nep-bec New Economics Papers
on Business Economics
Issue of 2023‒01‒09
fifteen papers chosen by
Vasileios Bougioukos
London South Bank University

  1. The Role of Firm Dynamics in the Green Transition: Carbon Productivity Decomposition in Finnish Manufacturing By Kuosmanen, Natalia; Maczulskij, Terhi
  2. Community Networks and Trade By Boken, Johannes; Gadenne, Lucie; Nandi, Tushar; Santamaria. Marta
  3. Sequentially exporting products across countries By Facundo Albornoz; Hector F. Calvo Pardo; Gregory Corcos
  4. Banks, Credit Reallocation, and Creative Destruction By Christian Keuschnigg; Michael Kogler; Johannes Matt
  5. Oligopoly Pricing: The Role of Firm Size and Number By Iwan Bos; Marco A. Marini
  6. Ownership Networks and Labor Income By Huneeus, Federico; Larrain, Borja; Larrain, Mauricio; Prem, Mounu
  7. On the Estimation of Cross-Firm Productivity Spillovers with an Application to FDI By Malikov, Emir; Zhao, Shunan
  8. Foreign Shocks as Granular Fluctuations By Julian Di Giovanni; Andrei A Levchenko; Isabelle Mejean
  9. Firm Heterogeneity and Productivity: The Contribution of Microdata By Riadh Ben Jelili
  10. Firing costs and productivity: Evidence from a natural experiment By Andrea Caggese; Ozan Guler; Mike Mariathasan; Klaas Mulier
  11. Fintech Entry, Firm Financial Inclusion, and Macroeconomic Dynamics in Emerging Economies By Finkelstein-Shapiro, Alan; Mandelman, Federico S.; Nuguer, Victoria
  12. Cultural Proximity and Production Networks By Brian Cevallos Fujiy; Gaurav Khanna; Hiroshi Toma
  13. When Immigrants Meet Exporters: A Reassessment of the Immigrant Wage Gap By Léa Marchal; Guzman Ourens; Giulia Sabbadini
  14. Picking Winners? Government Subsidies and Firm Productivity in China By Lee G. Branstetter; Guangwei Li; Mengjia Ren
  15. Boosting productivity to improve living standards in South Africa By Paul Cahu; Falilou Fall; Priscilla Fialho

  1. By: Kuosmanen, Natalia; Maczulskij, Terhi
    Abstract: Abstract This paper investigates the importance of firm dynamics, including entry and exit and the allocation of carbon emissions across firms, on the green transition. Using the 2000–2019 firm-level register data on greenhouse gas emissions matched with the Financial Statement data in the Finnish manufacturing sector, we examine the sources of carbon-productivity growth and assess the relative contributions of structural change and firm dynamics. We find that continuing firms were the main drivers of carbon productivity growth whereas the contribution of entering and exiting firms was negative. In addition, the allocation of emissions across firms seems to be inefficient; its impact on carbon productivity growth was negative over the study period. Moreover, we find that there is a positive relationship between labor-intensive firms and carbon productivity but that firms with a larger market share tend to be less productive in terms of carbon use.
    Keywords: Carbon productivity, Decomposition, Firm dynamics, Firm-level data, Manufacturing
    JEL: D24 L60 Q54
    Date: 2022–12–13
  2. By: Boken, Johannes (University of Warwick); Gadenne, Lucie (Queen Mary University of London, Institute for Fiscal Studies and CEPR.); Nandi, Tushar (IISER Kolkata); Santamaria. Marta (University of Warwick)
    Abstract: Do community networks shape firm-to-firm trade in emerging economies? We study the role of communities in facilitating firm-to-firm trade and firm outcomes using data on firm-to-firm transactions and firm owners’ community (castes) affiliations for the universe of medium- and large- sized firms in West Bengal, India. We find that firms are substantially more likely to trade, and trade more, with firms from their own caste. Studying the mechanisms underlying this effect, we find evidence consistent both with castes alleviating trade frictions and taste-based discrimination by firms against those outside their community. Guided by these stylized facts, we develop a model of firmto- firm trade in which communities affect pair productivity and matching costs and estimate the model using our reduced-form estimates. A counterfactual extending the positive effects of castes on trade to all potential supplier-client pairs would increase the number of network links by 60% and increase average firm-to-firm sales by 20%.
