Trade in Services - Modes of Supply - Employment Impacts

with Elisabeth Christen and Michael Pfaffermayr


In three distinct contributions this project provides evidence on internationalisation strategies of Austrian services firms as well as its repercussions on the domestic labour market on the basis of firm-level data from the Austrian National Bank (OeNB) and the Austrian Social Security Database. First, unpublished results are available:


Evidence on Destination Specific Modes of Services Supply from Austria


The analysis on foreign market entry and mode of supply decisions (cross-border versus affiliate sales) shows that higher levels of productivity increase the probability of a firm to serve a particular market. Specifically the most productive firms serve the foreign market through cross-border exports, while the impact on the affiliate sales mode is negative. Austrian services firms are more likely to operate a foreign affiliate in less developed countries, while distance in geographical terms and services trade restrictions exert a stronger detrimental impact on cross-border supply.


Import Competition in Services: Firm Survival, Firm Growth and Employment Changes


Focusing on services firms and services trade in Austria, the analysis provides new insights into the firm level employment effects of import competition at the industry level and its interactions with firm heterogeneity in productivity and size. We use firm-level data from the Austrian Social Security database (ASSD) and apply a two part model that permits an integrated treatment of firm exit and firm growth and the resulting net changes in employment within a specific service sector. The results imply that higher levels of international competition increase the probability of firm exit and decrease employment growth in surviving firms with the impact inversely related to firm productivity and firm size as predicted by theory. In addition, we find that the geographical source of import competition is important, as the impact of trade on job creation are highest when trading partners are Central and Eastern European countries. Furthermore, the results imply that employment changes due to firm exits contribute an important part to the overall trade-induced change in employment and emphasize the importance to integrate the impact of firm exits into the analysis of employment impacts of trade.


Import Competition in Services and Labour Market Re-allocations


While positive home country impacts are generally associated with exports, import competition has generated mixed feelings and specific worries in the public debate, about its possible drawbacks, particularly where the effects on domestic labour markets are concerned.  This analysis is concerned with short run re-allocations of workers and focuses on trade induced worker flows in and out of unemployment as well as between sectors to deepen the understanding of adjustment patterns of individual workers and how these relate to skills and other relevant individual worker characteristics as well as industry characteristics. It is the first analysis of detailed worker flows focusing on the services sector. We base our analysis on the social security records of Austrian employees (Austrian Social Security Database, ASSD). We take account of the longitudinal dimension of the data and model the full transition matrix of work flows between employment states and between sectors. The descriptive evidence on labour market transitions reveals a high persistence in all labour market states. The econometric model applied is a mixed logit model accounting for heterogeneity across workers and labour market states as well as state dependence. The model is estimated by simulated maximum likelihood methods.


Funded by: Austrian National Bank, Anniversary Fund, Grant No. 15491 


To top

Pattern, Determinants and Dynamics of Austrian Service Exports at the Firm-level

with Elisabeth Christen and Michael Pfaffermayr


We use a micro-level dataset of Austrian service exporting firms over a four-year period to add to the still sparse literature on the characteristics and internationalisation strategies of globalised firms in the service sector. We show that service export participation is very low and highly concentrated among a few firms and that service exporters are on average larger and more productive than non-exporters. We also find that firm productivity increases with the number of export markets served. The detailed analysis on the export premium suggests the self-selection of firms as well as learning effects from exporting for export starters. The dynamic analysis reveals that the rate of export exits is high for export starters in the first year of exporting, especially for firms of small size. Movements into and out of exporting are however less frequent than moving in and out of individual markets. Entry and exit of markets (extensive margin) is an important component of overall export flows, especially for less popular markets, overall, however the intensive margin of trade contributes most. Analysis based on a Heckman-sample selection specification including firm characteristics as well as the standard gravity variables on geographical characteristics of destination markets confirm this finding. In particular, distance to the destination market, firm productivity as well as destination market characteristics (market size, policy environment) significantly influence the probability of exporting (extensive margin) but even more so the volume of service trade flows (intesive margin). Results from a counterfactual analysis suggest that export market growth and policy reforms produce the relative strongest impact on the entry into new markets. Hence, this decomposition of overall export growth into contributions attributable to the intensive and extensive margin allow for new insights for economic policy.


