|
on Business Economics |
| By: | Alvarez, Lourdes; Huamaní, Edson; Coronado, Yngrid |
| Abstract: | Innovation is one of the main determinants to stimulate productivity. However, incentives to innovate may be affected by the level of competition. In particular, in developing countries, where informality is highly prevalent, formal firms have to face both types of competition: formal and informal. Previous studies have acknowledged a negative impact from competition (schumpeterian effect) but also, several recent studies have shown that competition could spur innovation (escape-competition effect). Given the importance of informal competition in developing countries, as Peru, where almost three out of four firms are informal and the intensity of investment in R&D+i activities is pretty low, this study aims to evaluate the impact of formal and informal competition, at the industrial level, on the whole innovation process and, expressly, on productivity for Peru. By using a CDM model, this study analyses how the intensity of formal and informal competition affects every stage of the innovation process. The CDM model makes possible to study four interrelated stages of the innovation process: i) the firms’ choice to engage with innovation, ii) the amount of resources invested in R&D+i activities, iii) the effects of R&D+i investments on innovation output, and iv) the impacts of innovation outcome on firms’ productivity. The model is estimated using firm-level data collected by the Peruvian National Innovation Survey 2018 and the National Business Survey 2018. Our main findings indicate that competition, both formal and informal, affects negatively the decision to engage in innovation. However, the relationship changes throughout the remaining stages of the innovation process. Whereas the informal competition affects negatively the whole innovation process (engage in innovation, intensity of R&D+I activities spending, innovation output and firms’ productivity) satisfying the Schumpeterian theory; formal competition seems to affect positively the intensity of R&D+i activities spending and also firms’ productivity, which can be explained as an escape-competition effect within the formal firms. In conclusion, meanwhile it is found that informal competition affects negatively the whole innovation process, formal competition could, instead, encourage formal firms’ willingness to invest more in R&D+i activities, increasing their productivity. |
| Keywords: | Competition, CDM model, informality, innovation, productivity |
| JEL: | D4 E26 M11 O17 O32 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:105332&r=all |
| By: | Antoine Berthou; John Jong-Hyun Chung; Kalina Manova; Charlotte Sandoz Dit Bragard |
| Abstract: | We examine the gains from globalization in the presence of firm heterogeneity and potential resource misallocation. We show theoretically that without distortions, bilateral and export liberalizations increase aggregate welfare and productivity, while import liberalization has ambiguous effects. Resource misallocation can either amplify, dampen or reverse the gains from trade. Using model-consistent measures and unique new data on 14 European countries and 20 industries in 1998-2011, we empirically establish that exogenous shocks to export demand and import competition both generate large aggregate productivity gains. Guided by theory, we provide evidence consistent with these effects operating through reallocations across firms in the presence of distortions: (i) Both export and import expansion increase average firm productivity, but the former also shifts activity towards more productive firms, while the latter acts in reverse. (ii) Both export and import exposure raise the productivity threshold for survival, but this cut-off is not a sufficient statistic for aggregate productivity. (iii) Efficient institutions, factor and product markets amplify the gains from import competition but dampen those from export access. |
| Keywords: | international trade, export demand, import competition, productivity, allocative efficiency, misallocation |
| JEL: | F10 F14 F43 F62 O24 O40 O47 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1668&r=all |
| By: | Anderson, Stephen J. (U of Texas at Austin); Iacovone, Leonardo (World Bank and Hertie School); Kankanhalli, Shreya (Stanford U); Narayanan, Sridhar (Stanford U) |
| Abstract: | This paper studies the impact of business modernization on the sales performance of traditional retailers. We define modernization as adopting tangible structures and business practices of organized retail chains (for example, exterior signage with store name and logo, or a database to record product-level information) and adapting these to the practical conditions and constraints of traditional retailers such as small shop size. To address our research question, we implement a randomized field experiment in Mexico City with 1148 traditional retail firms. Our sample is randomized into three groups: 385 firms that we externally modernize in ways that are visible to customers; 383 firms that we internally modernize in ways that are not visible to customers; and 380 firms form a control group. We find a significant and persistent main effect of modernization on sales: firms in both treatment groups increase monthly sales by 15% to 19%, even 24 months after study recruitment. In terms of novel mechanism evidence, we find that externally-modernizing firms improve their store-level branding, while internally-modernizing firms strengthen their product management. These results have important implications for multinational managers who distribute products through traditional retail channels, and for policymakers interested in improving firm performance in the retail sector of emerging markets. |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3920&r=all |