    Date: 2022
  3. By: Facundo Albornoz; Hector F. Calvo Pardo; Gregory Corcos
    Abstract: Exploiting disaggregated data on French exporters, we show that firms expand their product scope and geographical presence sequentially. This process of internationalization is uneven over time, exhibiting more volatility early than later in the life cycle of exporters. Specifically, young exporters are particularly likely to exit, and if they keep exporting, to expand at the intensive and sub-extensive margins, doing so by widening product scope within a destination before entering new destinations. We also find that firms’ core products are particularly resilient despite being used to “test the waters” when entering additional countries. Existing models of firm export dynamics are not designed to explain these empirical regularities. We argue that they can be rationalized by a mechanism where new exporters are uncertain about the profitability of their products in different markets, but learn from their initial export experiences and then adjust their sales, number of products and destination countries accordingly.
    Keywords: Export dynamics, experimentation, uncertainty, multiproduct firms, market interdependence.
    Date: 2022
  4. By: Christian Keuschnigg; Michael Kogler; Johannes Matt
    Abstract: How do banks facilitate creative destruction and shape firm turnover? We develop a dynamic general equilibrium model of bank credit reallocation with endogenous firm entry and exit that allows for both theoretical and quantitative analysis. By restructuring loans to firms with poor prospects and high default risk, banks not only accelerate the exit of unproductive firms but also redirect existing credit to more productive entrants. This reduces banks’ dependence on household deposits that are often supplied inelastically, thereby relaxing the economy’s resource constraint. A more efficient loan restructuring process thus fosters firm creation and improves aggregate productivity. It also complements policies that stimulate firm entry (e.g., R&D subsidies) and renders them more effective by avoiding a crowding-out via a higher interest rate.
    Keywords: creative destruction, reallocation, bank credit, productivity
    JEL: E23 E44 G21 O40
    Date: 2022
  5. By: Iwan Bos (Department of Organisation, Strategy and Entrepreneurship, Maastricht University); Marco A. Marini (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: This paper examines a homogeneous-good Bertrand-Edgeworth oligopoly model to explore the role of firm size and number in pricing. We consider the price impact of merger, breakup, investment, divestment, entry, and exit. A merger leads to higher prices only when it increases the size of the largest seller and industry capacity is neither too big nor too small post-merger. Similarly, breaking-up a firm only leads to lower prices when it concerns the biggest producer and aggregate capacity is within an intermediate range. Investment and entry (weakly) reduce prices, whereas divestment and exit yield (weakly) higher prices. Taken together, these findings suggest that size matters more than number in the determination of oligopoly prices.
    Keywords: Bertrand-Edgeworth Competition; Edgeworth Price Cycle; Firm Size Distribution; Oligopoly Pricing; Price Dispersion.
    JEL: D43 L11 L13
    Date: 2022–12
  6. By: Huneeus, Federico; Larrain, Borja; Larrain, Mauricio; Prem, Mounu
    Abstract: We document a novel relationship between networks of firms linked through ownership (i.e., business groups) and labor income using matched employer-employee data for Chile. Business group affiliation is associated with higher wages, even after controlling for firm size and individual worker effects. The group premium is stronger for top workers; hence, group firms have higher wage dispersion. The premium remains present when comparing group firms and matched stand-alone firms, and in within-firm comparisons using transitions in and out of groups. Our results are consistent with workers reaching higher productivity and wages by leveraging their skills on the group’s organizational structure.
    Date: 2022–12–14
  7. By: Malikov, Emir; Zhao, Shunan
    Abstract: We develop a novel methodology for the proxy variable identification of firm productivity in the presence of productivity-modifying learning and spillovers which facilitates a unified "internally consistent" analysis of the spillover effects between firms. Contrary to the popular two-step empirical approach, ours does not postulate contradictory assumptions about firm productivity across the estimation steps. Instead, we explicitly accommodate crosssectional dependence in productivity induced by spillovers which facilitates identification of both the productivity and spillover effects therein simultaneously. We apply our model to study cross-firmspillovers in China’s electric machinery manufacturing, with a particular focus on productivity effects of inbound FDI.
