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1. Who Learns More from Afar? Spatial Empirical Evidence on Manufacturing and Services

Author:
Nina Vujanović
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper investigates spatial dependence of FDI knowledge spillovers in manufacturing and services using spatial panel techniques applied to the 2006-2014 Bureau Van Dijk’s Amadeus firm-level dataset for Croatia and Slovenia. The paper finds diverse results across the two sectors. The distance between regions does not hinder the absorption of foreign knowledge in manufacturing despite the strong market-stealing effects operating within regions as well as spatially. On the other hand, FDI knowledge spillovers decrease service productivity within regions, because of market-stealing effects operating strongly across a smaller geographical scale. However, its impact is lost as knowledge spillovers from more distant neighbours are accounted for, because the poaching of local labour is impeded by distance due to rising costs of labour mobility. The research indicates that for knowledge absorption, geographic distance plays differing roles in manufacturing and services, due to the different nature of the production process.
Topic:
Development, International Trade and Finance, Foreign Direct Investment, Manufacturing, Econometrics, and Competition
Political Geography:
Europe, Croatia, and Slovenia

2. Estimating the productivity gap between organised and unorganised small-scale units in India’s manufacturing sector

Author:
Amit Basole, Dimple Chopde, and Paaritosh Nath
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Centre for Sustainable Employment, Azim Premji University
Abstract:
Small manufacturing firms are considered to be engines of growth and job creation. While most research on small firms focuses on formal sector units, in India informal sector units far outnumber the formal. This is true even for manufacturing units employing 5 to 49 workers, which constitute only 5% of all unorganised units, but in absolute numbers are nine times more numerous than organised units in the same size class. Such firms have the potential to contribute to structural transformation but their capacities vis-a-vis formal firms are not well understood. To address this, we create a unit-level dataset combining Annual Survey of Industries data for organised (formal) units with the National Sample Survey data on unorganised (informal) units. We also discuss problems involved in this exercise and some ways to deal with them. We find that matching organised and unorganised units on observable characteristics reduces the labour productivity differences between them to around 25 percent. We discuss some policy implications of our results.
Topic:
Employment, Manufacturing, Productivity, and Informal Economy
Political Geography:
South Asia and India

3. Foreign Direct Investment, Agglomeration, and Production Networks in Indonesian Manufacturing

Author:
Dionisius Narjoko
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study examines the importance of globalisation – defined by international production networks – in determining foreign direct investment (FDI) flows into Indonesian manufacturing since 2000. It is motivated by the fact that the extent of connection between the Indonesian and the global economy had increased after the 1997–98 Asian financial crisis. Models of FDI are estimated by utilising plant-level data and various trade and tariff data. Production networks or agglomeration are found to play an important role in driving FDI in Indonesia’s manufacturing sector, at least for the period 2000–2015. This study provides the insight that agglomeration could be utilised to increase FDI in Indonesia. This not only improves the productivity of the sector targeted by the investment but also promotes productivity growth. Creating more agglomeration areas could therefore be a policy direction taken by Indonesia to help increase FDI.
Topic:
Foreign Direct Investment, Investment, Manufacturing, and Production
Political Geography:
Indonesia and Southeast Asia

4. Structural Changes and the Impact of FDI on Singapore’s Manufacturing Activities

Author:
Shandre Mugan Thangavelu
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This chapter examines the investment and foreign direct investment (FDI) policy of Singapore’s economy in terms of the structural transformation of the economy from 1998 to 2018. The study also examines the impact of FDI on the productivity of the Singapore manufacturing industries in a panel framework from 2017 to 2019. The results indicate that FDI activities have a positive impact on labour productivity. The export activities of multinational businesses have a positive impact on labour productivity. We also observe agglomeration effects from FDI activities (average FDI activities over 3 years) in Singapore’s manufacturing industries. However, we observe a negative impact of outsourcing labour productivity. The study also derives policy implications for forward-looking policies in terms of the position of Singapore in the global production value chain.
Topic:
Foreign Direct Investment, Manufacturing, and Industry
Political Geography:
Singapore and Southeast Asia

