nep-bec New Economics Papers
on Business Economics
Issue of 2016‒06‒18
fifteen papers chosen by
Vasileios Bougioukos
Bangor University

  1. Firm Dynamics and Residual Inequality in Open Economies By Gabriel Felbermayr; Giammario Impullitti; Julien Prat
  2. Immigrants? Initial Firm Allocation and Earnings Growth By Hou, Feng; Ci, Wen
  3. Leveraging Dominance with Credible Bundling By Hurkens, Sjaak; Jeon, Doh-Shin; Menicucci, Domenico
  4. The credit channel is alive at the zero lower bound but how does it operate? Firm level evidence on the asymmetric effects of U.S. monetary policy By Uluc Aysun; Kiyoung Jeon; Zeynep Kabukcuoglu
  5. Business cycles and on the job search By Jacek Suda; Marek Antosiewicz
  6. A quantitative explanation of the low productivity in South-Eastern European economies: the role of misallocations By Petre Caraiani
  7. Productivity spillovers through labor flows: The effect of productivity gap, foreign-owned firms, and skill-relatedness By Zsolt Csafordi; Laszlo Lorincz; Balazs Lengyel; Karoly Miklos Kiss
  8. Management as a Technology? By Nicholas Bloom; Raffaella Sadun; John Van Reenen
  9. Some Twins Are Not Alike: FDI Premia in the Former Soviet States By Valeria, Gattai; Rajssa, Mechelli; Piergiovanna, Natale;
  10. Optimal Unemployment Benefit Policy and the Firm Productivity Distribution By Blumkin, Tomer; Danziger, Leif; Yashiv, Eran
  11. Regulatory Holidays and Optimal Network Expansion By Willems, Bert; Zwart, Gijsbert
  12. Learning, Prices, and Firm Dynamics By Olga Timoshenko; Paulo Bastos; Daniel Dias
  13. Flexibility of beef suckler cow systems under varying calf retention strategies By Tsakiridis, Andreas; Breen, James; O'Donoghue, Cathal; Hanrahan, Kevin; Wallace, Michael; Crosson, Paul
  14. Competition and the welfare gains from transportation infrastructure: Evidence from the Golden Quadrilateral of India By Jose Asturias; Manuel García-Santana; Roberto Ramos
  15. Inter-industry trade and business cycle dynamics By Lechthaler, Wolfgang; Mileva, Mariya

  1. By: Gabriel Felbermayr; Giammario Impullitti; Julien Prat
    Abstract: Wage inequality between similar workers has been on the rise in many rich countries. Recent empirical research suggests that heterogeneity in firm characteristics is crucial to understand wage dispersion. Lower trade costs as well as labor and product market reforms are considered critical drivers of inequality dynamics. We ask how these factors affect wage dispersion and how much of their effect on inequality is attributable to changes in wage dispersion between and within firms. To tackle these questions, we incorporate directed job search into a dynamic model of international trade where wage inequality results from the interplay of convex adjustment costs with firms' different hiring needs along their life cycles. Fitting the model to German linked employer-employee data for the years 1996-2009, we find that firm heterogeneity explains about half of the surge in inequality. The most important mechanism is tougher product market competition driven by domestic product market deregulation and, indirectly, by international trade.
    Keywords: Wage Inequality, International Trade, Directed Search, Firm Dynamics, Product and Labor Market Regulation.
    Date: 2016
  2. By: Hou, Feng; Ci, Wen
    Abstract: In spite of the role that employers may play in the selection of economic immigrants, little is known about whether and how firm-level characteristics are associated with immigrants? labour market outcomes over the longer term. As a first step towards providing relevant evidence, this study asks whether there are large gaps between the initial earnings of immigrants starting with low- or high-paying firms, and whether the initial earnings gaps narrow with increasing length of residence in Canada. It further examines whether earnings returns to human capital among immigrants are larger if they start working in high-paying firms than in low-paying firms. This paper uses data from the Canadian Employer-Employee Dynamics Database (CEEDD) developed by Statistics Canada.
    Keywords: Ethnic diversity and immigration, Labour, Labour market and income, Occupations, Wages, salaries and other earnings
    Date: 2016–06–01
  3. By: Hurkens, Sjaak; Jeon, Doh-Shin; Menicucci, Domenico
    Abstract: We contribute to the leverage theory of tying by studying bundling of a dominant firm instead of a monopolist. We show that, when one firm has symmetric dominance across all markets, bundling has a positive demand size effect on the dominant firm but affects both firms similarly through the demand elasticity effect. The demand size affect is hump-shaped in dominance level whereas the demand elasticity affect is increasing and negative (positive) for low (high) dominance levels. This makes bundling credible for sufficiently strong dominance. In the case of asymmetric dominance levels, we identify three different circumstances in which a firm can credibly leverage its dominance in some (tying) markets to foreclose a dominant rival in other (tied) markets. Our findings provide a justification for the use of contractual bundling for foreclosure.
