nep-bec New Economics Papers
on Business Economics
Issue of 2012‒07‒29
twenty-six papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. What explains the rise in CEO pay in Germany? A Panel Data Analysis for 1977-2009 By Fabbri, Francesca; Marin, Dalia
  2. Family Ownership and Return on Investments – Founders, Heirs and External Managers By Johanna Palmberg; Johan Eklund; Daniel Wiberg
  3. The Organization of European Multinationals By Marin, Dalia; Rousová, Linda
  4. On welfare losses due to imperfect competition By Ritz, R.A.
  5. The Anatomy of French Production Hierarchies By Lorenzo Caliendo; Ferdinando Monte; Esteban Rossi-Hansberg
  6. Endogenous Market Structures and Welfare By Federico Etro
  7. Evolution of knowledge intensive firms: a sociogeographic demand side perspective By Karl Wennberg; Karin Hellerstedt
  8. Market Size, Division of Labor, and Firm Productivity By Thomas Chaney; Ralph Ossa
  9. Trend shocks and the countercyclical U.S. current account By Amdur, David; Ersal Kiziler, Eylem
  10. Location assessment, relocation and firm performance By Erik Louw; Sylvia Jansen
  11. Family Ownership and Regional Economic Development in Asia and Europe By Andreas Hˆgberg
  12. Social Incentives Matter: Evidence from an Online Real Effort Experiment By Tonin, Mirco; Vlassopoulos, Michael
  13. Whatever next? Export market choices of New Zealand firms By Richard Fabling; Arthur Grimes; Lynda Sanderson
  14. Legal Origin and Size Effects in European Listed Firms By Per-Olof Bjuggren; Andreas Högberg
  15. Industrial Variation of High-Growth Firms By Sven-Olov Daunfeldt; Niklas Elert; Dan Johansson
  16. What explains the presence of High-growth firms in industries? By Dan Johansson; Sven-Olov Daunfeldt
  17. What determines the relocation tendency of manufacturing firms? By Elif Alkay
  18. Trade in Intermediate Inputs and Business Cycle Comovement By Robert C. Johnson
  19. Really Uncertain Business Cycles By Nicholas Bloom; Max Floetotto; Nir Jaimovich; Itay Saporta-Eksten; Stephen J. Terry
  20. Assessing the Tendency of Spanish Manufacturing Industries to Cluster: Co-localization and Establishment Size By Marta R. Casanova; Vicente Orts
  21. Public-private contracting under limited commitment By Daniel Danau; Annalisa Vinella
  22. Intangible Capital and Growth in Advanced Economies: Measurement and Comparative Results By Corrado, Carol; Haskel, Jonathan; Iommi, Massimiliano; Jona-Lasinio, Cecilia
  23. Mental Accounting and Consumer Choice: Evidence from Commodity Price Shocks By Justine Hastings; Jesse M. Shapiro
  24. Is there a rural-urban divide? Location and productivity of UK manufacturing By Marian Rizov; Paul Walsh
  25. Infant Industry Protection and the Growth of Canada's Cotton Mills: A Test of the Chang Hypothesis By Michael N.A. Hinton
  26. Micro-level Evidence on the Survival of German Manufacturing Industries - A Multidimensional Analysis (refereed paper) By Yvonne Schindele; Michael Fritsch; Florian Noseleit

  1. By: Fabbri, Francesca; Marin, Dalia
    Abstract: The compensation of executive board members in Germany has become a highly controversial topic since Vodafone's hostile takeover of Mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009. Based on unique panel data evidence of the 500 largest firms in Germany in the period 1977-2009 we test two prominent hypothesis in the literature on executive pay: the manager power hypothesis and the efficient pay hypothesis. We find support for the manager power hypothesis for Germany as executives tend to be rewarded when the sector is doing well rather than the firm they work for. We reject, however, the efficient pay hypothesis as CEO pay and the demand for managers increases in Germany in difficult times when the typical firm size shrinks. We find further that domestic and global competition for managers has contributed to the rise in executive pay in Germany. Lastly, we show that CEOs in the banking sector are provided with incentives for performance and that the great recession of 2009 acted as a disciplining devise on CEO pay in Germany.
