Periodic Reporting for period 4 - BIGlobal (Firm Growth and Market Power in the Global Economy)
Reporting period: 2022-06-01 to 2023-03-31
According to the European Commission, to design effective policies for ensuring a “more dynamic, innovative and competitive” economy, it is essential to understand the decision-making process of firms as they differ a lot in terms of their capacities and policy responses (EC 2007). The objective of this research project is to provide such an analysis. BIGlobal will examine the sources of firm growth and market power to provide new insights into welfare and policy in a globalized world.
Much of analysis of the global economy is set in the paradigm of markets that allocate resources efficiently and there is little role for policy. But big firms dominate economic activity, especially across borders. How do firms grow and what is the effect of their market power on the welfare impact of globalization? This project will determine how firm decisions matter for the aggregate gains from globalization, the division of these gains across different individuals and their implications for policy design.
The research incorporates richer firm behaviour in models of international trade to understand how trade and industrial policies impact the growth process, especially in less developed markets. The specific questions addressed include: how can trade and competition policy ensure consumers benefit from globalization when firms engaged in international trade have market power, how do domestic policies to encourage agribusiness firms affect the extent to which small farmers gain from trade, how do industrial policies affect firm growth through input linkages, and what is the impact of globalization of work through the world platform economy and the rise of alternative work arrangements.
Much of analysis of the global economy is set in the paradigm of markets that allocate resources efficiently and there is little role for policy. But big firms dominate economic activity, especially across borders. How do firms grow and what is the effect of their market power on the welfare impact of globalization? This project will determine how firm decisions matter for the aggregate gains from globalization, the division of these gains across different individuals and their implications for policy design.
The research incorporates richer firm behaviour in models of international trade to understand how trade and industrial policies impact the growth process, especially in less developed markets. The specific questions addressed include: how can trade and competition policy ensure consumers benefit from globalization when firms engaged in international trade have market power, how do domestic policies to encourage agribusiness firms affect the extent to which small farmers gain from trade, how do industrial policies affect firm growth through input linkages, and what is the impact of globalization of work through the world platform economy and the rise of alternative work arrangements.
Work undertaken for each project is summarised below:
(1) Development of theory and matched importer-exporter data during the period of a large Free Trade Agreement to examine the impacts of trade policy on consumers.
(2) Development of theory and empirical analysis of a longitudinal panel of farmers by the buyers that they sell individual crops to in three low-income countries to examine the rise of agribusinesses and the implications for the distribution of the gains from trade.
(3) Development of theory and empirics to examine how firms grow and the role of industrial policy in enabling firm growth.
(4) Development of theory and data on alternative work arrangements and heterogeneity in the preference for work flexibility and livelihood security.
Key insights that have come from the project are as follows:
(1) Trade and Competition Policy can be complements due to the impact of trade policy on market power of firms engaged in international trade. Trade liberalisation can increase market power of firms, making complementary competition policy beneficial to consumers.
(2) Agribusinesses are more productive than small traders in connecting farmers to world markets, but farmers in developing countries are too small to be able to access the potential productivity gains that agribusinesses can provide.
(3) Firm grow by developing their comparative advantage through focusing on products that have supply linkages to their existing products. Industrial policies that limit the deployment of supply side economies constrain firm growth.
(4) Alternative work arrangements provide lower security, particularly during crises ,and an overwhelming share of workers prefer job security over the flexibility that these arrangements provide.
(1) Development of theory and matched importer-exporter data during the period of a large Free Trade Agreement to examine the impacts of trade policy on consumers.
(2) Development of theory and empirical analysis of a longitudinal panel of farmers by the buyers that they sell individual crops to in three low-income countries to examine the rise of agribusinesses and the implications for the distribution of the gains from trade.
(3) Development of theory and empirics to examine how firms grow and the role of industrial policy in enabling firm growth.
(4) Development of theory and data on alternative work arrangements and heterogeneity in the preference for work flexibility and livelihood security.
Key insights that have come from the project are as follows:
(1) Trade and Competition Policy can be complements due to the impact of trade policy on market power of firms engaged in international trade. Trade liberalisation can increase market power of firms, making complementary competition policy beneficial to consumers.
(2) Agribusinesses are more productive than small traders in connecting farmers to world markets, but farmers in developing countries are too small to be able to access the potential productivity gains that agribusinesses can provide.
(3) Firm grow by developing their comparative advantage through focusing on products that have supply linkages to their existing products. Industrial policies that limit the deployment of supply side economies constrain firm growth.
(4) Alternative work arrangements provide lower security, particularly during crises ,and an overwhelming share of workers prefer job security over the flexibility that these arrangements provide.
BIGlobal examines under-studied questions of the impacts of market power on the gains from globalisation, the division of the gains across different individuals, and their implications for policy design. It develops new models which feature market power in meaningful ways. It draws on new data to provide empirical advances to these questions. The empirical contexts studied in the projects provide real-world insights into trade and industrial policies.
Much of the literature in trade is based on empirical work on developed countries such as Norway and Japan, which are of limited applicability in understanding how trade and industrial policies impact the growth process, especially in less developed markets. BIGlobal makes novel contributions by studying questions of importance to developing economies. An important advantage of working in the context of developing markets is that they often experience policy changes that are plausibly exogenous to individual decisions that are under study. BIGlobal exploits these policy experiments to test the theories and to inform policy design.
Much of the literature in trade is based on empirical work on developed countries such as Norway and Japan, which are of limited applicability in understanding how trade and industrial policies impact the growth process, especially in less developed markets. BIGlobal makes novel contributions by studying questions of importance to developing economies. An important advantage of working in the context of developing markets is that they often experience policy changes that are plausibly exogenous to individual decisions that are under study. BIGlobal exploits these policy experiments to test the theories and to inform policy design.