    Keywords: Production Economics, Productivity Analysis
    Date: 2022–01
  8. By: Julian Di Giovanni (Federal Reserve Bank of New York, CEPR - Center for Economic Policy Research - CEPR); Andrei A Levchenko (University of Michigan System, CEPR - Center for Economic Policy Research - CEPR, NBER - National Bureau of Economic Research [New York] - NBER - The National Bureau of Economic Research); Isabelle Mejean (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR)
    Abstract: This paper uses a dataset covering the universe of French firm-level value added, imports, and exports over the period 1995-2007 and a quantitative multi-country model to study the international transmission of business cycle shocks at both the micro and the macro levels. Because the largest firms are the most likely to trade internationally, foreign shocks are transmitted to the domestic economy primarily through the large firms. We first document a novel stylized fact: larger French firms are significantly more sensitive to foreign GDP growth. We then implement a quantitative framework calibrated to the full extent of the observed heterogeneity in firm size, exporting, and importing. We simulate the propagation of foreign shocks to the French economy and report one micro and one macro finding. At the micro level heterogeneity across firms predominates: 45 to 75% of the impact of foreign fluctuations on French GDP is accounted for by the "foreign granular residual"-the term capturing the larger firms' greater responsiveness to the foreign shocks. At the macro level, firm heterogeneity attenuates the impact of foreign shocks, with the GDP responses 10 to 20% larger in a representative firm model compared to the baseline model.
    Keywords: Granularity, Shock transmission, Aggregate fluctuations, Input linkages, International trade
    Date: 2022–09–06
  9. By: Riadh Ben Jelili (LEGO - Laboratoire d'Economie et de Gestion de l'Ouest - UBS - Université de Bretagne Sud - UBO - Université de Brest - IMT - Institut Mines-Télécom [Paris] - IBSHS - Institut Brestois des Sciences de l'Homme et de la Société - UBO - Université de Brest - UBL - Université Bretagne Loire - IMT Atlantique - IMT Atlantique - IMT - Institut Mines-Télécom [Paris])
    Abstract: Without claiming to be a comprehensive treatment of all relevant issues related to the firm productivity analysis, this note aims to investigate some areas of inquiry in this field where firm level data are most valuable, and to survey the more recent econometric evidence for Arab countries.
    Date: 2022–11–05
  10. By: Andrea Caggese; Ozan Guler; Mike Mariathasan; Klaas Mulier
    Abstract: This paper investigates the effect of firing costs on total factor productivity (TFP) and resource allocation. Exploiting heterogeneous changes in firing costs across employee types in Belgium, we find that increasing firing costs reduce firm-level TFP. Firms facing a net increase in firing costs reduce hiring and firing, increase hours worked per employee, adjust the composition of their workforce away from employee types whose firing costs have increased, and rely more on outsourced employees. Instead, we find no evidence of capital-intensive technology adoption. The decline in TFP is smaller for firms with better access to credit.
    Keywords: Firing costs, employment protection, productivity, misallocation
    JEL: E22 E23 E24
    Date: 2022–11
  11. By: Finkelstein-Shapiro, Alan; Mandelman, Federico S.; Nuguer, Victoria
    Abstract: Financial inclusion is strikingly low in emerging economies. In only a few years, financial technologies (fintech) have led to a dramatic expansion in the number of non-traditional credit intermediaries, but the macroeconomic and credit-market implications of this rapid growth of fintech are not known. We build a model with a traditional banking system and endogenous fintech intermediary creation and find that greater fintech entry delivers positive long-term effects on aggregate output and consumption. However, greater entry bolsters aggregate firm financial inclusion only if it stems from lower barriers to accessing fintech credit by smaller, unbanked firms. Decreasing entry costs for fintech intermediaries alone has only marginal effects in the aggregate. While firms that adopt fintech credit are less sensitive to domestic financial shocks and contribute to a reduction in output volatility, greater fintech entry also leads to greater volatility in bank credit, thereby introducing a tradeoff between output volatility and credit-market volatility.
