nep-bec New Economics Papers
on Business Economics
Issue of 2019‒04‒22
twelve papers chosen by
Vasileios Bougioukos
Bangor University

  1. Firm Export Dynamics and the Exchange Rate: A Quantitative Exploration By López-Martín Bernabé
  2. The Micro-economics of Export Supply: Firm-Level Evidence from Mexico By Cebreros Alfonso
  3. Foreign Competition and the Durability of US Firm Investments By Philippe Fromenteau; Jan Schymik; Jan Tscheke
  4. Innovative Events By Nathan, Max; Rosso, Anna
  5. Efficiency in large markets with firm heterogeneity By Dhingra, Swati; Morrow, John
  6. Global financial cycles since 1880 By Potjagailo, Galina; Wolters, Maik H.
  7. What Happened to U.S. Business Dynamism? By Akcigit, Ufuk; Ates, Sina T.
  8. A Theory of Falling Growth and Rising Rents By Aghion, Philippe; Bergeaud, Antonin; Boppart, Timo; Klenow, Peter J.; Li, Huiyu
  9. The Limits of Lending? Banks and Technology Adoption across Russia By Bircan, Cagatay; de Haas, Ralph
  10. Anticompetitive Vertical Merger Waves By Johan Hombert; Jérôme Pouyet; Nicolas Schutz
  11. Exploiting ergodicity in forecasts of corporate profitability By Mundt, Philipp; Alfarano, Simone; Milaković, Mishael
  12. The Comparative Advantage of Firms By Johannes Boehm; Swati Dhingra; John Morrow

  1. By: López-Martín Bernabé
    Abstract: We develop a quantitative theoretical model of firm dynamics to analyze key determinants of the elasticity of exports with respect to the exchange rate. The model incorporates mechanisms that determine the firms? capacity to react when the profitability of exports change due to fluctuations in the exchange rate. The framework allows for a quantitative assessment of different mechanisms: distribution costs represent the most important factor, as well as the exogenous and gradual growth dynamics of new exporters, and the currency denomination of sunk-entry costs into the foreign market. The different versions of the model are evaluated by contrasting the behavior of simulated variables with empirical estimates and evidence found in the literature. In addition, we present an assessment of the effects on the intensive and extensive margins of exports.
    Keywords: export dynamics;hysteresis;exchange rates;heterogeneous firms;exchange rate passthrough
    JEL: J21 E32
    Date: 2019–03
  2. By: Cebreros Alfonso
    Abstract: This paper uses firm-level data for Mexican exporters to understand how firm-level export decisions shape a country's aggregate exports. The data allows for a characterization of both the crosssectional distribution of Mexican exports, across destinations and across exporting firms, and of the time-series variation in aggregate exports and its relation to time-series variation in the export supply decisions of firms. It is found that the cross-sectional variation of exports is mostly accounted for the extensive margins of trade, particularly the extensive margin of number of products exported, while the time-series variation in aggregate exports is mostly accounted for by the intensive margin of trade, and in particular by the growth of exporting firms that retain their export status from year to year.
    Keywords: International trade;firm heterogeneity;productivity;multi-product firms;exporter dynamics
    JEL: D21 F10 F12 F14 L1 L11 L21 L25 L60
    Date: 2019–02
  3. By: Philippe Fromenteau; Jan Schymik; Jan Tscheke
    Abstract: How does the exposure to product market competition affect the investment horizon of firms? We study if firms have an incentive to shift investments towards more short-term assets when exposed to tougher competition. Based on a stylized firm investment model, we derive a within-firm estimator using variation across investments with different durabilities. Exploiting the Chinese WTO accession, we estimate the effects of product market competition on the composition of US firm investments. Firms that experienced tougher competition shifted their expenditures towards investments with a shorter durability. This effect is larger for firms with lower total factor productivity.