    JEL: F23 J3 M12 M52
    Date: 2012–03
  2. By: Johanna Palmberg; Johan Eklund; Daniel Wiberg
    Abstract: This paper investigates how family ownership, control and management affect firm investment performance. We use the identity of the CEO and the COB to establish under what management the firm is: founder, descendent or external management. The analysis shows that founder management has no effect on investment performance in family firms, whereas descendant management has a negative impact on firm performance and having external hired managers significantly improves investment performance. Moreover, we examine the effects of dual-class shares; we find that the separation of voting right from cash-flow right has a negative impact on performance in both family and non-family firms, but the negative effect is larger in family firms.
    Date: 2011–09
  3. By: Marin, Dalia; Rousová, Linda
    Abstract: Recent literature on international trade has established that the most productive firms become multinationals. But our data reveal a startling variation in productivity levels of foreign affliates across the countries in Eastern Europe of the same European multinational parent firms suggesting that not all multinationals transplant their home productivity advantage to the new EU Member States and Emerging Europe. One candidate for this startling difference in productivity levels among foreign affiliates is the ability of European multinationals to transport their business model abroad. This paper examines the conditions under which European multinationals give autonomy to their subsidiaries and delegate authority to them. We also analyse the conditions under which European multinationals transplant their business model to Eastern Europe. We collect original and unique matched parent and affiliate data on the internal organization of 660 German and Austrian parent firms and 2200 of their subsidiaries in Eastern Europe including the former Soviet Union. We test the hypothesis that the ability of European multinationals to transplant their business model to foreign affiliates is determined by the organization of European multinationals on the one hand and the market environment their affiliate firms face in Eastern Europe on the other hand. We show that the business culture of parent firms accounts for about 50 percent of the variation of the organization of subsidiaries, while the market environment of subsidiaries contributes the rest.
    Date: 2011–11
  4. By: Ritz, R.A.
    Abstract: Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important - yet thus far unquantifed - impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n4, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets).
    Keywords: Delegation, forward trading, managerial incentives, market structure, welfare losses.
    JEL: D43 D61 L13 L22 L41
    Date: 2012–07–23
  5. By: Lorenzo Caliendo (School of Management, Yale University); Ferdinando Monte (Johns Hopkins University); Esteban Rossi-Hansberg (Princeton University)
    Abstract: We use a comprehensive dataset of French manufacturing firms to study their internal organization. We first divide the employees of each firm into 'layers' using occupational categories. Layers are hierarchical in that the typical worker in a higher layer earns more, and the typical firm occupies less of them. In addition, the probability of adding (dropping) a layer is very positively (negatively) correlated with value added. We then explore the changes in the wages and number of employees that accompany expansions in layers, output, or markets (by becoming exporters). The empirical results indicate that reorganization, through changes in layers, is key to understand how firms expand and contract. For example, we find that firms that expand substantially add layers and pay lower average wages in all pre-existing layers. In contrast, firms that expand little and do not reorganize pay higher average wages in all pre-existing layers.
    JEL: D22 F16 J24 J31 L23
    Date: 2012–07
  6. By: Federico Etro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: I characterize microfounded endogenous market structures with Bertrand and Cournot competition and perform welfare analysis generalizing the Mankiw-Whinston condition for excess entry. The impact of market leaders on welfare is reconsidered, with a number of policy implications about strategic investments, vertical contracts, bundling, mergers and more. The neutrality of consumer surplus holds only when utility is homothetic. Under quantity competition, aggressive (accommodating) leaders increase consumer surplus if the elasticity of utility is decreasing (increasing) in consumption. This provides general rules to evaluate mergers and abuse of dominance issues in antitrust policy.
