The paper studies the dynamic interplay between service imports and goods export performance, examining how different types of service imports influence both the extensive and intensive margins of goods exports. Utilising a comprehensive dataset of transaction-level data on goods and services trade alongside firm-level balance sheet data from Slovenia spanning from 2006 to 2020, the study isolates the effects of service imports on various dimensions of goods exports, accounting for firm size, productivity, foreign ownership, and other industry-specific variables. The findings show a clear positive relationship between specific service imports and the intensive margin of goods exports, suggesting that services related to transport, consulting, and marketing significantly enhance the value of goods exported. In addition, the impact of service imports varies greatly depending on the type of service, with immediate and direct export-related services showing the biggest effects. Interestingly, the relationship of imported services with the number of export markets or the diversity of products exported per market was not found to be significant. Overall, the results highlight that service imports play a crucial role in enhancing the value of goods exports, particularly through services directly associated with the export process. However, the impact on expanding market reach or product diversity appears limited.

This paper studies the drivers of rising income inequality in OECD countries between 1980 and 2018. By testing Milanovic’s TOP hypothesis in our sample, we measure the extent to which these distributional outcomes have been driven by either technological progress or globalization and the extent to which they have been influenced or mitigated by policy choices. The results of our empirical analysis provide the basis for confirming the TOP hypothesis. We find evidence that a 10 percent increase in trade openness, financial globalization, and technological progress is on average associated with a 0.4 percent, 0.3 percent, and 0.9 percent change in market inequality, respectively. At the same time, policies such as public expenditure on education, employment protection legislation and direct income taxes promote a more equal distribution. Our most notable finding, however, is that policies not only have a direct equalizing effect, but also mitigate the effects of globalization and technological progress on income inequality. The results of our study suggest that there are reasonable alternatives to anti-globalization strategies and that redistributive and labor market policies can be tailored to control inequality in the era of globalization and technology.

This paper contributes to research on the factors that have led to the decline of manufacturing employment in advanced economies by studying the impact of both import penetration and technological intensity on manufacturing employment between 2008 and 2018 using an extensive industry-level dataset for 28 EU coun-tries. The findings make it clear that the growing share of Chinese imports in total extra-EU-28 imports significantly explains the declining trend in EU sectoral employment. The mentioned trend is shown to be mainly driven by the import penetration of Chinese consumer goods and less by the outsourcing of interme-diate products. Yet, little evidence is found of technological intensity having detrimental impact on sectoral employment outcomes. While the correlation between business expenditure on research and development per employee and employment growth was weakly negative, the share of information and commu-nication technologies assets in total assets was positively correlated with both aggregate employment growth and the share of unskilled workers in the sector.

This paper examines whether there is a premium in country size. We study whether there are significant gains from being a small or a large country in terms of certain socioeconomic indicators and how large this premium is. Using panel data for 200 countries over 50 years, we estimate premia for various sizes of nations across a variety of key economic and socioeconomic performance indicators. We find that smaller countries are richer, have larger governments, and are more prudent in terms of fiscal policies than larger ones. On the other hand, smaller countries seem to be subject to higher absolute and per capita costs for the provision of essential public goods, which may lower their socioeconomic performance in terms of health and education. In terms of economic performance, small countries seem to do better than large countries, compensating for smallness by relying on foreign trade and foreign direct investment. The latter comes at the cost of higher vulnerability to external shocks, resulting in higher volatility of growth rates. This paper's findings offer essential guidance to policymakers, international organizations, and business researchers, especially those assessing a country's economic or socioeconomic performance or potential. The study implies that comparisons with medium-sized or large countries may be of little utility in predicting the performance of small countries.