| By: | Timothy Besley; Isabelle Roland; John Van Reenen |
| Abstract: | This paper studies the implications of perceived default risk for aggregate output and productivity. Using a model of credit contracts with moral hazard, we show that a firm's probability of default is a sufficient statistic for capital allocation. The theoretical framework suggests an aggregate measure of the impact of credit market frictions based on firm-level probabilities of default which can be applied using data on firm-level employment and default risk. We obtain direct estimates of firm-level default probabilities using Standard and Poor's PD Model to capture the expectations that lenders were forming based on their historical information sets. We implement the method on the UK, an economy that was strongly exposed to the global financial crisis and where we can match default probabilities to administrative data on the population of 1.5 million firms per year. As expected, we find a strong correlation between default risk and a firm's future performance. We estimate that credit frictions (i) cause an output loss of around 28% per year on average; (ii) are much larger for firms with under 250 employees and (iii) that losses are overwhelmingly due to a lower overall capital stock rather than a misallocation of credit across firms with heterogeneous productivity. Further, we find that these losses accounted for over half of the productivity fall between 2008 and 2009, and persisted for smaller (although not larger) firms. |
| Keywords: | productivity, default risk, credit frictions, misallocation, growth |
| JEL: | D24 E32 L11 O47 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1672&r=all |
| By: | Huber, Kilian |
| Abstract: | The effects of large banks on the real economy are theoretically ambiguous and politically controversial. I identify quasi-exogenous increases in bank size in post-war Germany. I show that firms did not grow faster after their relationship banks became bigger. In fact, opaque borrowers grew more slowly. The enlarged banks did not increase profits or efficiency, but worked with riskier borrowers. Bank managers benefited through higher salaries and media attention. The paper presents newly digitized microdata on German firms and their banks. Overall, the findings reveal that bigger banks do not always raise real growth and can actually harm some borrowers. |
| Keywords: | bank regulation; big banks; bank size; economic growth; Brexit; economic geography; employment; globalisation; productivity; technological change |
| JEL: | E24 E44 G21 G28 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108497&r=all |
| By: | Benjamin Schoefer; Oren Ziv |
| Abstract: | Why do cities differ so much in productivity? We document that most of the measured dispersion in productivity across US cities is spurious and reflects granularity bias: idiosyncratic heterogeneity in plant-level productivity and size, combined with finite plant counts. As a result, economies with randomly reallocated plants exhibit nearly as high a variance as the empirical economy. Stripping out this bias using our nonparametric split-sample strategy reduces the raw variance of place effects by about two thirds to three quarters. For new plants, about four fifths of the dispersion reflects granularity bias, and new plants’ place effects are only imperfectly correlated with those of older plants. These US-based patterns broadly extend to the 15 European countries we study in internationally comparable firm-level data. |
| Keywords: | productivity, urban economics, firm heterogeneity |
| JEL: | R12 D24 L11 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8843&r=all |
| By: | Takaaki Abe (School of Political Science and Economics, Waseda University) |
| Abstract: | In this paper, we use a partition function form game to analyze cartel formation among firms in Cournot competition. We assume that a firm obtains a certain cost advantage that allows it to produce goods at a lower unit cost. We show that if the level of the cost advantage is “moderate”, then the firm with the cost advantage leads the cartel formation among the firms. Moreover, if the cost advantage satisfies another condition, then the formed cartel can also be stable in the sense of the core of a partition function form game. We also show that if the technology for the low-cost production can be copied, then the cost advantage may prevent a cartel from splitting. |
| Keywords: | cartel formation; Cournot competition; partition function form game; stability |
| JEL: | C71 L13 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:wap:wpaper:1911&r=all |
| By: | Choi, Bong-Geun (Fount Inc); Choi, Jung Ho (Stanford U); Malik, Sara (Stanford U) |