    Keywords: Endogenous entry, oligopoly, welfare
    JEL: L1
    Date: 2012
  7. By: Karl Wennberg; Karin Hellerstedt
    Abstract: This paper investigates the contextual conditions affecting the entry, growth and exit of knowledge intensive firms. On the aggregate or regional level, entry and exit are often intimately related. We suggests that the entrepreneurial process by which individuals engage in the start, the growth, and the exit of a firm is strongly path-dependent. Second, based on the importance of initial conditions at the regional level, we present empirical analysis on how characteristics of the economic milieu of regions influence firm births. The data material provides information on all knowledge intensive start-ups across the 286 Swedish municipalities between 1994 and 2002. We present an empirical model that captures both supply- and demand-side factors, with a specific emphasis on the demand side. We address the imperative role of initial conditions during firm founding, as these are strongly emphasized by I/O economics, organizational ecology, and entrepreneurship research alike. We describe and explain the substantial variation in start-up rates across municipalities and over time. The paper advanced econometric analysis where we use a number of variables derived from our theoretical framework to formulate and test a model of regional start-up rates. The model is tested on separate samples of services firms and manufacturing firms, yielding interesting results that are in line with the theories of organizational ecology and economic geography, but with somewhat stronger results for start-ups in services. Analyses of firm growth an survival further shows that the factors present during founding are strongly path-dependent, but differ for medium-growth and high-growth firms, and for firms exiting by closure and firms exiting by merger.
    Date: 2011–09
  8. By: Thomas Chaney; Ralph Ossa
    Abstract: We generalize Krugman's (1979) 'new trade' model by allowing for an explicit production chain in which a range of tasks is performed sequentially by a number of specialized teams. We demonstrate that an increase in market size induces a deeper division of labor among these teams which leads to an increase in firm productivity. The paper can be thought of as a formalization of Smith's (1776) famous theorem that the division of labor is limited by the extent of the market. It also sheds light on how market size differences can limit the scope for international technology transfers.
    JEL: F10 F12 L22 L25
    Date: 2012–07
  9. By: Amdur, David; Ersal Kiziler, Eylem
    Abstract: From 1960-2009, the U.S. current account balance has tended to decline during expansions and improve in recessions. We argue that trend shocks to productivity can help explain the countercyclical U.S. current account. Our framework is a two-country, two-good real business cycle (RBC) model in which cross-border asset trade is limited to an international bond. We identify trend and transitory shocks to U.S. productivity using generalized method of moments (GMM) estimation. The specification that best matches the data assigns a large role to trend shocks. The estimated model generates a countercyclical current account without excessive consumption volatility.
    Keywords: Current account; trend shocks; business cycles; open economy macroeconomics; DSGE models; GMM estimation
    JEL: E32 F32 F41 E21
    Date: 2012–01
  10. By: Erik Louw; Sylvia Jansen
    Abstract: Most studies on firm relocation focus on firms that did relocate. The reasons why they moved and why they settled somewhere else, are always seen as the location factors. The assumption behind this is that firms which did relocate assessed their former location unfavourable compared to their production requirements, while firms that did not relocate were more favourable to their location. By means of longitudinal panel survey data on firms in the Netherlands we investigate whether this assumption is valid. First we focus on the location assessment and investigate which location factors are most important in the overall assessment. Next we analyse changes of the location assessment over time. Secondly we analyse stated and revealed relocations in relation to the locations assessment and firm performance (measured in the level of employment). This paper concludes with a discussion on the notion of location factors. Particularly we will focus on their role in the relocation decision process which basically is a matching process between spatial production requirements put forward by firms and locational properties and characteristics of productions sites
    Date: 2011–09
  11. By: Andreas Hˆgberg
    Abstract: The current literature on firm ownership around the world shows that concentrated ownership with only one or a few controlling owners is common, especially in many European and Asian countries. The dispersed ownership has proven to be uncommon and even countries with supposed dispersed ownership has also shown signs of ownership concentration. Commonly, the controlling ownership is held by an individual, or a group of individuals, usually with family ties. Family ownership is the most common type of concentrated owner around the world, with pyramidal ownership structures of firms and state ownership are prevalent features of ownership concentration often observed also. The effects on the governance of the firm, the relation between shareholders and management and furthermore the level of investment performance of the firm is all ultimately affecting the economic development around the world. While most previous studies within the ownership literature has been done on publicly traded firms, this paper, however, studies the effect of ownership type and control on firm performance and governance in a large sample of both public and private European and Asian firms.