5. Industry Agglomeration, Urban Amenities, and Regional Development in India

Author:
Subash Sasidharan and Shandre Mugan Thangavelu
Publication Date:
09-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Industrial agglomeration is an important component to create efficiency and externalities for industrial growth and competitiveness for the Indian economy. In this paper, we examine the spatial location of Indian firms and industry agglomeration at district and township level for the Indian economy. Particularly, we examine the impact of urban amenities in driving the industrial agglomeration in the Indian economy using firm-level data. We carefully control for township-level urban amenities, as well as firm level characteristics in affecting the industry agglomeration. As opposed to previous state- and district-level studies, we examine the impact of urban amenities at a more disaggregated township level for 2011. The study also examines the impact of urban amenities on manufacturing, as well as the services sector. The empirical analysis findings indicate a positive correlation between town-level disparities in industry agglomeration and various amenities, including education, healthcare, energy, transportation, finance, and cultural resources. These results remain consistent when considering alternative measures of agglomeration and conducting sub-sample analyses.
Topic:
Development, Manufacturing, Services, and Industry
Political Geography:
South Asia and India

6. Why Brazil Sought Chinese Investments to Diversify Its Manufacturing Economy

Author:
Celo Hiratuka
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
Since the beginning of the twenty-first century, economic relations between Brazil and China have grown significantly. The main driver of this process has been China’s enormous demand for agricultural, energy, and mineral commodities. On the one hand, Brazil’s strong competitiveness in these products has helped the country consolidate its role as an important supplier to China, increasing exports and turning China into the main destination for Brazilian exports since 2009.1 On the other hand, China, by virtue of its status as the “factory of the world,” has established itself as the main supplier of manufactured products to Brazil.2 Nonetheless, Brazilian scholars, think tanks, and private manufacturing firms have raised concerns. They have done so despite the great boost in bilateral trade flows; the favorable trade balance for Brazil; and the leveraging of businesses in several Brazilian sectors such as soybeans, iron ore, and oil. These concerns are related to the excessive concentration of Brazilian exports in a few products, the environmental impacts of these exporting activities, and the effects of strong Chinese manufacturing competition on Brazil’s domestic market. These worries have become more significant when one considers the growing importance of manufacturing changes with the diffusion of Fourth Industrial Revolution technologies and the search for new renewable energy sources and environmental sustainability. For Brazil, this matter reflects a need to advance bilateral relations beyond existing export trade volumes and toward new drivers of more diversified economic growth that will help the country escape a specialization in commodities. The fortunes of the Chinese company BYD in Brazil are highly relevant to these trends. BYD is a company that has diversified from the production of batteries into different innovative industrial sectors, such as renewable energy and electric vehicles. BYD has also been expanding rapidly in international markets, and in that process it chose Brazil as an important market, where it has built factories to produce electric bus chassis, photovoltaic panels, and batteries for electric buses. BYD’s trajectory in Brazil certainly has not been smooth. On the contrary, the firm has had to adapt to market fluctuations and, above all, to changes in the Brazilian government’s economic policies, which have made the company’s experience in the country quite turbulent. Despite this, BYD survived its first years in Brazil and more recently has been showing signs of continuing to invest in the Brazilian market. Analysis of BYD’s experience in Brazil shows, on the one hand, that there are important possibilities for new economic relations with China that go beyond trade in commodities, with productive investments that can potentially help Brazil simultaneously incorporate more knowledge-intensive activities and drive positive environmental impacts by generating renewable energy and reducing carbon emissions. On the other hand, the story of BYD also shows that the transformation of these possibilities into effective benefits requires coordinated actions on the part of Brazilian policymakers to offer a long-term horizon for Chinese investments. In that spirit, Brazil must craft a long-term strategy for its economic relationship with China to increase the odds that bilateral engagement can advance in a new and more sustainable, mutually beneficial direction.
Topic:
Bilateral Relations, Economy, Investment, Manufacturing, and Engagement
Political Geography:
China, Asia, Brazil, and South America

7. Global Value Chain Participation and Labour Productivity in Manufacturing Firms in Viet Nam: Firm-Level Panel Analysis

Author:
Upalat Korwatanasakul and Tran Thi Hue
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study describes the status of global value chains (GVCs) in Viet Nam and examines the roles of GVC participation and technology in enhancing labour productivity in manufacturing firms. The estimation method is a panel fixed-effect regression employing unique firm-level data matching the Vietnam Technology and Competitiveness Survey and Vietnam Enterprise Survey, 2009–2018. The findings show the positive effect of backward GVC participation when considering firm GVC participation status (i.e. whether they engage with backward linkages). However, when accounting for GVC participation degree (i.e. GVC participation index), the results show a stark contrast, revealing the negative effect of backward GVC participation on labour productivity. The results, therefore, partly reject the learning-to-learn hypothesis. On the other hand, regardless of GVC indicators, forward GVC participation positively impacts labour productivity, confirming the views of learning-by-exporting and learning-by-supplying. The findings also suggest the significance of research and development, digital technology, and foreign investment in enhancing labour productivity. Therefore, policies promoting forward GVC participation should be the priority, while policies to promote backward GVC participation should be well designed and accompanied by policies that ensure technology transfer and domestic technology development to avoid the trap of a subordinate role.
Topic:
Labor Policies, Manufacturing, Industry, Global Value Chains, and Labor Market
Political Geography:
Asia and Vietnam