| Abstract: | This paper examines whether, when, and why job seekers use firms' financial information in the job search process. We find first evidence of financial information's relevance to job seekers by documenting a substantial increase in job search activity around earnings announcements in the spirit of Beaver (1968). We also find that financial information acquisition by job seekers is positively related to both job postings and interviews at the firm-county-month level. Spurred by this finding, we develop a theoretical model of job search paired with firms' heterogeneous earnings to better understand job seeker's information acquisition behavior. Our model predicts that job seekers trade off the probability of an offer with the value of the employment contract and intensify information acquisition as the number of available positions shrinks relative to the pool of job seekers. Consistent with these predictions, we find that firm performance is positively correlated with both job seekers' search activities and employers' posted wages. We also find that the positive association between financial information acquisition and interviews is stronger when the job market is more competitive. Overall, these results indicate that, like capital market participants, job seekers value and use financial reporting. |
| JEL: | D83 J62 M41 M51 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3924&r=all |
| By: | Jacob, Nick; Mion, Giordano |
| Abstract: | Ever since Marshall (1890) agglomeration externalities have been viewed as the key factor explaining the existence of cities and their size. However, while the various micro foundations of agglomeration externalities stress the importance of Total Factor Productivity (TFP), the empirical evidence on agglomeration externalities rests on measures obtained using firm revenue or value-added as a measure of firm output: revenue-based TFP (TFP-R). This paper uses data on French manufacturing firms' revenue, quantity and prices to estimate TFP and TFP-R and decompose the latter into various elements. Our analysis suggests that the revenue productivity advantage of denser areas is mainly driven by higher prices charged rather than differences in TFP. At the same time, firms in denser areas are able to sell higher quantities, and generate higher revenues, despite higher prices. These and other results we document suggest that firms in denser areas are able to charge higher prices because they sell higher demand/quality products. Finally, while the correlation between firm revenue TFP and firm size is positive in each location, it is also systematically related to density: firms with higher (lower) TFP-R account for a larger (smaller) share of total revenue in denser areas. These patterns thus amplify in aggregate regional-level figures any firm-level differences in productivity across space. |
| Keywords: | total factor productivity (TFP); density; agglomeration externalities; revenue-based TFP; prices; demand; quality |
| JEL: | R12 R15 D24 L11 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108436&r=all |
| By: | Nick Jacob; Giordano Mion |
| Abstract: | Ever since Marshall (1890) agglomeration externalities have been viewed as the key factor explaining the existence of cities and their size. However, while the various micro foundations of agglomeration externalities stress the importance of Total Factor Productivity (TFP), the empirical evidence on agglomeration externalities rests on measures obtained using firm revenue or value-added as a measure of firm output: revenue-based TFP (TFP-R). This paper uses data on French manufacturing firms' revenue, quantity and prices to estimate TFP and TFP-R and decompose the latter into various elements. Our analysis suggests that the revenue productivity advantage of denser areas is mainly driven by higher prices charged rather than differences in TFP. At the same time, firms in denser areas are able to sell higher quantities, and generate higher revenues, despite higher prices. These and other results we document suggest that firms in denser areas are able to charge higher prices because they sell higher demand/quality products. Finally, while the correlation between firm revenue TFP and firm size is positive in each location, it is also systematically related to density: firms with higher (lower) TFP-R account for a larger (smaller) share of total revenue in denser areas. These patterns thus amplify in aggregate regional-level figures any firm-level differences in productivity across space. |
| Keywords: | total factor productivity (TFP), density, agglomeration externalities, revenue-based TFP, prices, demand, quality |
| JEL: | R12 R15 D24 L11 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1687&r=all |
| By: | Madhuparna Ganguly (Indira Gandhi Institute of Development Research) |
| Abstract: | We model a patent regime in which an innovating firm can partially recover its damage due to scientist movement from the infringing rival. The strength of the patent system, which is a function of litigation success probability and recovery proportion, stipulates expected indemnification. We show that stronger patents fail to reduce the likelihood of infringement and further, decrease the innovation's expected profitability. Higher potential reparation also reduces the scientist's expected return on R&D knowledge, entailing greater R&D investment. The expected effects manifest when the market for the new product is moderately competitive. Our results suggest important considerations for patent reforms. |