nternational tobacco smuggling remains an important concern for governments, tobacco manufactur-ers and health experts alike. While often linked to other forms of illegal activities, it also directly impacts govern-ment tax and health policies. Knowledge of factors that contribute to illicit tobacco trade and the existence of smug-gling routes is strongly hampered by the lack of reliable data on bilateral flows of illicit tobacco. Therefore, recon-structing the trafficking routes and estimating the size of cross-border illicit flows are crucial steps for gaining bet-ter understanding of these crimes and enforcing actions aimed at countering them. This study is the first to use grav-ity estimation techniques to decompose aggregate illicit cig-arette inflows for which data are available into their bilat-eral components. Our approach is a simple and effective method that can serve as a complement to other methods of pinpointing international trafficking flows such as empty discarded pack data or network analysis to help in the fight against illicit tobacco flows. Policymakers, customs officials as well as law enforcement can employ the presented meth-ods as an additional tool in the fight against illicit trade. Keywords: bilateral illicit cigarette trade, gravity model, predictive estimation

This paper highlights the role of supply chain linkages for the transmission of COVID-19-induced shocks based on the monthly trade of the European Union Member States during the first wave of the COVID-19 pandemic. Using the framework of the gravity model, we find an overall decline of over 20% in trade among EU countries following the COVID-19 outbreak. Both supply and demand shocks are shown to contribute to this trade decline associated with COVID-19 in the origin and destination country proxied by either infection rate or policy stringency index. While import demand shocks have an immediate effect on trade decline, the trade becomes increasingly sensitive to the COVID-19 situation in the origin country over time. Moreover, the results confirm that forward global value chain (GVC) linkages act as a channel for the transmission of (demand) shocks in supply chain trade. Indeed, an increase in the incidence of COVID-19 cases in the destination country leads to a larger decrease in domestic exports of intermediate goods in those destination countries with which a country has stronger forward linkages, that is in partners positioned further downstream. We also find the 'China effect', with the transmission of the COVID-19 shock from the partner country amplified when the share of supply chain trade with China is higher. On the other hand, we fail to find robust evidence for the transmission of COVID-19-induced shocks via backward linkages.

This paper reviews the literature on the socioeconomic effects of tax on robots in order to find an answer to the question whether and how robots that replace routine jobs should be taxed. Although the rapid pace of automation may destroy many jobs, lead to a dramatic increase in income inequality, and result in revenue losses for the government, there is no consensus among economists on whether government intervention is necessary. One strand of economists argues that taxing robots would be a self-defeating act that would spur innovation and slow technological progress, while job losses from the use of robots by foreign competitors could occur anyway. However, another strand of economists that seems to be gaining ground argues for public intervention and the imposition of some kind of tax on robots or the work performed by robots. The first reason is that by taxing robots, governments will be able to generate tax revenue to offset the declining revenue from taxing labor as human labor is displaced by machines. The second reason for taxing robots is to prevent or limit income and wealth inequality that arises from potentially increasing inequality among the types of workers affected by automation and from the transfer of income from workers to owners of capital. Despite the consensus on the need for some kind of tax on robots, however, there is not yet agreement on the precise framework of tax policy. In general, policy proposals fall into two categories. The first advocates direct taxation of firms that benefit from automation, while the second proposes indirect taxation that does not tax firms directly to avoid potential stagnation of innovation. In the second proposal, the tax would be levied on the use of robots rather than robots, so that firms would pay for the negative externalities of using robots instead of humans. An optimal robot tax in our view would be levied similarly to a VAT tax on robot activities, with a tax rate that decreases with the age of the robots. In any case, the introduction of a robot tax requires a coordinated approach between countries, otherwise there is a risk that countries will lose tax revenues due to tax competition.

