GOLDEN GROWTH
Box 4.6: The features of a global firm Firm ownership is an important characteristic in the evolution of firm performance. Companies with international operations (a global headquarters of an international group or one of its domestic affiliates) have higher productivity growth than purely domestic-owned firms in the EU15, both in manufacturing and services. Size is the most important correlate of
internationalization. Firms with more than 1,000 employees are 35 percent more likely to be the global headquarters of a company in the EU15 (box table 1). Age is not important.
and related productivity differences. The probability of internationalizing is correlated with better business regulation (box figure 1). This might reflect the fact that firms in countries with better business regulation But there is country-specific bias. For have higher productivity growth. “Global example, being in Italy and Spain significantly sourcing” models (Antràs and Helpman 2004, reduces the probability of being a global for example) suggest that as firms increase headquarters, while being in Sweden increases productivity, they tend to access international markets by producing abroad. this likelihood. Why? Business regulations
Box table 1: Average estimated marginal effects on the probability of being a global headquarters in EU15 Variable
dy/dx (percent)
P>|z|
Size (50–249)
7.25
0.000
Size (250–499)
18.34
0.000
Size (500–999)
22.92
0.000
Size (1,000 or more)
35.04
0.000
Age
–0.06
0.494
Note: Additional controls considered but not reported are sector (NACE) dummies. The omitted size category is (10–49). Source: World Bank staff calculations.
Box figure 1: Better business regulations aid successful globalization of enterprises
Source: World Bank staff calculations, based on Doing Business 2008.
If Southern Europe had a higher share of larger firms, its export gap could be filled (see Barba Navaretti and others 2011). Similarly, larger companies are more inclined to invest in foreign markets. Larger firms are most likely to have an international subsidiary and to benefit from offshoring (box 4.6). The industrial structure is not a given. For instance, the presence of foreign-owned firms is influenced by policy decisions and a country’s ability to attract FDI. The business environment is a critical driver in this process (box 4.4). Lagging in regulations, Southern European economies are making themselves less attractive to foreign firms. Additionally, microfirms in Southern Europe prefer to stay small and informal as a coping strategy, to simply bypass a complicated regulatory framework. Comparing countries in advanced Europe, the correlation between a heavier regulatory framework (measured by a lower quality of regulations) and the share of employment in microenterprises becomes evident. On the one hand, microenterprises face simplified regulations in most countries.40 On the other, weaker enforcement mechanisms are applied to microfirms,41 which allow
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