shareexporters

• Within and between firm effects predict a 0.5 pp drop in manufacturing labor share over1994-2001

• This accounts for 12% of observed labor share declineMagnitude Quantification Contribution Between Overall Contribution

24 / 26


Taking Stock

• Foreign demand growth drives manufacturing labor share down

1 Negative within-firm effect

2 Reallocation towards superstar exporters

• Overall effect of trade globalization

— International trade and innovation (Bloom et al., 2016; Aghion et al., 2018)

• Concentration versus competition (Syverson, 2004; Autor et al., 2017; Gutierrez andPhilippon, 2018)

25 / 26


Thank You!

26 / 26

Appendix

1 / 49

Sample Selection

• Keep manufacturing firms over 1994-2001

• Cleaning: keep firm-year observations with > 0 sales, value added, expenditures onmaterials, capital and > 1 employee. Drop observations that report <= 0 compensations onemployees and for which the labor share is < 0 or > 1. Capital built using the perpetualinventory method. All relevant variables are deflated by two-digit industry indexes

• Only keep firms exporting at least once

• For each sector, trim observations whose growth rate of sales is in top and bottom 1%

• Final sample: 73% of value-added of raw manufacturing sampleBack

2 / 49

Period of Analysis

• Why focus on 1994-2001?

1 No access to data before 1994

2 Definition of firm changes as of 2001

— Keep a consistent sample of firms before 2001

• Benefit: highlight role of export side of trade

— Stable import shares from key countries (China, Eastern-European countries, Low Wage countries)

Back

3 / 49

Labor Share Definition

• Labor share of firm i in year t is:

LSit :=wLitVAit

(8)

— Numerator: wages and employer contributions to pension and insurance funds and socialinsurance

— Denominator: nominal gross value-added

• Manufacturing labor share:

LSt =∑i wLit

VAt= ∑

iωit︸︷︷︸

Value-added weight

LSit (9)

4 / 49

Summary Statistics Main Sample

Mean Standard Deviation Median(1) (2) (3)

∆ Labor share 0.19 11 0∆ ln Export sales 0.1 1.1 0.07∆̃ Foreign demand 0.04 0.3 0.03∆ ln Value-added 0.05 0.3 0.04∆ ln Labor compensation 0.05 0.2 0.04∆ Export-intensity 0.7 11.6 0∆ ln # Products exported 0.05 0.5 0∆ ln # Destinations served 0.04 0.4 0

# Firms 58,439# Observations 223,622# Survivors (1994-2001) 9,000

5 / 49

Sectoral French Exports to the Rest of the World by Industry

0

20

40

60

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Food, beverages and tobacco

0

20

40

60

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Textiles, leather and footwear

0

20

40

60

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Wood except furniture

0

20

40

60

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Pulp, paper, publish. and print.

0

20

40

60

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Chemical, rubber, plastics, fuel

0

20

40

60

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Other non-metallic mineral prod.

Exports

6 / 49

Sectoral French Exports to the Rest of the World by Industry

0

20

40

60

80

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Metals and fabric. metal prod.

0

20

40

60

80

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Machinery n.e.c

0

20

40

60

80

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Electrical and optical equipment

0

20

40

60

80

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Transport equipment

0

20

40

60

80

US

$ (b

illio

n)

1994

1995

1996

1997

1998

1999

2000

2001

Year

Manufacturing n.e.c, recycling

Exports

7 / 49

Manufacturing Labor Share (Macro Data) Back

60

62

64

66

68

Lab

or S

hare

(in

%)

1994 1995 1996 1997 1998 1999 2000 2001 Year

8 / 49

Manufacturing Labor Share of Domestic Firms Back

66

67

68

69

70

71

Labo

r Sha

re (i

n %

)