This paper uses large cross-country data for 110 countries to examine the effectiveness of COVID vaccination coverage during the delta variant outbreak. Our results confirm that vaccines are reasonably effective in both limiting the spread of infections and containing more severe disease progression in symptomatic patients. First, the results show that full vaccination rate is consistently negatively correlated with the number of new COVID cases, whereby a 10 percent increase in vaccination rate is associated with a 1.3 to 1.7 percent decrease in new COVID cases. Second, the magnitude of vaccination is shown to contribute significantly to moderating severe disease progression. On average, a 10 percent increase in the rate of vaccination leads to a reduction of about 5 percent in the number of new hospitalizations, 12 percent decrease in the number of new intensive care patients and 2 percent reduction in the number of new deaths. Finally, by comparing the data for the same period between 2020 and 2021, we also check how well vaccination performs as a substitute for lockdowns or other stringent government protection measures. Results suggest that vaccination appears to be an effective substitute for more stringent government safety measures to contain the spread of COVID infections only at a sufficiently high vaccination coverage threshold (more than 70 percent). On the other hand, vaccination is shown to be quite effective in limiting the more severe course of the disease in symptomatic patients already at moderate vaccination coverage (between 40 and 70 percent). This suggests that vaccination can also help to reduce pressure on the health system and thus benefit the overall public health of society. On the other hand, the efficient rollout of vaccines could explain the favourable economic performance in the second half of 2021 despite the severe outbreak of the delta variant.

This paper documents the evolution of markups in a small open economy, Slovenia, using a comprehensive data set covering the full population of firms. It makes three novel contributions to the literature. First, in contrast to other work for Europe, we find that markups have increased from 1.05 to 1.19 between 1994 and 2015. Second, while other research so far found exporters typically to have higher markups, we find the opposite in Slovenia. Though the rise in markups occurs both with exporters and non‐exporters, there is a consistent diverging trend in markups in favour of non‐exporters since 1999. This can be attributed to increased competitive pressure faced by exporters following the comprehensive trade liberalisation after 1999 and their increased participation in global value chains. Third, we decompose aggregate markups and show that the increase in markups, for both exporters and non‐exporters, is mainly driven by the within component rather than the reallocation effect. This suggests that all firms were increasing their markups, rather than high‐markup firms increasing their market share over time.

AbstractThe papers in this issue continue with the tradition of adding puzzles pieces to the overall picture of the impact and importance of firm international activities. In "What makes a successful exporter?", we have collected twelve papers, the majority of which were presented at the 13th annual ISGEP workshop in Ljubljana, Slovenia on 20–21 September 2018. The common thread linking these papers is that they explore both what it means to be an exporter and the ramifications of exporting on firms and the economy as a whole. On the one hand, this special issue addresses the role of foreign sourcing, export experience in the board of directors and credit supply shocks on the propensity to export, as well as the factors that affect firms' overall readiness to export. On the other hand, it investigates various measures of performance in the export markets, such as export duration, markups, quality upgrading and product mix.

Because of deploying specific methods of privatization that favoured domestic over foreign owners and that enabled both internal owners and state-controlled funds to gain control over companies, corporate governance in Slovenia used to be a cumbersome issue over the last two decades. This led to an on-going battle for control over companies. On one side, in addition to management buy-outs, internal owners used peculiar methods, such as “shares parking” at related companies to gain control over companies of interest without having to engage in a takeover procedure. On the other side, the government used its state-controlled funds to gain control over strategic companies in specific sectors, such as finance, energy, transport and telecommunications. Combined with direct holdings of assets by the state, this gave the existing political coalition in power a mechanism to exert control over a large number of companies and to interfere with the management of privatized firms through an adverse selection of candidates for supervisory boards and board of directors. The victims of these unsound corporate governance practices were usually small shareholders and suboptimal performance of companies. For a private sector, the “game-changer” was a financial crisis that deprived many management-owned companies of control over the companies, while government involved in some changes in the regulatory framework to fight peculiar corporate governance practices. However, while Slovenia has gradually established a modern framework for a transparent corporate governance system, regulating listed and non-listed private companies as well as SOEs, the practices deployed by the parties are still far from transparent, adequate and professional.