    Keywords: Bundling; Dominance; Entry Barrier; leverage; Tying
    JEL: D43 L13 L41
    Date: 2016–05
  4. By: Uluc Aysun (Department of Economics, College of Business Administration, University of Central Florida); Kiyoung Jeon (Research Department, Bank of Korea); Zeynep Kabukcuoglu (Department of Economics, Villanova School of Business, Villanova University)
    Abstract: We calculate borrowing spreads for over 8,000 U.S. firms and investigate how these are related to the stance of monetary policy. After 2009, we observe, consistent with credit channel theory, a positive relationship between shadow federal funds rates and borrowing spreads for only firms with high borrowing spreads and low quality. Conversely, we find a negative relationship for firms (of high and low quality) with low borrowing spreads. These relationships are reversed for the period before 2008. Our results uncover the distortional effects of monetary policy. Loose monetary policy causes spreads to converge (diverge) across firms after 2009 (before 2008).
    Keywords: credit channel; zero lower bound; firm-level data; shadow rates
    JEL: E44 E51 E52 G10
    Date: 2016–06
  5. By: Jacek Suda; Marek Antosiewicz
    Abstract: We study steady state and business cycle properties of a model with heterogeneous firms and on-the-job search in the spirit of Moscarini and Postel-Vinay (2012). We extend the setup by including capital in the production function and show how this change influences model properties. The model is solved using a novel numerical method, projection within perturbation, which uses Chebyshev polynomial approximation and Clenshaw-Curtis quadrature for dealing with heterogeneity. We analyze worker flows between firms, distribution of firm size and wages, and study how productivity and other shocks affect them. When we introduce a working capital channel into the model we find that costly borrowing that finances firms' wage and vacancy bill shifts the distribution of firms to the right.
    Keywords: job search, business cycle, unemployment, computation method, heterogeneous firms
    JEL: E32 J31 J64
    Date: 2016–05
  6. By: Petre Caraiani
    Abstract: Abstract It is well known that Southeast Europe is the least developed area in Europe. Using a methodology based on the idea of heterogeneous firms, this paper studies the degree to which firm heterogeneity and resource misallocation can explain the lower TFP in Southeast Europe. The results show a significant degree of heterogeneity and resource misallocation, although the results are sensitive to the calibration used. There are evidences that firm-level productivity depends on firm size, while taxation negatively influences it. There is also some evidence that foreign-owned firms are more competitive, as are exporting firms. Results are generally robust across the various specifications used, but less so relative to the measure of productivity used. Additional evidences suggest that infrastructure-related obstacles as well as institutional instability drive the output distortion, while no factor is underlined as a significant driver of capital distortions, suggesting the need for better data sources for the latter.
    Keywords: total factor productivity, firm heterogeneity, South East Europe
    JEL: D24 O47 L25
    Date: 2016–02
  7. By: Zsolt Csafordi (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Laszlo Lorincz (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Balazs Lengyel (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and International Business School, Budapest); Karoly Miklos Kiss (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and University of Pannonia, Faculty of Business and Economics)
    Abstract: What puts productivity spillovers into effect through worker mobility across firms? Productivity difference between the sending and receiving firms have been found to drive these spillovers; while an alternative explanation suggests that labor flows from foreign-owned companies provide productivity gains for the firm. We argue here that skill-relatedness across firms also matters because industry-specific skills are important for organizational learning and production. Hungarian employee-employer linked panel data from 2003-2011 imply that productivity gap rules out the effect of foreign spillovers. Furthermore, we find that flows from skill-related industries outperform the effect of flows from unrelated industries.
    Keywords: skill-relatedness network, firm productivity, knowledge spillover, labor mobility, productivity gap, foreign ownership
    JEL: D22 J24 J60 M51
    Date: 2016–05
  8. By: Nicholas Bloom (Stanford University - Department of Economics); Raffaella Sadun (Harvard Business School, Strategy Unit); John Van Reenen (London School of Economics)
    Abstract: Are some management practices akin to a technology that can explain company and national productivity, or do they simply reflect contingent management styles? We collect data on core management practices from over 11,000 firms in 34 countries. We find large cross-country differences in the adoption of basic management practices, with the US having the highest size-weighted average management score. We present a formal model of "Management as a Technology", and structurally estimate it using panel data to recover parameters including the depreciation rate and adjustment costs of managerial capital (both found to be larger than for tangible non-managerial capital). Our model also predicts (i) a positive effect of management on firm performance; (ii) a positive relationship between product market competition and average management quality (part of which stems from the larger covariance between management with firm size as competition strengthens); and (iii) a rise (fall) in the level (dispersion) of management with firm age. We find strong empirical support for all of these predictions in our data. Finally, building on our model, we find that differences in management practices account for about 30% of cross-country total factor productivity differences.
    Keywords: management practices, productivity, competition
    JEL: L2 M2 O32 O33
    Date: 2016–05
  9. By: Valeria, Gattai; Rajssa, Mechelli; Piergiovanna, Natale;
    Abstract: groups of former Soviet states, designated CIS, Developed and Developing. Using Orbis data, we provide within-group and between-group results on the effects of outward FDI (OFDI) and inward FDI (IFDI) on firm-level innovation. As the most notable finding, OFDI firms innovate more than IFDI firms, which in turn innovate more than non-FDI firms. The innovation effect of OFDI is the largest for firms from the Developing economies, followed by the Developed and CIS countries. The innovation effect of IFDI is the largest for firms from the Developing economies, followed by the CIS and Developed countries. FDI to and from Europe have the largest impact on innovation; this holds across country groups.
