In times of crisis small is not beautiful
It is the German industrial structure, composed in greater way by firms of large size and international outlook, the one in Europe which has best stood up to the crisis of the last two years. Highlighting this, and showing that is firm-specific characteristics more than country features which determine their performance, is a study by Bruegel according to which in 2009 the exports of German firms fell on average by 28% against, for example, the 30% of Italian, 31.5% of French, 34.5% of Spanish and 40% of Hungarian firms.
The results are illustrated in the report 'The global operations of European firms' of the research project EFIGE (European firms in the global economy) conducted by the think-tank Bruegel, in collaboration with the European Commission and UniCredit, under the scientific direction of Gianmarco Ottaviano (Bocconi) and coordinated by Carlo Altomonte (Bocconi). The project has created the first comparable dataset existing in Europe today on the international activity of firms, with 15.000 monitored firms in Austria, France, Germany, Hungary, Italy, Spain and the United Kingdom. The dataset allows to analsye with greater detail the behavior of single firms respect to aggregate data at national level.
"By their nature aggregate data hide much of underlying economic life, which is ultimately made up of the success and failure of a multitude of heterogeneous firms," explains Ottaviano, professor of political economics at Bocconi. "The creation of large comparable datasets at firm level facilitates the understanding of how much of these successes, or lack of, are related to individual factors or more to common national factors characteristic of the environmental and institutional circle in which the firms operate."
According to the study, based on a preliminary sample of 11.000 firms from the dataset, the crisis in 2009caused a reduction in the value of exports for slightly more than half of the firms (51.5%). German and Austrian firms have been relatively less hit (45.4% and 44% respectively of firms affected) with the French and Hungarian the most hit (nearly 59% for both). 20% of German firms managed to increase their exports against only 13.5% of Italian firms.
"It is surprising to note the diversity of the dynamics which hide behind the aggregate data," comments Altomonte, professor of European economic policy at Bocconi. "The general consensus is that the crisis has had negative effects on the international activity of nearly all firms. In reality, we discover that the consequences regarded only 50% of European exporting firms whilst, surprisingly, nearly 20% managed to draw benefit form the situation, increasing their exports, with the remaining 30% not registering any significant variations."
The study then shows how much the difference in the performance of countries is dictated by their industrial structures. An econometric analysis of the number of destinations for the exports of the various countries of the dataset shows in fact that 70% of the total variance explained is due to firm characteristics and only 12% and 20% by country and sector factors respectively.
Large firms (with over 250 employees) show similar performances in Germany and Italy whilst those that have suffered more are those of small and medium size, more present in Italy. The median size of the top 10% of exporters in Germany is in fact of240 employees, compared to 100 in Italy. The smaller size and less sophisticated export strategies(German firms, for example, export on average to 3 more countries than Italian firms) has thus exposed to the negative consequences of the crisis a larger quota of Italian firms than German ones.
To underline this, the researchers showed how changing their industrial structure to replicate that of Germany, in terms of firm size and sector distribution, would lead to an increase in exports of 24% for Spain and 37% in Italy.
"The possibility of having a widespread dataset of the behaviour of individual firms which compose an economic system represents a true methodological revolution for economics. In this, Bocconi is at the frontier of research," conclude Ottaviano and Altomonte.
In the project participate important European research centres (CEPR, CEPII, IAW, Carlos III, IEHAS, Centro studi Luca d'Agliano), some central banks (Bundesbank, Banca d'Italia, Banco de España, Banque de France) and the OECD. Among the authors of this first research report are Giorgio Barba Navaretti (University of Milan), Matteo Bugamelli (Bank of Italy), Fabiano Schivardi (University of Cagliari), Daniel Horgos and Daniela Maggioni (Centro Studi Luca d'Agliano).