1994 1995 1996 1997 1998 1999 2000 2001Year

9 / 49

Manufacturing Labor Share by Country Back

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Austria

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Belgium

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Germany

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Finland

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

France

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Italy

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Japan

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Netherlands

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Spain

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

Sweden

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

UK

50

60

70

80

1994

1996

1998

2000

2002

2004

2006

Year

USA

10 / 49

Within/Between-Sector Decomposition Back

-4

-2

0

2

Cum

ulat

ive

Cha

nge

1994 1995 1996 1997 1998 1999 2000 2001Year

Aggregate Change

Within-Sector Effect

Between-Sector Effect

11 / 49

Chinese, LWC and Eastern European Import SharesIdentification

0

1

2

3

4

5

6

7

8

Impo

rt S

hare

(%)

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year

China Other LWC Eastern Europe

12 / 49

Exports to GDP Ratio

22

24

26

28

30

Exp

orts

of g

oods

and

ser

vice

s (%

of G

DP)

1994 1995 1996 1997 1998 1999 2000 2001Year

Exports13 / 49

Choice of Decomposition Method

• Several decomposition methods: Baily et al. (1992); Griliches and Regev (1995); Foster et al.(2001); Melitz and Polanec (2015)

• Baily et al. (1992): contribution of entrants is always positive and that of exiters negative

— Contribution of entrants/exiters depends on difference between their labor share and a referencelabor share level (GR, FHK, MP)

• Use FHK decomposition

• Robust to MP decompositionBack

14 / 49

FHK Decomposition

• LSt−1: aggregate labor share in t− 1 (reference labor share level)

∆LSt =∑i∈S

ωit−1(LSit − LSit−1

)︸︷︷︸

Within

+ ∑i∈S

(ωit −ωit−1

)(LSit−1 − LSt−1

)︸︷︷︸

Between

+ ∑i∈S

(ωit −ωit−1

)(LSit − LSit−1

)︸︷︷︸

Cross

+ ∑i∈ENT

ωit(LSit − LSt−1

)︸︷︷︸

Entry

− ∑i∈EXT

ωit−1(LSit−1 − LSt−1

)︸︷︷︸

Exit

(10)

Back

15 / 49

Melitz-Polanec Decomposition

• LSt: unweighted mean labor share

• ωt: unweighted value-added share

• ∆̄Xit = Xit −Xt

• Olley-Pakes (1996) decomposition:

LSt − LSt−1 =

(LSt − LSt−1

)+

(∑

i∆̄ωit∆̄LSit −∑

i∆̄ωit−1∆̄LSit−1

)(11)

• Melitz-Polanec decomposition (with entry-exit):

∆LSt = ∆LSSt︸︷︷︸

Within

+ ∆(

∑i

∆̄ωit∆̄LSit

)S

︸︷︷︸Between

+ ωENTt

(LSENT

t − LSSt

)︸︷︷︸

Entry

+ωEXTt−1

(LSS

t−1 − LSEXTt−1

)︸︷︷︸

Exit

(12)

Back

16 / 49

FHK Decomposition of Manufacturing Labor Share

Total Change Within Between Entry-Exit(1) (2) (3) (4)

1994-1995 -3.12 -0.05 -0.57 -2.51995-1996 1.39 1.83 -0.9 0.461996-1997 -0.85 -0.62 -0.6 0.371997-1998 -0.47 0.11 -0.37 -0.21998-1999 -0.6 0.45 -1.04 -0.0061999-2000 -1.37 -0.27 -0.51 -0.592000-2001 1.05 1.62 -0.009 -0.56

1994-2001 -3.97 3.06 -4 -3.031994-2000 -5.02 1.44 -3.99 -2.47

Back

17 / 49

FHK Decomposition of Labor Share Changes on Whole Sample


1994-1995 -1.13 0.02 -0.92 -0.231995-1996 0.62 1.61 -0.81 -0.191996-1997 -0.98 -0.53 -0.45 -0.0021997-1998 -0.75 0.01 -0.41 -0.351998-1999 -0.61 0.20 -0.82 0.0071999-2000 -1.67 -0.91 -0.25 -0.512000-2001 1.57 1.56 0.008 -0.0001