8. Does aid to the productive sectors cause manufacturing sector growth in Africa?

Author:
Alain Ndikumana
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In recent decades, Africa has received a large share of official development assistance compared to other regions of the world. Using AidData for 2000–13, this paper examines the effects of aid to productive sectors on manufacturing growth in Africa. Econometric results show that increased assistance to these sectors is associated with an increase in growth of the manufacturing sector, with complementary effects from allocations to economic services and infrastructures. However, dynamic panel regression results show a positive long-term link between increased official development assistance to productive sectors and growth of the manufacturing sector. These findings make an important contribution to the economic literature where there is controversy over aid effectiveness at the macro level. The findings also have policy implications for allocation of aid between sectors by making rational trade-offs related to their amount and quality, with emphasis on productive sectors where investment has a major impact on growth of the manufacturing industry.
Topic:
Humanitarian Aid, Economic Growth, Manufacturing, and Development Assistance
Political Geography:
Africa

9. The Opportunities and Challenges of Industry 4.0 for Industrial Development: A Case Study of Morocco’s Automotive and Garment Sectors

Author:
Georgeta Vidican Auktor
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
The development and application of advanced manufacturing technologies (known as Industry 4.0) have been enabled by the fast-paced process of digital transformation. These transformations are expected to have major implications on the reorganisation of global value chains as well as on labour markets. For late-industrialising countries, Industry 4.0 brings both opportunities and challenges. On the one hand, it opens opportunities in terms of improving competitiveness, learning and export markets. On the other hand, however, it may devalue the traditional competitive advantage based on low labour costs, creating difficult-to-tackle challenges on labour markets related to unemployment and new demands for reskilling and upskilling. This paper explores these aspects through the lens of one country, Morocco, and two very different sectors: automotive and apparel. Morocco is a lower-middle-income country that has capitalised on its proximity to Europe and succeeded in developing a dynamic export-oriented automotive industry. The garment sector, which is critical for employment, has been generally neglected by the industrial development strategies. However, Industry 4.0 and its implications on global value chains are likely to affect both sectors, although in different ways. Our analysis clearly shows that interventions must be tailored to the different degrees of technological readiness. The automotive sector is driven more by the needs of major original equipment manufacturers. Therefore, industrial policy should focus on setting the framework conditions, enabling upgrading by investing in research and development, and shifting incentives towards facilitating local suppliers to better integrate with higher-tier suppliers. In the garment sector, policy interventions need to be more comprehensive, from developing a long-term vision to building awareness on technological upgrading and new business models enabled by digitalisation and automation. Moreover, there is extensive scope for industrial policy to contribute to building basic technological and knowledge capabilities all along the garment supply chain and to attracting investment.
Topic:
Development, Manufacturing, Industry, and Global Value Chains
Political Geography:
North Africa and Morocco

10. How to make I.T. in Greek Manufacturing: Evidence and Policy Recommendations

Author:
Sofia Anyfantaki
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
Greece has so far failed to shift its production structure towards more complex, high value-added activities, incorporating knowledge-intensive practices. Given the country’s low performance in innovation and knowledge diffusion relative to EU peers, we focus on two specific problem areas of Greek industry: skills and management practices. First, we provide an in-depth look at skills indicators to identify the scope for action, particularly in addressing mismatch. Second, we use firm-level data from the World Management Survey to give an overview of management practices in Greek industry and explore the quality of these practices and their association with productivity. We have two novel findings: first, we document that Greece has the highest overskilling for professional occupations in the OECD; second, we show that Greek firms do best in areas requiring unitary decision making, and worst in areas requiring teamwork and synergies. We complement our analysis with data from a new survey and examine structural characteristics of innovation and technology adoption. The collection of our empirical findings provides valuable input into concrete policy proposals to increase productivity in Greek manufacturing.
Topic:
Science and Technology, Manufacturing, Innovation, Industry, and Information Technology
Political Geography:
Europe and Greece