    Keywords: import competition, firm investment behavior, investment life-span, short-termism
    JEL: F14 F36 G32 L20 D22
    Date: 2019–04
  4. By: Nathan, Max (University of Birmingham); Rosso, Anna (University of Milan)
    Abstract: We take a fresh look at firms' innovation-productivity linkages, using novel data capturing new aspects of innovative activity. We combine UK administrative microdata, media and website content to develop experimental metrics – new product/service launches – for a large panel of SMEs. Extensive validation and descriptive exercises show that launches complement patents, trademarks and innovation surveys. We also establish connections between launches and previous innovative activity. We then link IP, launches and productivity, controlling for media exposure and firm heterogeneity. Launch activity is associated with higher SME productivity, especially in the service sector. High-quality launches and medium-size firms help drive this result.
    Keywords: innovation, productivity, ICT, data science
    JEL: L86
    Date: 2019–03
  5. By: Dhingra, Swati; Morrow, John
    Abstract: Empirical work has drawn attention to the high degree of productivity differences within industries, and its role in resource allocation. In a benchmark monopolistically competitive economy, productivity differences introduce two new margins for allocational inefficiency. When markups vary across firms, laissez faire markets do not select the right distribution of firms and the market-determined quantities are inefficient. We show that these considerations determine when increased competition from market expansion takes the economy closer to the socially efficient allocation of resources. As market size grow large, differences in market power across firms converge and the market allocation approaches the efficient allocation of an economy with constant markups.
    Keywords: Efficiency; Productivity; Limit theorem; Market expansion; Competition
    JEL: D6 F1 L1
    Date: 2017–10–14
  6. By: Potjagailo, Galina; Wolters, Maik H.
    Abstract: The authors analyze cyclical co-movement in credit, house prices, equity prices, and long-term interest rates across 17 advanced economies. Using a time-varying multi-level dynamic factor model and more than 130 years of data, they analyze the dynamics of co-movement and compare recent developments to earlier episodes such as the early era of financial globalization from 1880 to 1913 and the Great Depression. They find that joint global dynamics across various financial quantities and prices as well as variable-specific global co-movements are important to explain fluctuations in the data. From a historical perspective, global co-movement in financial variables is not a new phenomenon. For equity prices, however, global cycles play currently a historically unprecedented role, explaining more than half of the fluctuations in the data. Global cycles in credit and housing have become much more pronounced and longer, but their importance in explaining dynamics has only increased for some economies including the US, the UK and Nordic European countries. Regarding GDP, the authors also find an increasing role for a global business cycle.
    Keywords: financial cycles,financial crisis,global co-movement,dynamic factor models,time-varying parameters,macro-finance
    JEL: C32 C38 E44 F44 G15 N10 N20
    Date: 2019
  7. By: Akcigit, Ufuk; Ates, Sina T.
    Abstract: In the past several decades, the U.S. economy has witnessed a number of striking trends that indicate a rising market concentration and a slowdown in business dynamism. In this paper, we make an attempt to understand potential common forces behind these empirical regularities through the lens of a micro-founded general equilibrium model of endogenous firm dynamics. Importantly, the theoretical model captures the strategic behavior between competing firms, its effect on their innovation decisions, and the resulting ``best versus the rest'' dynamics. We focus on multiple potential mechanisms that can potentially drive the observed changes and use the calibrated model to assess the relative importance of these channels with particular attention to the implied transitional dynamics. Our results highlight the dominant role of a decline in the intensity of knowledge diffusion from the frontier firms to the laggard ones in explaining the observed shifts. We conclude by presenting new evidence that corroborates a declining knowledge diffusion in the economy. We document a higher concentration of patenting in the hands of firms with the largest stock and a changing nature of patents, especially in the post-2000 period, which suggests a heavy use of intellectual property protection by market leaders to limit the diffusion of knowledge. These findings present a potential avenue for future research on the drivers of declining knowledge diffusion.
    Keywords: business dynamism; Competition; knowledge diffusion; Market concentration
    JEL: E22 E25 L12 O31 O33
    Date: 2019–04
  8. By: Aghion, Philippe (College de France); Bergeaud, Antonin (Banque de France); Boppart, Timo (IIES); Klenow, Peter J. (Stanford University); Li, Huiyu (Federal Reserve Bank of San Francisco)
    Abstract: Growth has fallen in the U.S., while firm concentration and profits have risen. Meanwhile, labor’s share of national income is down, mostly due to the rising market share of low labor share firms. We propose a theory for these trends in which the driving force is falling firm-level costs of spanning multiple markets, perhaps due to accelerating ICT advances. In response, the most efficient firms spread into new markets, thereby generating a temporary burst of growth. Because their efficiency is difficult to imitate, less efficient firms find their markets more difficult to enter profitably and innovate less. Even the most efficient firms do less innovation eventually because they are more likely to compete with each other if they try to expand further.