    Date: 2011–09
  12. By: Tonin, Mirco (University of Southampton); Vlassopoulos, Michael (University of Southampton)
    Abstract: Contributing to a social cause can be an important driver for workers in the public and non-profit sector as well as in firms that engage in Corporate Social Responsibility activities. This paper compares the effectiveness of social incentives to financial incentives using an online real effort experiment. We find that social incentives lead to a 20% rise in productivity, regardless of their form (lump sum or related to performance) or strength. When subjects can choose the mix of incentives half sacrifice some of their private compensation to increase social compensation, with women more likely than men. Furthermore, social incentives do not attract less productive subjects, nor subjects that respond more to exogenously imposed social incentives. Our calculations suggest that a dollar spent on social incentives is equivalent to increasing private compensation by at least half a dollar.
    Keywords: private incentives, social incentives, sorting, prosocial behavior, real effort experiment, corporate social responsibility, gender
    JEL: D64 J24 J32 L3 M14 M52
    Date: 2012–07
  13. By: Richard Fabling; Arthur Grimes; Lynda Sanderson
    Abstract: We examine product and market entry choices of New Zealand exporters, using an enterprise level dataset which links firm performance measures with detailed data on merchandise trade. We focus our enquiry not on the broad question of what determines a firm's ability to export, but on the subsequent question: given that a firm has the ability to export, what determines the choices they make about what and where to export? We simultaneously consider firm and market level determinants of export market entry. At the firm level we find that measures of general and specific prior trade experience play an important role in determining the firm's future export activities. That is, we find evidence of path dependence within firms. We also find evidence of path dependence across firms, with entry into new export relationships reflecting demonstration effects from the export activities of other firms in the local area. In particular, firms which are located in New Zealand regions with high shares of employment in incumbent exporters to a specific country will have a probability of entering a new relationship involving that country that is 116 percent higher than those in regions with low incumbent employment shares. These results are robust to the inclusion of other determinants of exporting, including the macroeconomic performance of destination countries, exchange rate movements, and the past performance of the exporting firm.
    Date: 2011–09
  14. By: Per-Olof Bjuggren; Andreas Högberg
    Abstract: This paper investigates the impact of legal tradition and firm size on investment performance for firms in 16 European countries. Europe as a region is of special interest in this sense since the legal systems differs widely within a concentrated geographical area. Anglo Saxon, German, French as well as Scandinavian variants of legal systems can be found in representative forms in Europe. Previous studies suggest that minority shareholders enjoy a higher degree of property rights in common law (Anglo Saxon) countries compared to civil law (French, German and Scandinavian) countries. Expropriation of minority shareholders may be observed as excessively large organizations and non transparent hierarchies of the management in the firm. This study differs from earlier studies by concentrating on the firm size and its effects on investment performance by connecting it to the legal origin in each of the 16 European countries included in the study. We find a negative relation between firm size and performance as expected for civil law countries and no effect for common law countries. However, for individual countries, the effects of firm size and legal origin on investment performance is ambiguous
    Date: 2011–09
  15. By: Sven-Olov Daunfeldt; Niklas Elert; Dan Johansson
    Abstract: Previous examinations of the literature suggests that high-growth firms (HGFs) exist in all or most industries, are not overrepresented in high-tech, and if anything appear to be slightly overrepresented in services. In an updated overview, we find that more recent studies, employing better statistical methods, show a clear link between technological sophistication and HGFs. In a tobit model we examine what factors explain the presence of HGFs across 5-digit-NACE-industries in Sweden 1997-2005. We find that technological sophistication is crucial for the prevalence of HGFs in an industry, particularly in services. These results are in line with both current research and previous research concerning Sweden. We conclude that innovation is crucial for firm growth.