1994-2001 -2.96 1.96 -3.65 -1.271994-2000 -4.53 0.40 -3.66 -1.27

Back

18 / 49

MP Decomposition of Labor Share Changes


1994-1995 -3.12 0.24 -1.05 -2.311995-1996 1.39 1.18 -0.18 0.381996-1997 -0.85 -0.32 -1 0.481997-1998 -0.47 -0.18 -0.12 -0.171998-1999 -0.6 0.32 -0.98 0.061999-2000 -1.37 -0.4 -0.45 -0.522000-2001 1.05 0.82 0.98 -0.76

1994-2001 -3.97 1.67 -2.8 -2.841994-2000 -5.02 0.85 -3.79 -2.08

Back

19 / 49

MP Decomposition of Labor Share Changes on Whole Sample


1994-1995 -1.13 0.76 -1.74 -0.151995-1996 0.62 1.29 -0.43 -0.241996-1997 -0.98 0.49 -1.54 0.061997-1998 -0.75 0.24 -0.64 -0.351998-1999 -0.61 0.41 -1.09 0.071999-2000 -1.67 -0.18 -1.07 -0.412000-2001 1.57 0.62 1.12 -0.18

1994-2001 -2.96 3.63 -5.38 -1.21994-2000 -4.53 3 -6.51 -1.02

Back

20 / 49

Internationalization and Labor Share: Regression Analysis Back

Dependent variable Labor Share(1) (2) (3) (4) (5) (6)

Export intensity -3.92*** -2.9*** -1.82***(0.33) (0.34) (0.33)

ln Export sales -0.54*** -0.54*** -0.11***(0.03) (0.09) (0.03)

ln # Products exported -0.17*** 0.20*** 0.70***(0.06) (0.07) (0.07)

ln # Destinations served -0.25*** 0.28*** 0.99***(0.08) (0.10) (0.09)

ln Total sales -9.68***(0.19)

Two-digit Sector × Year FE X X X X X XFirm FE X X X X X X

# Observations 207,153 207,153 207,153 207,153 207,153 207,15321 / 49

Internationalization and Labor Share across Groups Back

22 / 49

Consumers Side Back

• Build on Zhelobodko et al. (2012). L consumers and preferences are additively separable.Consumers solve:

maxxi

∫ N

0u(xi)di s.t.

∫ N

0pixidi = 1

— xi: per-consumer quantity of variety i

— pi: price

— u′(xi) > 0 and u′′(xi) < 0

• Inverse demand function:

p(xi; λ) =u′(xi)

λ(13)

• Marginal utility of income:

λ =∫ N

0u′(xi)xidi (14)

23 / 49

Labor Share and Markups Back

• Production function linear in labor l: qi = ϕli where productivity ϕ varies across firms

• Profit maximization entails marginal revenue = marginal cost:

pi︸︷︷︸price

= µi︸︷︷︸markup

× wϕ︸︷︷︸

marginal cost

(15)

or rearranging:wlipiqi︸︷︷︸

labor share

=1µi

(16)

24 / 49

Firms Side Back

• Monopolistic competition with firm heterogeneity similar to Melitz (2003)

• Per-consumer operating profits πc:

πc(ϕ, λ) := maxxi

{(u′(xi)

λ− 1

ϕ

)xi

}(17)

• Total net profits are given by:Π(ϕ, λ) = πc(ϕ, λ)L− f (18)

• Cutoff productivity level ϕ∗ that solves:

Π(ϕ∗, λ) = 0⇐⇒ πc(ϕ∗, λ)L = f (19)

• Free entry: ∫ ∞

ϕ∗

[πc(ϕ, λ)L− f

]dG(ϕ) = fe (20)

25 / 49

Direction of the Reverse Causality Bias

• Model without interaction terms:

∆ ln VAit = κ∆ ln EXPORTSit + ∆εit

∆ ln EXPORTSit = δ∆ ln VAit + ∆ηit

• Solving the system and given that κ̂OLS =Cov(

∆ ln EXPORTSit,∆ ln VAit

)Var(∆ ln EXPORTSit)

:

sgn{

κ̂OLS − κ

}= sgn

{1− κδ

}(21)

• Expect: κ ∈ (0, 1) and δ ∈ (0, 1) =⇒upward biased OLS coefficient :

κ̂OLS > κ

26 / 49

Heterogeneous Effect on Value-Added Growth and Labor Share

Dependent variable ∆ ln VAit ∆LSit

Internationalization Measure (Superstar) Export Intensity ln Export Sales Export Intensity ln Export Sales(1) (2) (3) (4)

∆̃ForeignDemandit -0.0116** -0.0160*** 0.0979 0.1855(0.0045) (0.0040) (0.1995) (0.1793)

∆̃ForeignDemandit × Superstarit00.0114*** 0.0068*** -0.2404** -0.1461***(0.0025) (0.0010) (0.1124) (0.0461)

Superstarit0-0.0054*** -0.0061*** 0.0583*** 0.0207***(0.0006) (0.0002) (0.0181) (0.0080)

Two-digit Sector × Year FE X X X X

# Observations 164,807 164,807 164,807 164,807

Back

27 / 49

Reallocation towards more Internationalized Firms

Dependent variable ∆ ln VAit

Internationalization Measure ( ˜Superstar) Export Intensity ln Export Sales ln # Products Exported ln # Destinations Served(1) (2) (3) (4)

∆̃ForeignDemandit 0.0115*** 0.0148*** 0.0100*** 0.0116***(0.0026) (0.0027) (0.0024) (0.0025)

∆̃ForeignDemandit × ˜Superstarit−1 0.0718*** 0.0067*** 0.0063*** 0.0099***(0.0140) (0.0010) (0.0020) (0.0025)

˜Superstarit−1 -0.0246*** -0.0055*** -0.0100*** -0.0128***(0.0030) (0.0002) (0.0005) (0.0006)

Two-digit Sector × Year FE X X X X

# Observations 164,807 164,807 164,807 164,807

Back

28 / 49

Foreign Demand and Labor Share within Firms

Dependent variable ∆Labor Shareit

Internationalization Measure ( ˜Superstar) Export Intensity ln Export Sales ln # Products Exported ln # Destinations Served

(1) (2) (3) (4) (5) (6) (7) (8)

∆̃ForeignDemandit -0.3617*** -0.3821*** -0.4896*** -0.4737*** -0.4562*** -0.4565*** -0.4726*** -0.4854***(0.1166) (0.0074) (0.1209) (0.1384) (0.1113) (0.1284) (0.1143) (0.1309)

∆̃ForeignDemandit × ˜Superstarit−1 -0.0111* -0.0125* -0.1589*** -0.1628*** -0.3327*** -0.3809*** -0.3894*** -0.4784***(0.0063) (0.0074) (0.0450) (0.0549) (0.0871) (0.1028) (0.1079) (0.1280)

˜Superstarit−1 0.0068*** 0.0394*** 0.0558*** 0.4998*** 0.0329* 0.3539*** 0.0192 0.3565***(0.0010) (0.0041) (0.0085) (0.0386) (0.0172) (0.0796) (0.0200) (0.1020)

Two-digit Sector × Year FE X X X X X X X XFirm FE X X X X

# Observations 164,807 156,302 164,807 156,302 164,807 156,302 164,807 156,302

Back

29 / 49

Asian Financial Crisis Back

Asian Financial Crisis

90

100

110

120

Valu

e-A

dded

(Ind

ex =

100

in 1

996)

1996 1997 1998 1999 2000 2001Year

Exposure = 0 Exposure > 10% Exposure > 20%

30 / 49

Russian Financial Crisis Back

Russian Financial Crisis

90

100

110

120

130

140

Valu

e-A

dded

(Ind

ex =

100

in 1

997)

