nep-bec New Economics Papers
on Business Economics
Issue of 2023‒03‒27
nine papers chosen by
Vasileios Bougioukos
London South Bank University

  1. On the Estimation of Cross-Firm Productivity Spillovers with an Application to FDI By Emir Malikov; Shunan Zhao
  2. Parental Leave, Worker Substitutability, and Firms' Employment By Mathias Huebener; Jonas Jessen; Daniel Kuehnle; Michael Oberfichtner
  3. The Slow Diffusion of Earnings Inequality By Isaac Sorkin; Melanie Wallskog
  4. Robots and Workers: Evidence from the Netherlands By Daron Acemoglu; Hans R. A. Koster; Ceren Ozgen
  5. Spatial Production Networks By Costas Arkolakis; Federico Huneeus; Yuhei Miyauchi
  6. A System Approach to Structural Identification of Production Functions with Multi-Dimensional Productivity By Emir Malikov; Shunan Zhao; Jingfang Zhang
  7. Digitalisation and productivity: gamechanger or sideshow? By Anderton, Robert; Botelho, Vasco; Reimers, Paul
  8. Estimating Firm-level Production Functions with Spatial Dependence in Output, Input, and Productivity By CHANG Pao-Li; MAKIOKA Ryo; NG Bo Lin; YANG Zhenlin
  9. Financing Innovation with Innovation By Zhiyuan Chen; Minjie Deng; Min Fang