    Keywords: FDI, Premia, Patents, Former Soviet States, Russia, CIS
    JEL: F23 L25 O57
    Date: 2016–06–10
  10. By: Blumkin, Tomer (Ben Gurion University); Danziger, Leif (Ben Gurion University); Yashiv, Eran (Tel Aviv University)
    Abstract: This paper provides a novel justification for a declining time profile of unemployment benefits that does not rely on moral hazard or consumption-smoothing considerations. We consider a simple search environment with homogeneous workers and low- and high-productivity firms. By introducing a declining time profile of benefits, the government can affect the equilibrium wage profile in a manner that enhances the sorting of workers across low- and high-productivity firms. We demonstrate that optimal government policy depends on the dispersion and skewness of the firms' productivity distribution.
    JEL: J64 J65
    Date: 2016–05
  11. By: Willems, Bert (Tilburg University, TILEC); Zwart, Gijsbert (Tilburg University, TILEC)
    Abstract: We model the optimal regulation of continuous, irreversible, capacity expansion, in a model in which the regulated network firm has private information about its capacity costs, investments need to be financed out of the firm’s cash flows from selling network access and demand is stochastic. If asymmetric information is large, the optimal mechanism consists of a regulatory holiday for low-cost firms, and a mark-up regime for higher-cost rms. With the regulatory holiday, a firm receives the full revenue of capacity sales, and expands capacity as if it were an unregulated monopolist. Under the mark-up regime, a firm receives only a fraction of the capacity revenues, and is obliged to expand capacity whenever the price for capacity reaches a threshold. The regulatory holiday is necessary to fund information rents to the most efficient firms, which invest relatively early, as direct investment subsidies are not feasible.
    Keywords: regulatory holiday; real option value; asymmetric information; optimal contracts
    JEL: D81 D82 L52
    Date: 2016
  12. By: Olga Timoshenko (The George Washington University, Department of Economics and The Elliott School of International Affairs); Paulo Bastos (The World Bank); Daniel Dias (Board of Governors of the Federal Reserve System)
    Date: 2016–06
  13. By: Tsakiridis, Andreas; Breen, James; O'Donoghue, Cathal; Hanrahan, Kevin; Wallace, Michael; Crosson, Paul
    Abstract: Beef suckler cow calf farms similarly to firms in other sectors of production operate in competitive and dynamically changing environments. In order to increase profitability and reduce uncertainty, beef suckler cow calf farmers may not be able to change radically their farm resources in the short-run; however they can decide on either retaining or not the ownership of calves. This decision brings changes to the herd size and composition, and ultimately defines the degree of farm’s market integration. Flexibility is a measure of firm’s competitive advantage which reflects its capacity to cope with uncertainty. In this paper two types of flexibility have been estimated, and its determinants have been identified for three cow calf systems. Namely, tactical flexibility indicates farmer’s ability to vary output level in the medium-run, and operational flexibility reflects the ability to adjust product mix in the short-run. In these systems farmer’s decision and time-length to retain their calves differs, thus farm’s flexibility is examined in relation to varying calf retention decisions. Results indicate that calf to weaning farms who retain the ownership of their calves beyond weaning increase both tactical and operational flexibility. Adjustments in cattle marketing strategies increase the flexibility of all beef farms.
    Keywords: Calf retention, cattle marketing strategies, flexibility, Modified Lilien Index, unbalanced panel data, Ireland, Agricultural and Food Policy, Q1, Q130,
    Date: 2016–04
  14. By: Jose Asturias; Manuel García-Santana; Roberto Ramos
    Abstract: A significant amount of resources is spent every year on the improvement of transportation infrastructure in developing countries. In this paper, we investigate the effects of one such large project, the Golden Quadrilateral in India, on the income and allocative efficiency of the economy. We do so using a quantitative model of internal trade with variable markups. We find real income gains of 2.71% in the aggregate and that allocative efficiency accounts for 8% of these gains. The importance of allocative efficiency varies greatly across states, and can account for up to 19% of the overall gains. Thus, allocative efficiency can play an important role in determining both the size and distribution of gains from new infrastructure.
    Date: 2016–05
  15. By: Lechthaler, Wolfgang; Mileva, Mariya
    Abstract: Motivated by the increased importance of trade between industrialized and less-developed countries, we build a DSGE model featuring comparative advantage and inter-industry trade to analyze business cycle dynamics. We show that productivity shocks lead to shifts in the relative demand of exporting and import-competing sectors, implying an important role for the mobility of workers across sectors. If workers are very mobile then the aggregate implications of the two-sector model are very similar to a one-sector model. If workers are very immobile then the two-sector model features smaller responses in GDP to domestic shocks but larger responses to foreign shocks, implying larger comovement of GDP across countries.
    Keywords: international business cycles,inter-industry trade,comparative advantage,wage inequality
    JEL: E20 E25 F41 F44 F62
    Date: 2016

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