    Date: 2011–09
  16. By: Dan Johansson; Sven-Olov Daunfeldt
    Abstract: Abstract: Previous examinations of the literature suggests that high-growth firms (HGFs) exist in all or most industries, are not overrepresented in high-tech, and if anything appear to be slightly overrepresented in services. In an updated overview, we find that more recent studies, employing better statistical methods, show a clear link between technological sophistication and HGFs. In a tobit model we examine what factors explain the presence of HGFs across 5-digit-NACE-industries in Sweden 1997-2005. We find that technological sophistication is crucial for the prevalence of HGFs in an industry, particularly in services. These results are in line with both current research and previous research concerning Sweden. We conclude that innovation is crucial for firm growth.
    Date: 2011–09
  17. By: Elif Alkay
    Abstract: Firms locate in different areas for different reasons. However, some of them tend to move a new place in order to achieve alternative goals. For instance, the manufacturing survey in 2005 reflects that 30 per cent of the manufacturing firms in the Istanbul Metropolitan Area would like to relocate. Consistently, this paper considers two research questions: the first one is which factors do increase the probability of relocation tendencies of manufacturing firms? The second one is do factors that increase or decrease the probability of relocation tendencies change according to firm size and varying manufacturing sectors? Therefore, the aim of the study is to investigate what guides relocation decisions of manufacturing firms’ according to firm size and varying sectors. Investigation is done by applying conditional logit model. In the first step, the reasons for relocation tendency are explored initially in relationship to the age of the firm, tenure, total employment and total capital. Added explanation then considers the physical conditions of production site: total size of the production site, age of the building and the type of the building. The analysis is expanded by adding location effects in the third step. Location effect of input transport cost, location effect of output transport cost and location effect of labor market is analyzed to demonstrate how they increase the likelihood of a firm relocation decision. Further, environmental characteristics are added to elaborate their impact on the probability of a firm relocation decision. It is expected that consistent variables would provide a significant source of explanation in any model.
    Date: 2011–09
  18. By: Robert C. Johnson
    Abstract: Do cross-border input linkages transmit shocks and synchronize business cycles across countries? I integrate input trade into a dynamic many country, multi-sector model and calibrate the model to match observed bilateral input-output linkages. With estimated productivity shocks, the model generates an aggregate trade-comovement correlation 30-40% as large as in data, and 50-75% as large for the goods producing sector. With independent shocks, the model accounts for one-quarter of the trade-comovement relationship for gross output of goods. However, shocks transmitted through input linkages do not synchronize value added. And contrary to conventional wisdom, input complementarity does not amplify value added comovement.
    JEL: F1 F4
    Date: 2012–07
  19. By: Nicholas Bloom; Max Floetotto; Nir Jaimovich; Itay Saporta-Eksten; Stephen J. Terry
    Abstract: We propose uncertainty shocks as a new shock that drives business cycles. First, we demonstrate that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model with heterogeneous firms. We find that reasonably calibrated uncertainty shocks can explain drops and rebounds in GDP of around 3%. Moreover, we show that increased uncertainty alters the relative impact of government policies, making them initially less effective and then subsequently more effective.
    JEL: E3
    Date: 2012–07
  20. By: Marta R. Casanova; Vicente Orts
    Abstract: In this paper, we evaluate the spatial location patterns of Spanish manufacturing firms and we assess the different tendencies to cluster in each industry relative to the whole of manufacturing. To do this, we use a distance-based method (Marcon and Puech, 2003; Duranton and Overman, 2005), more concretely the Ripley’s K function, which measures concentration by counting the average number of neighbours of each firm within a circle of a given radius. This method allows us to treat space as continuous, analysing simultaneously multiple spatial scales and avoiding the shortcomings of the administrative scale. In addition, we employ a polygonal envelope to improve the delimitation of our area of study, substituting the rectangular shape used by other authors and thus avoiding the nuisance of empty spaces. We apply this method to Spanish manufacturing sectors at two-digit and four-digit level, isolating like this the different behaviours of spatial distribution of each subsector caused by 'spillovers' characteristic of each activity and also preventing compensation effects due to previous aggregation. Furthermore, we examine the co-localization between horizontally-linked and vertically-linked industries to assess the importance of these spillovers across industries and, finally, we try to answer what type of establishment, depending on its size, is the driver of the Spanish industrial agglomeration.
