The global operations of European firms. The second EFIGE policy report. Bruegel Blueprint 12, July 2011

This is Bruegel’s third report on the internationalisation of European firms, and the first one that relies on new, internationally consistent data resulting from the seven-country survey undertaken within the framework of the EFIGE (European Firms in a Global Economy) project. In the first, 2007 report, the happy few, Thierry Mayer and Gianmarco Ottaviano were making the best of patchy, heterogeneous data to show what a better knowledge of firm internationalisation patterns could bring to the understanding of trade performance, revealing things about the behaviour of firms that aggregate trade data simply cannot show. In the second, of markets, products and prices, published in 2009, Lionel Fontagne, Thierry Mayer and Gianmarco Ottaviano were using the same type of data to analyse the effects of the euro on intra-European trade. Again, the approach was promising, but due to data limitations the evidence was partial. It was on this basis that Bruegel, together with the Centre for Economic Policy Research(CEPR) and partners from seven countries, undertook to collect comprehensive and consistent firm-level data. Thanks to generous support from the European Union’s Seventh Framework Programme, and from UniCredit (which pioneered similar data collection in Italy), the EFIGE project was launched in 2009. This report by Giorgio Barba Navaretti, the project co-leader, and colleagues, offers a first systematic analysis of the rich set of data resulting from the survey. Other reports will follow, and a series of working papers is being published (all the material from the research project is available on www.efige.org). The findings summarised in this report are reassuring for researchers: the hypotheses they had formed on the basis of theory and partial evidence are by and large confirmed. As the authors emphasise in the report, the most compelling fact that emerges from systematic comparisons is that firms in different countries behave in a strikingly similar way. To put it in simple words, there is no special gene that explains why Germany exports much more than Italy or Spain. In fact, German firms do not differ markedly from similar firms elsewhere in Europe. Rather, the structure of German industry and especially the density of medium-sized firms go a long way towards explaining macroeconomic differences with neighbouring countries. It is therefore on the basis of strong evidence that research can deliver messages about policy. The main message is that, at a time when most governments have put competitiveness at the top of their agenda, they should first and foremost focus on firm-level development. The key questions for policymakers looking for ways to increase exports are how they can foster growth in the size of existing small and medium-sized firms, and how they can promote the entry of new firms. In turn, actions to this end will help improve productivity, foster innovation and enrich skills. True, all that is easier said than done. But at least it is important to set the right agenda and focus on the right priorities. This reports is a contribution to these ends.