1997 1998 1999 2000 2001Year

Exposure = 0 Exposure > 10% Exposure > 20%

31 / 49

Effect on Investment and Number of Employees Back

Dependent variable ∆ ln Tangible Inv.it ∆ ln Inv.it ∆ ln Capital-Labor Ratioit ∆ ln Employeesit ∆ ln Wagesit ∆ ln Dividendsit(1) (2) (3) (4) (5) (6)

∆̃ForeignDemandit 0.0238 0.0248 0.0015 -0.0003 -0.0006 0.0090(0.0163) (0.0163) (0.0043) (0.0028) (0.0026) (0.0195)

∆̃ForeignDemandit × ˜Export Intensityit−1 0.1443* 0.1469** 0.0135 0.0107 0.0242* 0.2181**(0.0749) (0.0742) (0.0204) (0.0135) (0.0125) (0.1022)

˜Export Intensityit−1 -0.0882* -0.0441 -0.0258* -0.0376*** -0.0140* 0.0707(0.0459) (0.0463) (0.0145) (0.0092) (0.0084) (0.0595)

Two-digit Sector × Year FE X X X X X XFirm FE X X X X X X

# Observations 136,802 136,802 156,302 156,302 156,302 35,977

32 / 49

Elasticity of Firm Characteristics to Foreign Demand Shock Back

-.1

0

.1

.2

.3

Ela

stic

ity

[0, 0.05] [0.05, 0.2] [0.2, 0.5] [0.5, 0.7] [0.7, 0.8] [0.8, 1] Export Intensity

Tangible Investment

-.1

0

.1

.2

.3


Total Investment

-.02

0

.02

.04

.06 E

last

icity


Capital-Labor Ratio

-.02-.01

0.01.02.03


Workers

-.01

0

.01

.02

.03

Ela

stic

ity


Wages

-.10.1.2.3.4


Dividends

33 / 49

Elasticity of Firm Characteristics to Foreign Demand Shock Back

-.05

0

.05

.1

.15

Ela

stic

ity

1 10 20 30 40 50 60 70 80 90 99 Percentiles of Log Export Sales

Tangible Investment

-.05

0

.05

.1

.15


Total Investment

-.02

0

.02

.04 E

last

icity


Capital-Labor Ratio

-.02

-.01

0

.01


Workers

-.02

0

.02

.04

Ela

stic

ity


Wages

-.1

0

.1

.2


Dividends

34 / 49

Robustness: Reallocation with Controls Back

Dependent variable ∆ ln VAitInternationalization Measure ( ˜INT) Export Intensity ln Export Sales ln # Products Exported ln # Destinations Served

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

∆̃ForeignDemandit 0.0087*** 0.0081*** 0.0059** 0.0121*** 0.0114*** 0.0085*** 0.0083*** 0.0077*** 0.0053** 0.0100*** 0.0094*** 0.0065***(0.0027) (0.0027) (0.0028) (0.0025) (0.0025) (0.0027) (0.0022) (0.0022) (0.0024) (0.0023) (0.0023) (0.0025)

∆̃ForeignDemandit × ˜Superstarit−1 0.0572*** 0.0550** 0.0587** 0.0054*** 0.0052*** 0.0053*** 0.0055*** 0.0052*** 0.0052** 0.0092*** 0.0089*** 0.0086***(0.0181) (0.0180) (0.0192) (0.0010) (0.0010) (0.0011) (0.0018) (0.0018) (0.0021) (0.0022) (0.0022) (0.0026)

˜Superstarit−1 -0.0781*** -0.0766*** -0.5316*** -0.0044*** -0.0043*** -0.0195*** -0.0084*** -0.0073*** -0.0215*** -0.0102*** -0.0092*** -0.0276***(0.0033) (0.0033) (0.0146) (0.0002) (0.0002) (0.0009) (0.0004) (0.0004) (0.0018) (0.0005) (0.0005) (0.0023)