    Date: 2011–09
  21. By: Daniel Danau (UFR de sciences économiques et de gestion, Université de Caen Basse-Normandie, CREM-CNRS, UMR 6211); Annalisa Vinella (Università degli Studi di Bari "Aldo Moro", Italy)
    Abstract: A government delegates construction and operation of an essential facility to a private firm. When parties sit at the contracting table, they are uncertain about the operating cost. At the construction stage, the firm can improve its distribution by exerting some non-contractible effort. As soon as the facility is in place, the firm learns the realized cost privately. In case any of the parties breaks down the relationship and the firm is replaced during the operation phase, the government bears a cost that is more important the earlier the interruption, relative to the stipulated duration. We show that, under limited commitment, the optimal full-commitment allocation is implementable if and only if the firm holds some minimum amount of own funds that can be destined to the project, it is able to borrow funds for that specific project, and the replacement cost is sufficiently high. Implementation is made by instructing the firm to invest some intermediate amount of own and borrowed funds, by conditioning the loan guarantee (provided under the aegis of a third party not suffering from commitment problems) on the outcome of the potential renegotiation process between the government and the firm, and by setting duration neither too short nor too long. Making duration contingent on the realized operating cost helps the government lessen the more concerning between moral-hazard and commitment problems.
    Keywords: public-private contracting; limited commitment; duration; private funds; debt; guarantees; replacement cost
    JEL: D82 H57 H81
    Date: 2012–06
  22. By: Corrado, Carol; Haskel, Jonathan; Iommi, Massimiliano; Jona-Lasinio, Cecilia
    Abstract: Conventional measures of business investment consist primarily of tangible assets such as plant and equipment, vehicles, office buildings and other commercial structures. Corrado, Hulten and Sichel (2005, 2009) show business investment in intangibles (software, design, R&D, branding, organizational capital) exceeds tangible investment for the United States. This paper presents a harmonized data set and analysis of intangible investment, 1995-2009, for the EU27, Norway and the US, and growth accounts including intangible capital for 14 countries. We find (a) intangible investment in the EU is less than the US, but the share of intangible investment in GDP has been growing faster than the share of tangible (b) between 1995 and 2007 capital deepening accounted for almost 50% of growth in the EU and 65% in the US, with intangible investment contributing around half of capital deepening (c) higher rates of intangible capital deepening are associated with higher TFP growth, consistent with spillovers from intangibles.
    Keywords: growth; intangibles; investment
    JEL: O47 O57
    Date: 2012–07
  23. By: Justine Hastings; Jesse M. Shapiro
    Abstract: We formulate a test of the fungibility of money based on parallel shifts in the prices of different quality grades of a commodity. We embed the test in a discrete-choice model of product quality choice and estimate the model using panel microdata on gasoline purchases. We find that when gasoline prices rise consumers substitute to lower octane gasoline, to an extent that cannot be explained by income effects. Across a wide range of specifications, we consistently reject the null hypothesis that households treat “gas money” as fungible with other income. We evaluate the quantitative performance of a set of psychological models of decision-making in explaining the patterns we observe. We also use our findings to shed light on extant stylized facts about the time-series properties of retail markups in gasoline markets.