This article studies the extent of corporate leverage and range of excessive debt of Slovenian firms during the recent financial crisis. Half of all firms (of those with some non-zero debt and at least one employee) are found to face an unsustainable debt-to-EBITDA leverage ratio beyond 4, accounting for almost 80% of total outstanding debt. Moreover, a good quarter of all firms experience debt-to-EBITDA ratios exceeding 10 and hold almost half of total aggregate net debt. We then examine how this financial distress affects firm performance in terms of productivity, employment, exports, investment and survival. We find that, while less important during the good times (pre-recession period), lack of firms' financial soundness during the period of financial distress becomes a critical factor constraining firm performance. The extent of financial leverage and ability to service the outstanding debt are shown to inhibit firms' productivity growth as well as the dynamics of exports, employment and investment. Micro and small firms are found to suffer relatively more than larger firms from high leverage in terms of export and employment performance during the recession period.

This article explores the effects of offshoring, technology, and Chinese import competition on labor market polarization in European countries. We find that polarization occurs mostly as a result of polarization within individual industries, while the reallocation of employment away from less polarized industries toward more highly polarized industries contributed only about one-third of the total change. We find that both technological change and Chinese net import competition contributed to labor market polarization, but that they did so in distinct ways. In European manufacturing industries, ICT adoption explains a third of within-industry polarization, while Chinese net import competition contributed to a much smaller extent. The process of between-industry polarization is driven by widespread deindustrialization and servitization in developed countries. We find that Chinese net import competition explains about a fifth of the employment decline in lowly polarized manufacturing industries and was thus an important driver of the reallocation of labor within economies away from lowly polarized manufacturing industries. We present tentative evidence that employment grew faster in initially highly polarized service industries. Moreover, these industries appear unaffected by their indirect input-output-exposure to Chinese net import competition, while this was not the case for initially lowly polarized service industries. While polarization patterns in different European labor markets show considerable heterogeneity, labor market institutions seem to be insufficient to explain these cross-country differences.

Based on the global supply chains’ economics the objective of the paper is to ascertain to what extent FDI has been a factor of structural change and productivity growth in Central and Eastern European Countries’ (CEECs) manufacturing. By applying the empirical model that accounts for the impact of FDI on export restructuring (controlling for export demand, imports and intra-industry intensity of trade) and standard growth accounting approach to capture the effect of export restructuring on industry productivity growth we empirically accounts for the importance of the 'global supply chains' concept for export restructuring and productivity growth in CEECs in the period 1995-2007. Using industry-level data and accounting for technology intensity, we show that FDI has significantly contributed to export restructuring in the CEECs. The effects of FDI are, however, heterogeneous across countries. While more advanced core CEECs succeeded in boosting exports in higher-end technology industries, non-core CEECs stuck with export specialization in lower-end technology industries. This suggests that in what kind of industries FDI flows have been directed is of key importance. The paper adds to the relevant literature by explaining the mechanism through which FDI contributed to economic and technological restructuring in CEECs.

Using a large sample of micro data from four waves of Community Innovation Survey for EU member states, we investigate the relationship between firms' export status and different sorts of innovation activities. We find systematically positive relationship between the two, whereby the strongest correlation is found in case of product innovation and the weakest in case of organizational innovations. While aggregate data show that innovation success is increasing in firm size, we find that exporting has the strongest effect on innovation in the medium-sized firms. We also explore cross-country differences in the impact of export status on innovation. Countries with a higher share of exports in GDP and greater share of spending on research and development generally display a stronger correlation between exporting status and innovation.

Using a large firm-level dataset we investigate what kind of firms from new EU member states from Central and Eastern Europe (CEECs) tend to invest abroad (testing of self-selection hypothesis), and what is the impact of outward FDI on their productivity (testing of learning-by-investing hypothesis). We find that the best firms tend to self-select into outward FDI. There is also a positive effect of outward FDI on productivity growth of investing firms from CEECs, the strongest being in the case of Estonia, Romania, Czech Republic, and Slovakia. The positive impact of becoming a first-time foreign investor is relatively long lasting, but comes into effect only in investments in Western European or other CEECs and in the case of manufacturing subsidiaries.