∆ ln (1+Domestic Sales)it 0.2867*** 0.2823*** 0.2820*** 0.2808*** 0.2765*** 0.2318*** 0.2811*** 0.2769*** 0.2323*** 0.2808*** 0.2767*** 0.2324***(0.0085) (0.0084) (0.0098) (0.0084) (0.0083) (0.0083) (0.0084) (0.0083) (0.0083) (0.0084) (0.0083) (0.0083)

∆ ln (1+Imports)it 0.0148*** 0.0080*** 0.0149*** 0.0084*** 0.0145*** 0.0077*** 0.0146*** 0.0078***(0.0007) (0.0006) (0.0006) (0.0007) (0.0006) (0.0007) (0.0007) (0.0007)

Two-digit Sector × Year FE X X X X X X X X X X X XFirm FE X X X X

# Observations 164,807 164,807 156,302 164,807 164,807 156,302 164,807 164,807 156,302 164,807 164,807 156,302

35 / 49

Robustness: Future Demand Shocks Back


Internationalization Measure ( ˜Superstar) Export Intensity ln Export Sales ln # Products Exported ln # Destinations Served

(1) (2) (3) (4) (5) (6) (7) (8)


∆̃ForeignDemandit × ˜Superstarit−1 0.0103*** 0.0054*** 0.0043 0.0109***(0.0040) (0.0017) (0.0032) (0.0040)

∆̃ForeignDemandit+1 -0.0000 0.0013 0.0007 -0.0000(0.0034) (0.0037) (0.0034) (0.0034)

∆̃ForeignDemandit+1 × ˜Superstarit−1 -0.0018 0.0013 0.0008 -0.0015(0.0041) (0.0016) (0.0032) (0.0040)

˜Superstarit−1 -0.0346*** -0.0349*** -0.0117*** -0.0117*** -0.0110*** -0.0110*** -0.0165*** -0.0162***(0.0120) (0.0120) (0.0011) (0.0011) (0.0022) (0.0022) (0.0028) (0.0028)

Two-digit Sector × Year FE X X X X X X X XFirm FE X X X X X X X X

# Observations 84,699 84,699 84,699 84,699 84,699 84,699 84,699 84,699

36 / 49

Robustness: Period 1995-2000 Back




∆̃ForeignDemandit × ˜Superstarit−1 0.0568*** 0.0057*** 0.0049* 0.0087**(0.0189) (0.0015) (0.0028) (0.0036)

˜Superstarit−1 -0.1061*** -0.0206*** -0.0270*** -0.0324***(0.0128) (0.0012) (0.0025) (0.0032)

Two-digit Sector × Year FE X X X XFirm FE X X X X

# Observations 109,304 109,304 109,304 109,304

37 / 49

Robustness: Dropping Key Industries Back



∆̃ForeignDemandit 0.0066** 0.0090*** 0.0052* 0.0063**(0.0032) (0.0032) (0.0029) (0.0030)


˜Superstarit−1 -0.1154*** -0.0210*** -0.0293*** -0.0360***(0.0107) (0.0011) (0.0022) (0.0029)


# Observations 115,796 115,796 115,796 115,796

38 / 49

Robustness: Other Measures of Firm Size Back

Dependent variable ∆ ln VAitFirm Size Measure ( ˜LARGE) Log Total Sales Capital-Labor Ratio

(1) (2) (3) (4)

∆̃ForeignDemandit 0.0047* 0.0041 0.0042 0.0036

∆̃ForeignDemandit × ˜LARGEit0 0.0043* 0.0040* 0.0072** 0.0072**

∆ ln (1+Imports)it 0.0136*** 0.0136***(0.0007) (0.0007)


# Observations 156,302 156,302 156,302 156,302

39 / 49

Robustness: Two Year Lag Interaction Back




∆̃ForeignDemandit × ˜Superstarit−2 0.0429** 0.0057*** 0.0055** 0.0113***(0.0188) (0.0015) (0.0027) (0.0034)