| Keywords: | Competition intensity, Damage rules, Patent strength, Scientist mobility |
| JEL: | J60 K40 L11 L13 O34 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2020-037&r=all |
| By: | Ali Kabiri; Vlad Malone; Isabelle Roland; Mariana Spatareanu |
| Abstract: | How does banks' default risk affect the probability of default of non-financial businesses? The literature has addressed this question by focusing on the direct effects on the banks' corporate customers - demonstrating the existence of bank-induced increases in firms' probabilities of default. However, it fails to consider the indirect effects through the interfirm transmission of default risk along supply chains. Supply chain relationships have been shown to be a powerful channel for default risk contagion. Therefore, the literature might severely underestimate the overall impact of bank shocks on default risk in the business economy. Our paper fills this gap by analyzing the direct as well as the indirect impact of banks' default risk on firms' default risk in the U.K. Relying on Input-Output tables, we devise methods that enable us to examine this question in the absence of microeconomic data on supply chain links. To capture all potential propagation channels, we account for horizontal linkages between the firm and its competitors in the same industry, and for vertical linkages, both between the firm and its suppliers in upstream industries and between the firm and its customers in downstream industries. In addition, we identify trade credit and contract specificity as significant characteristics of supply chains, which can either amplify or dampen the propagation of default risk. Our results show that the banking crisis of 2007-2008 affected the non-financial business sector well beyond the direct impact of banks' default risk on their corporate clients. |
| Keywords: | default risk, propagation of banking crises, supply chains |
| JEL: | G21 G34 O16 O30 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1699&r=all |
| By: | Philippe Aghion; Antonin Bergeaud; Richard Blundell; Rachel Griffith |
| Abstract: | Matched employee-employer data from the UK are used to analyze the wage premium to working in an innovative firm. We find that firms that are more R&D intensive pay higher wages on average, and this is particularly true for workers in some low-skilled occupations. We propose a model in which a firm's innovativeness is reflected in the degree of complementarity between workers in low-skill and high-skilled occupations, and in which non-verifiable soft skills are an important determinant of the wages of workers in low-skilled occupations. The model yields additional predictions on training, tenure and outsourcing which we also find support for in data. |
| Keywords: | innovation, skill-based technological change, wage, complementarity |
| JEL: | O33 L23 J31 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1665&r=all |
| By: | Nicholas Bloom; Robert S. Fletcher; Ethan Yeh |
| Abstract: | We use survey data on an opt-in panel of around 2,500 US small businesses to assess the impact of COVID-19. We find a significant negative sales impact that peaked in Quarter 2 of 2020, with an average loss of 29% in sales. The large negative impact masks significant heterogeneity, with over 40% of firms reporting zero or a positive impact, while almost a quarter report losses of more than 50%. These impacts also appear to be persistent, with firms reporting the largest sales drops in mid-2020 still forecasting large sales losses a year later in mid-2021. In terms of business types, we find that the smallest offline firms experienced sales drops of over 40% compared to less than 10% for the largest online firms. Finally, in terms of owners, we find female and black owners reported significantly larger drops in sales. Owners with a humanities degree also experienced far larger losses, while those with a STEM degree saw the least impact. |
| JEL: | E0 J0 L0 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28314&r=all |
| By: | Fabrice Defever; Michele Imbruno; Richard Kneller |
| Abstract: | We investigate theoretically and empirically the role of wholesalers in mediating the productivity effects of trade liberalization. Intermediaries provide indirect access to foreign produced inputs. The productivity effects of input tariff cuts on firms that do not directly import therefore depends on the extent that wholesalers are a feature of input supply within an industry. Using firm level data from China, we document that wholesalers play no such role for direct importers. However, other firms experience productivity gains from reducing input tariffs if trade intermediation of foreign inputs within their sector is high. They suffer efficiency losses otherwise. |
| Keywords: | firm heterogeneity, trade liberalization, intermediate inputs, productivity, intermediaries, China |
| JEL: | F12 F13 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1666&r=all |