  1. By: Emir Malikov; Shunan Zhao
    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 cross-sectional 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-firm spillovers in China's electric machinery manufacturing, with a particular focus on productivity effects of inbound FDI.
    Date: 2023–02
  2. By: Mathias Huebener; Jonas Jessen; Daniel Kuehnle; Michael Oberfichtner
    Abstract: Motherhood and parental leave are frequent causes of worker absences and employment interruptions, yet we know little about their effects on firms. Based on linked employer-employee data from Germany, we examine how more generous leave benefits affect firm-level employment and hiring decisions. Focusing on small- and medium-sized firms, we show that more generous benefits reduce firm-level employment in the short term, which is driven by firms with few internal substitutes for the absent mother. However, firms do not respond to longer expected absences by hiring fewer young women, even when few internal substitutes are available. To rationalise the findings, we show that replacement hiring occurs largely before the expected absence and that firms hire more external replacements when fewer internal substitutes are available. These findings indicate that extended leave does not harm _rms when these can plan for the longer worker absences.
    Keywords: Parental leave, worker absences, worker substitutability
    JEL: J16 J18 J24
    Date: 2022–12–13
  3. By: Isaac Sorkin; Melanie Wallskog
    Abstract: Over the last several decades, rising pay dispersion between firms accounts for the majority of the dramatic increase in earnings inequality in the United States. This paper shows that a distinct cross-cohort pattern drives this rise: newer cohorts of firms enter more dispersed and stay more dispersed throughout their lives. A similar cohort pattern drives a variety of other closely related facts: increases in worker sorting across firms on the basis of pay, education, and age, and increasing productivity dispersion across firms. We discuss two important implications. First, these cohort patterns suggest a link between changes in firm entry associated with the decline in business dynamism and the rise in earnings inequality. Second, cohort effects imply a slow diffusion of inequality: we expect inequality to continue to rise as older and more equal cohorts of firms are replaced by younger and more unequal cohorts. Back of the envelope calculations suggest that this momentum could be substantial with increases in between-firm inequality in the next two decades almost as large as in the last two.
    JEL: J3
    Date: 2023–02
  4. By: Daron Acemoglu; Hans R. A. Koster; Ceren Ozgen
    Abstract: We estimate the effects of robot adoption on firm-level and worker-level outcomes in the Netherlands using a large employer-employee panel dataset spanning 2009-2020. Our firm-level results confirm previous findings, with positive effects on value added and hours worked for robot-adopting firms and negative outcomes on competitors in the same industry. Our worker-level results show that directly-affected workers (e.g., blue-collar workers performing routine or replaceable tasks) face lower earnings and employment rates, while other workers indirectly gain from robot adoption. We also find that the negative effects from competitors' robot adoption load on directly-affected workers, while other workers benefit from this industry-level robot adoption. Overall, our results highlight the uneven effects of automation on the workforce.
    JEL: D63 E22 E23 E24 J24 O33
    Date: 2023–03
  5. By: Costas Arkolakis; Federico Huneeus; Yuhei Miyauchi
    Abstract: We use new theory and data to study how firms endogenously form production networks across regions and countries. Supplier and buyer relationships form depending on firms' productivity and geographic location. We characterize the normative and positive properties of the spatial distribution of economic activity and welfare in general equilibrium. We calibrate the model using domestic and international firm-to-firm trade data from Chile. Both iceberg trade costs and search and matching frictions are important for aggregate trade flows and production networks. Endogenous formation of production networks leads to larger and more dispersed effects of international and intra-national trade cost shocks.
    JEL: F10 R13
    Date: 2023–02
  6. By: Emir Malikov; Shunan Zhao; Jingfang Zhang
    Abstract: There is growing empirical evidence that firm heterogeneity is technologically non-neutral. This paper extends Gandhi et al.'s (2020) proxy variable framework for structurally identifying production functions to a more general case when latent firm productivity is multi-dimensional, with both factor-neutral and (biased) factor-augmenting components. Unlike alternative methodologies, our model can be identified under weaker data requirements, notably, without relying on the typically unavailable cross-sectional variation in input prices for instrumentation. When markets are perfectly competitive, we achieve point identification by leveraging the information contained in static optimality conditions, effectively adopting a system-of-equations approach. We also show how one can partially identify the non-neutral production technology in the traditional proxy variable framework when firms have market power.
    Date: 2023–02
  7. By: Anderton, Robert; Botelho, Vasco; Reimers, Paul
    Abstract: Is digitalisation a massive gamechanger which will deliver huge gains in productivity, or is it more of a sideshow with only limited impacts? We use a large balance sheet panel dataset comprising more than 19 million European firm-level observations to empirically investigate the impact of digitalisation on productivity growth via various previously unexplored chan-nels and mechanisms. Our results suggest that for two otherwise identical firms, the firm that exhibits on average a higher share of investment in digital technologies will exhibit a faster rate of TFP growth, but not all firms and sectors experience significant productivity gains from digitalisation. Digitalisation does not seem to have relatively stronger impacts on the productivity of frontier firms compared to laggards, nor does it help to turn laggards into frontier firms. Overall, firms should not regard digital investment as a ‘one-size-fits-all’ strategy to improve their productivity. Digital technologies are a gamechanger for some firms. But they seem more like a sideshow for most firms, who attempt to be increasingly digital but are not able to adequately reap its productivity gains. JEL Classification: D22, D24, D25, O33
    Keywords: digital technology/transition, productivity growth, technology adoption/diffusion
    Date: 2023–03
  8. By: CHANG Pao-Li; MAKIOKA Ryo; NG Bo Lin; YANG Zhenlin
    Abstract: This paper proposes a three-stage GMM estimation procedure for estimating firm-level productivity in the presence of potential spatial dependence across firms via the product market, the input market, and the supply chain. The procedure builds on Ackerberg, Caves and Frazer (2015) and Wooldridge (2009), but in addition, allows the productivity process to depend on the lagged output levels and input usages of related firms, and to accommodate spatially correlated productivity shocks across firms. The procedure provides the estimates of the production function parameters (the capital and labor shares in value-added, and the degree of serial correlation in the productivity process), and the spatial dependence parameters (of productivity on related firms’ past outputs and inputs, and current innovation shocks), where the set of related firms can differ across the three dimensions of spatial dependence. We establish the asymptotic properties of the proposed estimator, and conduct Monte Carlo simulations to validate these properties. In particular, our proposed estimator is consistent under DGPs with or without spatial dependence. In contrast, the conventional estimators are biased when the true DGPs are indeed characterized by spatial dependence.
    Date: 2023–03
  9. By: Zhiyuan Chen; Minjie Deng; Min Fang
    Abstract: This paper documents that firms are increasingly financing innovation using their stock of innovation, measured as patents. We refer to this behavior as financing innovation with innovation. Drawing on patent collateral data from both the US and China, we first show that (1) in both countries, the total number and share of patents pledged as collateral have been rising steadily, (2) Chinese firms employ patents as collateral on a smaller scale and with a lower intensity than US firms, (3) firms increase their borrowing and innovation after they start to use patent collateral. We then construct a heterogeneous firm general equilibrium model featuring idiosyncratic productivity risk, innovation capital investment, and borrow- ing constrained by patent collateral. The model emphasizes two barriers that hinder the use of patent collateral: high inspection costs and low liquidation values of patent assets. We parameterize the model to firm-level panel data in the US and China and find that both barriers are significantly more severe in China than in the US. Finally, counterfactual analyses show that the gains in innovation, output, and welfare from reducing the inspection costs in China to the US level are substantial, moreso than enhancing the liquidation value of patent assets.
    Keywords: Patent collateral; innovation investment; financial frictions; firm dynamics;
    JEL: E22 G32 O31 O33
    Date: 2023–03–02

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