˜Superstarit−2 -0.0556*** -0.0140*** -0.0148*** -0.0221***(0.0097) (0.0009) (0.0019) (0.0024)


# Observations 116,817 116,817 116,817 116,817

40 / 49

Robustness: Sample of Survivors Back



∆̃ForeignDemandit 0.0100*** 0.0087** 0.0085** 0.0086**(0.0038) (0.0037) (0.0037) (0.0037)

∆̃ForeignDemandit × ˜Superstarit−1 0.0512** 0.0074*** 0.0078*** 0.0094**(0.0205) (0.0017) (0.0030) (0.0038)

˜Superstarit−1 -0.0627*** - 0.0151*** -0.0152*** -0.0198***(0.0105) (0.0012) (0.0022) (0.0029)


# Observations 62,986 62,986 62,986 62,986

41 / 49

Robustness: Trim Top and Bottom 10% of Employment andInvestment Distribution Back



∆̃ForeignDemandit 0.0080*** 0.0103*** 0.0070** 0.0078***(0.0031) (0.0031) (0.0028) (0.0029)


˜Superstarit−1 -0.0969*** -0.0161*** -0.0192*** -0.0207***(0.0103) (0.0010) (0.0020) (0.0025)


# Observations 100,786 100,786 100,786 100,786

42 / 49

Robustness: Alternative Time Period Back

Dependent variable ∆ ln VAitTime Period 1994-2007 2001-2007

Internationalization Measure ( ˜Superstar) Export Intensity ln Export Sales ln # Products Exported ln # Destinations Served Export Intensity ln Export Sales ln # Products Exported ln # Destinations Served(1) (2) (3) (4) (5) (6) (7) (8)

∆̃ForeignDemandit 0.0101*** 0.0132*** 0.0096*** 0.0104*** 0.0114*** 0.0145*** 0.0111*** 0.0116***(0.0021) (0.0021) (0.0019) (0.0019) (0.0029) (0.0029) (0.0027) (0.0027)

∆̃ForeignDemandit × ˜Superstarit−1 0.0467*** 0.0058*** 0.0059*** 0.0082*** 0.0430*** 0.0057*** 0.0060*** 0.0078***(0.0106) (0.0008) (0.0016) (0.0020) (0.0147) (0.0011) (0.0022) (0.0028)

˜Superstarit−1 -0.1080*** -0.0226*** -0.0358*** -0.0476*** -0.1103*** -0.0267*** -0.0443*** -0.0586***(0.0064) (0.0006) (0.0013) (0.0017) (0.0111) (0.0011) (0.0022) (0.0029)

Two-digit Sector × Year FE X X X X X X X XFirm FE X X X X X X X X

# Observations 294,173 294,173 294,173 294,173 155,676 155,676 155,676 155,676

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Magnitude of the Effect Back

• Use Foster et al. (2001) decomposition to measure contribution of export globalization toreallocation effect. Between-firm effect is:

∆LSBetweent := ∑

i∈S

(ωit −ωit−1

)(LSit−1 − LSt−1

)+ ∑

i∈S

(ωit −ωit−1

)(LSit − LSit−1

)(22)

• Change in between term effect due to foreign demand growth:

∆L̂SBetweent = ∑

i∈S

(ω̂Between

it −ωit−1)(

LSit−1 − LSt−1)

+ ∑i∈S

(ω̂Between

it −ωit−1)(

ζ̂∆ForeignDemandit + χ̂∆ForeignDemandit × ˜Superstarit−1

) (23)

• Predicted weights:

ω̂Betweenit =

VAit−1

(1 + α̂∆ForeignDemandit + β̂∆ForeignDemandit × ˜Superstarit−1

)∑i VAit−1

(1 + α̂∆ForeignDemandit + β̂∆ForeignDemandit × ˜Superstarit−1

)(24)