Funded by: Austrian Federal Ministry of Economy, Family and Youth (BMWFJ) as part of the ?Internationalisation Drive?. The FIW-Project is a collaboration of the Austrian Institute of Economic Research (WIFO), the Vienna Institute for International Economic Studies (wiiw) and the Computing Centre for Economics and Social Sciences (WSR)

Duration: 2012-2013

To top

FIW - Research Centre International Economics

The ?Research Centre International Economics -FIW? has the objective to support and interconnect the Austrian scientific community in the field of International Economics in order to advance know-how as well as scientific and economic policy oriented discussions on issues in International Economics. The FIW-project offers a platform to publish and discuss research results confined to topics in International Economics. Furthermore, researchers, students and experts in public offices receive a modern and easy access to databases and other relevant information related to International Economics. (FIW-Homepage)

Funded by: Austrian Federal Ministry of Economy, Family and Youth (BMWFJ) as part of the ?Internationalisation Drive?. The FIW-Project is a collaboration of the Austrian Institute of Economic Research (WIFO), the Vienna Institute for International Economic Studies (wiiw) and the Computing Centre for Economics and Social Sciences (WSR)

Duration: Ongoing since 2006

To top

The role of multinational companies and supply chains in innovation

with Elisabeth Christen, Martin Falk, Heinz Hollenstein, Michael Pfaffermayr


The study on the role of multinational companies and supply chains in innovation summarizes patterns of internationalisation of the knowledge-creating and knowledge-sourcing activities of multinational enterprises and provides new evidence on the complementarity or substitutability between the R&D activities of the headquarters and its foreign affiliates. It also analyses the factors influencing the geographical distribution of innovative activities of multinational firms and investigates how the regulatory framework affects incentives for R&D and innovation output in the EU, Japan and the US with a special emphasis on Intellectual Property Rights (IPR) use and policy changes.

The study was part of a project to be delivered by a consortium of European research institutes led by the Austrian Institute of Economic Research (WIFO) to the Directorate-General for Enterprise and Industry of the European Commission in the context of the PRO INNO Europe initiative. These services will be delivered under the INNO-GRIPS (2010?2012) label. (Project information)


Funded by: European Commission (Directorate-General for Enterprise and Industry)

Duration: 2010-2012 

To top

On what trade economists should know about their data

with Peter Egger


More and more empirical research in international economics builds on the analysis of bilateral trade flows. Various different international statistical sources are available for researchers and commonly used. Unfortunately, the data happen to differ quite substantially across the different sources with little systematic knowledge on the nature of the differences and their sources as well as the consequences for empirical results. The project aimed at providing a thorough analysis of these differences across trade data sources, the timing and geographical location of deviations and explained the most important reasons for the discrepancies. Finally, econometric analysis on the different data-sets helped to clarify to which extent deviations across trade data sources influence empirical results and which applications (cross-section or time series evidence) are most affected. (PDF)


Funded by: Austrian National Bank, Anniversary Fund, Grant No. 13355

Duration: July 2009 ? March 2011

To top

Linkages between Services and Manufacturing


This study analyzed intersectoral linkages via trade in intermediates across industries, and the changing industrial structure of the EU, with a view to identifying possible unexploited potentials of the interrelationship between manufacturing and services for European growth and implications for employment. 

The study is part of the SERVICEGAP project delivered by a consortium of European research institutes led by the University of Birmingham to the Research Directorate General. The overall objective of this research is to produce a comprehensive study on the impact of market services on aggregate economic growth in the EU and its comparative performance relative to competitor regions, especially the US (Project information).


Funded by: European Commission, Research Directorate General as part of the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities.

Duration: 2010-2013

To top