    JEL: E24 E32 E44 F41 G21
    Date: 2022–01
  12. By: Brian Cevallos Fujiy (University of Michigan); Gaurav Khanna (University of California San Diego); Hiroshi Toma (University of Michigan)
    Abstract: We examine how cultural proximity shapes production networks, and how it affects aggregate welfare and productivity. We combine a new dataset of firm-to-firm trade for a large Indian state with information on cultural proximity between firms derived from IndiaÕs caste and religious classifications. We find that larger cultural proximity between a pair of firms reduces prices and fosters trade at both intensive and extensive margins. We argue that these results are driven by increasing trust between firms due to their cultural proximity, which in turn solves contracting frictions. Guided by these stylized facts, we propose a quantitative firm-level production network model, where cultural proximity influences trade and matching costs. We derive estimable equations from the model and estimate the model parameters leveraging variation in the cultural group composition of firm owners. We quantify the welfare and productivity consequences of implementing social inclusion policies that shape the formation of production networks. Our counterfactual exercises indicate that social inclusion policies can raise welfare by as much as 1.76%, while social isolation lowers welfare by 1.45%. Reducing contracting frictions increases welfare by 0.87% via the channel of trade becoming less reliant on cultural proximity.
    Keywords: cultural proximity, production networks, firm-to-firm trade
    JEL: D51 F19 O17
    Date: 2022–11
  13. By: Léa Marchal (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, IC Migrations - Institut Convergences Migrations [Aubervilliers], UP1 - Université Paris 1 Panthéon-Sorbonne); Guzman Ourens (Tilburg University [Tilburg] - Netspar); Giulia Sabbadini (Institut de hautes études internationales et du développement - Graduate Institute of International and Development Studies [Geneva, Switzerland])
    Abstract: We use French employer-employee data to reassess the wage gap between native and foreign workers. We find that the wage gap varies with the export intensity of the firm and the occupation of the worker. A model with heterogeneous firms and workers shows that our findings are consistent with white-collar immigrants capturing an informational rent. The evidence supports this mechanism. First, we show that the wage gap is positively correlated with the complexity of the firm export activity. Second, we show that wages react to changes in export intensity when the export destination coincides with the origin of foreign workers.
    Keywords: export, firm, immigrants, wage inequality
    Date: 2022–12–18
  14. By: Lee G. Branstetter; Guangwei Li; Mengjia Ren
    Abstract: Are Chinese industrial policies making the targeted Chinese firms more productive? Alternatively, are efforts to promote productivity undercut by efforts to maintain or expand employment in less productive enterprises? In this paper, we attempt to shed light on these questions through the analysis of previously underutilized microdata on direct government subsidies provided to China’s publicly traded firms. We categorize subsidies into different types. We then estimate total-factor productivity (TFP) for Chinese listed firms and investigate the relationship between these estimates of TFP and the allocation of government subsidies. We find little evidence that the Chinese government consistently “picks winners”. Firms’ ex-ante productivity is negatively correlated with subsidies received by firms, and subsidies appear to have a negative impact on firms’ ex-post productivity growth throughout our data window, 2007 to 2018. Neither subsidies given out under the name of R&D and innovation promotion nor industrial and equipment upgrading positively affect firms’ productivity growth. On the other hand, we find a positive impact of subsidy on current year employment, both for the aggregated and employment-related subsidies. These findings suggest that China’s increasingly prescriptive industrial policies may have generated limited effects in promoting productivity.
    JEL: O25 O32
    Date: 2022–12
  15. By: Paul Cahu; Falilou Fall; Priscilla Fialho
    Abstract: Productivity growth has been falling for a decade, hindering improvements in living standards. Low productivity reflects, firstly, poor infrastructure in telecommunications and transport. Secondly, the regulatory environment is not always business-friendly and often raises obstacles to firm entry, exit and expansion. Combined with weak competition in important sectors, this has led to lower private investment levels, particularly, business R&D. Finally, the educational and health care systems have been unable to supply adequately skilled workers across the country. To improve productivity, public investment needs to become more effective, notably by strengthening the selection process for large infrastructure projects. A more pro-competitive business environment would let productive firms grow and foster innovation. Widening and reducing inequalities in access to education and health care would reduce skill shortages.
    Keywords: Competition, Infrastructure, Investment, Productivity, Transport
    JEL: E22 E23 E24 H54 I15 I25 L9
    Date: 2022–12–22

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