Community Research and Development Information Service - CORDIS



Project ID: 313164
Funded under: FP7-IDEAS-ERC
Country: Hungary

Final Report Summary - KNOWLEDGEFLOWS (Channels and Consequences of Knowledge Flows from Developed Economies to Central and Eastern Europe)

The project measured how knowledge flows from advanced economies to countries in Central and Eastern Europe. It identified four channels of these knowledge flows: Trade, Managers, Workers and Suppliers.

When CEE countries import intermediate inputs or capital equipment from advanced economies, they also access advanced technology. Several studies completed during the project focused on the import channel. In "Imported Inputs and Productivity" we estimated a model of importers in Hungarian micro data and conduct counterfactual policy analysis to investigate the effect of imported inputs on productivity. We found that importing all input varieties used in production would increase a firm's revenue productivity by 22 percent. Our results suggest policy complementarities between tariff cuts, dismantling non-tariff barriers, and FDI liberalization.

To better understand the barriers to trade, we studied administrative barriers to trade. We document that trade costs of a per-shipment nature are associated with less frequent and larger shipments, i.e. more lumpiness, in international trade. We then built a model of administrative barriers to trade to understand how they affect trade volumes, shipping decisions and welfare. We estimated the ad-valorem equivalent in Spanish shipment-level export data and found it to be large. Our model and estimates help explain why policy makers emphasize trade facilitation.

How are workers affected by technology flows? We have studied the wages of workers at foreign as well as importing firms, using Hungarian linked employer-employee data, and also reviewing the literature from other countries. We found that international trade – especially import – has mostly a positive effect on wages. However, inequality also goes up, as the wages
of skilled labor and lower-level managers such as supervisors and middle managers increase the most. Often technology import is the only opportunity for an employee to
work with cutting-edge technology, and acquire skills related to it. Our results suggest that imports can help propagate skill-biased technical change.

We found similar patterns about wage returns to foreign firm experience. Foreign firms pay substantially higher wages to the same worker as domestic firms. Some of this wage difference remains after the workers moves to a domestic firm, suggesting that some knowledge spillover has taken place in the foreign firm. This positive effect of wages is accompanied by an increase in inequality, as the effect of foreign experience is highest for workers who already have high skills.

In ongoing work, we study the performance of firms led by expatriate managers in Hungary, 1992-2015. Preliminary results suggest that foreign owners improve firm performance by replacing local management with foreign manager. Our study can help understand the modes of foreign investment and provide a link between foreign ownership and management practices.

We have conducted the Central European Supplier Survey, where firms are asked to identify their business partners and answer a few questions about their relationship. The survey instrument can be used to conduct similar surveys in other countries.

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