    Date: 2019–03–27
  9. By: Bircan, Cagatay; de Haas, Ralph
    Abstract: We exploit historically-determined variation in local credit markets to identify the impact of bank lending on firm innovation across Russia. We find that deeper credit markets increase firms' use of bank credit, their adoption of new products and technologies, and productivity growth. This relationship is more pronounced in industries further from the technological frontier; more exposed to import competition; and that export more. These impacts are also stronger for firms near historical R&D centers or railways, and in regions with supportive institutions. Consistent with these results, credit markets contribute to economic growth in such regions.
    Keywords: credit constraints; Firm innovation; institutions; Russia; Technological change
    JEL: D22 G21 O12 O31
    Date: 2019–04
  10. By: Johan Hombert; Jérôme Pouyet; Nicolas Schutz
    Abstract: We develop a model of vertical merger waves and use it to study the optimal merger policy. As a merger wave can result in partial foreclosure, it can be optimal to ban a vertical merger that eliminates the last unintegrated upstream firm. Such a merger is more likely to worsen market performance when the number of downstream firms is large relative to the number of upstream firms, and when upstream contracts are nondiscriminatory, linear, and public. On the other hand, the optimal merger policy can be non-monotonic in the strength of synergies or in the degree of downstream product differentiation.
    Keywords: vertical mergers, vertical foreclosure, merger waves, merger policy
    JEL: L13
    Date: 2019–04
  11. By: Mundt, Philipp; Alfarano, Simone; Milaković, Mishael
    Abstract: Theory suggests that competition tends to equalize profit rates through the process of capital reallocation, and numerous studies have confirmed that profit rates are indeed persistent and mean-reverting. Recent empirical evidence further shows that fluctuations in the profitability of surviving corporations are well approximated by a stationary Laplace distribution. Here we show that a parsimonious diffusion process of corporate profitability that accounts for all three features of the data achieves better out-of-sample forecasting performance across different time horizons than previously suggested time series and panel data models. As a consequence of replicating the empirical distribution of profit rate fluctuations, the model prescribes a particular strength or speed for the mean-reversion of all profit rates, which leads to superior forecasts of individual time series when we exploit information from the cross-sectional collection of firms. The new model should appeal to managers, analysts, investors and other groups of corporate stakeholders who are interested in accurate forecasts of profitability. To the extent that mean-reversion in profitability is the source of predictable variation in earnings, our approach can also be used in forecasts of earnings and is thus useful for firm valuation.
    Keywords: return on assets,stochastic differential equation,Fokker-Planck equation,superior predictive ability test,model confidence set
    JEL: C21 C22 C53 L10 D22
    Date: 2019
  12. By: Johannes Boehm; Swati Dhingra; John Morrow
    Abstract: Multiproduct firms dominate production, and their product turnover contributes substantially to aggregate growth. Theories propose that multiproduct firms grow by diversifying into products which need the same know-how or capabilities, but are less clear on what these capabilities are. Input-output tables show firms co-produce in industries that share intermediate inputs, suggesting input capabilities drive multiproduct production patterns. We provide evidence for this in Indian manufacturing: the similarity of a firm's input mix to an industry's input mix predicts entry into that industry. We identify the direction of causality from the removal of size-based entry barriers in input markets which made firms more likely to enter industries that were similar in input use to their initial input mix. We rationalize this finding with a model of industry choice and economies of scope to estimate the importance of input capabilities in determining comparative advantage. Complementarities driven by input capabilities make a firm on average 5% (and up to 15%) more likely to produce in an industry. Entry barriers in input markets constrained the comparative advantage of firms and were equivalent to a 10.5 percentage point tariff on inputs.
    Keywords: multiproduct firms, firm capabilities, vertical input linkages, comparative advantage, economies of scope, size-based policies
    JEL: F11 L25 M2 O3
    Date: 2019–04

This nep-bec issue is ©2019 by Vasileios Bougioukos. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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