18 July 2012

The triggers of competitiveness: The EFIGE cross-country report

The European Firms in a Global Economy (EFIGE) project, led by Bruegel, takes a fresh look at the triggers of competitiveness for European firms by inquiring into the determinants of firm-level international performance – focusing on external competitiveness.

Authors: Carlo Altomonte, Tommaso Aquilante, Gianmarco IP Ottaviano

There is a pressing need for Europe to grow out of the crisis, meaning that Europe needs to become more competitive, enabling it to capture growth currently taking place mainly in emerging markets. But what are the triggers of competitiveness? The EFIGE project, led by Bruegel, takes a fresh look by inquiring into the determinants of firm-level international performance – focusing on external competitiveness. In the competitiveness debate, it is crucial to understand not only the macro-economic challenge, but also to find the right micro-level triggers that will generate growth and exports.

The authors identify firm-level total factor productivity as a major determinant of growth and exports. Human capital, research, equity finance and performance-based incentives for employees also play their parts. Moreover, size matters and large firms typically are much better exporters than their smaller counterparts.

This report builds on previous EFIGE research, and studies in-depth firm performance in seven countries (Austria, France, Germany, Hungary, Italy, Spain, United Kingdom) to identify the triggers of competitiveness.

To summarise, because competitiveness is the cause rather than the consequence of firm internationalisation, EU policies promoting internationalisation per se would hardly affect competitiveness. However, policies that artificially reduce the ability of competitive firms to trade, outsource and invest abroad would also reduce their ability to reach their full potential. As a result, rather than focusing on the internationalisation of firms, successful policies should instead foster an economic environment in which firms have the incentive to acquire the characteristics that... are associated with productivity growth.

Full report

© Bruegel