44 / 49

Quantifying the Effect of Foreign Demand Growth Back

• Within-firm effect:∆LSWithin

t := ∑i∈S

ωit−1(LSit − LSit−1

)• The predicted within-firm effect is:

∆L̂SWithint = ∑

i∈Sωit−1

(ζ̂∆ForeignDemandit + χ̂∆ForeignDemandit × ˜Superstarit−1

)(25)

• Compute ∆L̂SBetweent and ∆L̂S

Withint for each year

45 / 49

Contribution of Foreign Demand to the Between-Firm Component

Internationalization Measure Export Intensity Export Sales

∆L̂SBetweent Contribution (%) ∆L̂S

Betweent Contribution (%)

(1) (2) (3) (4)1994-1995 0.0011 -0.19 -0.0028 0.491995-1996 -0.0042 0.47 -0.0450 51996-1997 0.0015 -0.25 0.0141 -2.351997-1998 0.0101 -2.73 0.0663 -17.921998-1999 -0.0321 3.09 -0.0590 5.671999-2000 -0.0189 3.71 -0.1091 21.392000-2001 0.0108 -120 0.0264 -293.33

1994-2001 -0.0316 0.79 -0.1091 2.731994-2000 -0.0424 1.06 -0.1355 3.40

Back

46 / 49

Contribution of Foreign Demand to the Within-Firm Componentand Overall Effect


∆L̂SWithint ∆L̂S

Withint + ∆L̂S

Betweent ∆L̂S

Withint ∆L̂S

Withint + ∆L̂S

Betweent

(1) (2) (3) (4)1994-1995 -0.0687 -0.0676 -0.1939 -0.19671995-1996 -0.0177 -0.0219 -0.0581 -0.10311996-1997 -0.0029 -0.0014 -0.0026 0.01151997-1998 -0.0115 -0.0014 -0.0315 0.03481998-1999 -0.0085 -0.0236 -0.0327 -0.09171999-2000 -0.0125 -0.0314 -0.0579 -0.1672000-2001 -0.0006 0.0102 0.0076 0.034

1994-2001 -0.1222 -0.1538 -0.3691 -0.47821994-2000 -0.1217 -0.1641 -0.3767 -0.5122

Back 47 / 49

Contribution of Foreign Demand to the Between-Firm Component(Alternative)


∆L̂SBetweent Contribution (%) ∆L̂S

Betweent Contribution (%)

(1) (2) (3) (4)1994-1995 0.0082 -1.44 -0.0052 0.911995-1996 -0.0005 0.06 -0.0579 6.431996-1997 0.0058 -0.97 -0.0016 0.271997-1998 0.0062 -1.68 0.0833 -22.511998-1999 -0.0265 2.55 -0.0704 6.771999-2000 -0.0166 3.25 -0.1335 26.182000-2001 0.0065 -72.22 0.0311 -345.56

1994-2001 -0.0168 0.42 -0.1542 3.861994-2000 -0.0234 0.59 -0.1853 4.64

Back48 / 49

Magnitude of the Effects (Alternative)


∆L̂SWithint ∆L̂S

Withint + L̂S

Betweent ∆L̂S

Withint ∆L̂S

Withint + ∆L̂S

Betweent

(1) (2) (3) (4)1994-1995 -0.0937 -0.0855 -0.2186 -0.22381995-1996 -0.0218 -0.0223 -0.0637 -0.12161996-1997 -0.0029 0.0029 -0.0114 -0.01301997-1998 -0.0267 -0.0205 -0.0294 0.05391998-1999 -0.0128 -0.0393 -0.0336 -0.10401999-2000 -0.0140 -0.0306 -0.0681 -0.20162000-2001 0.0004 0.0069 0.0071 0.0382

1994-2001 -0.1714 -0.1882 -0.4177 -0.57191994-2000 -0.1718 -0.1952 -0.4248 -0.6101

Back 49 / 49

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