    JEL: D03 D12 L15 Q41
    Date: 2012–07
  24. By: Marian Rizov; Paul Walsh
    Abstract: The focus of the paper is on evaluating the productivity gap between rural and urban locations in the UK using micro data. We build a structural model of the unobservable productivity emphasising the link between productivity and spatial density of economic activity and adapt the semi-parametric estimation approach proposed in Olley and Pakes (1996) to estimate the parameters of production functions at firm level, within 4-digit UK manufacturing industries, for the period 1997 - 2001. We allow market structure to differ by endogenous export status and location choices and model productivity as a second-order Markov process which greatly enhances our ability to obtain unbiased and consistent estimates of TFP measures at firm level. We aggregate the firm TFPs by location category following the 2004 DEFRA definition of rural and find that aggregate productivity systematically differs across urban, rural less sparse and rural sparse locations as the magnitudes of the differentials are 13.2 percent and 18.0 percent, respectively. Our results are in line with several recent studies. Next, we decompose aggregate productivity into productivity index and industry composition index. The productivity index is the highest in urban locations suggesting that productivity is strongly influenced by density of economic activity and proximity to economic mass. Because industry composition index is positively correlated with productivity index it is evident that locations with high productivity are also characterised by industrial structure enhancing productivity. Further, analysing changes in the decomposition indexes over two periods, before and after implementation of the Euro by the UK main trading partners, reveals substantial heterogeneity in responses across location categories under increased competitive pressure. The main finding is that there is a tendency of rural sparse locations catching up with the urban and rural less sparse location categories in terms of aggregate productivity over the period of analysis. We also find evidence that increased competitive pressure as a result of changes in trade conditions after implementation of the Euro by the UK’s main trading partners has acted as a substitute for the role of density of economic activity in enhancing industry composition, especially in rural sparse locations.
    Date: 2011–09
  25. By: Michael N.A. Hinton (The Rimini Centre for Economic Analysis (RCEA), Italy)
    Abstract: I argue that the 19th century Canadian cotton textile industry was an extremely successful infant industry. Judging the industry’s performance by seven widely-employed measures of success – growth in output, contemporary opinion, size, the use of the most modern machinery, exports, and relative total factor productivity – it is shown that the growth of Canada’s cotton mills provides strong support for Chang’s provocative hypothesis that infant industry protection was the way the rich countries of today grew rich in the nineteenth century.
    Keywords: Infant Industry Protection, Total Factor Productivity, Cotton Textiles
    JEL: D24 L67 N60 N61
    Date: 2012–07
  26. By: Yvonne Schindele; Michael Fritsch; Florian Noseleit
    Abstract: Several empirical studies showed that it is not the level of entrepreneurial activity itself, but the (long-term) survival and growth of new firms that determine the direct and indirect contribution of new businesses to regional employment. To this end, the aim of this paper is to analyze the determinants of the survival of German manufacturing establishments devoting special interest to the multi-dimension approach, thus investigating business-, industry-, and region-specific survival determinants. By using a micro-panel data set of all German manufacturing establishments for the period 1992 to 2005, we employ both non-parametric and semi-parametric procedures that are specifically designed to analyze duration phenomena in order to ascertain survival determinants by explaining the time period between a firm’s start-up and its cessation of economic activity. The results enable us to give advice on how to improve the survival conditions of businesses in certain regions and industries and, thus, to enhance the number of establishments with the potential to contribute to regional employment. The main findings indicate that the probability of exit is higher for very young and rather old businesses and also for relatively small businesses. Besides the overall finding of a higher exit risk in agglomerated areas, an above-average level of highly qualified employees working in the establishments decreases the probability of exit. Accordingly, businesses in R&D intensive or high-tech industries enjoy better survival prospects than businesses in other industries. Moreover, we find evidence that that regional industry specialization is not beneficial for the survival of newcomers in a respective industry. This result adds some interesting points to the findings of Dumais, Ellison and Glaeser (2002) who discovered that closure is less likely in those regions that belong to the current geographic centers of an industry and tends to increase geographic concentration. Our results suggest that in German manufacturing industries not only a business’ entry but also its survival chances (in opposition to closure in general) are forces that reduce geographic concentration. Possible benefits from geographically bounded, within-industry spillovers seem to be of less importance than the counterforce of intensified local competition for survival.
    Date: 2011–09

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