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on Business Economics |
| By: | Timothy Besley; Peter John Lambert; Isabelle Michalski-Roland; John Van Reenen |
| Abstract: | This paper examines the impact of credit frictions arising from firm-level default risk on aggregate economic performance. We build a micro-to-macro model with heterogeneous firms and sector-specific production functions, showing that perceived default risk is a sufficient statistic for credit frictions. Using UK administrative data (2004-2019) matched to S&P risk measures, counterfactual estimates reveal that relaxing frictions raises output by 25% and wages by 23%. Ignoring equilibrium wage adjustments overstates output gains, while fixed-capital misallocation approaches understate them. Most gains reflect aggregate capital accumulation. Credit frictions remain above pre-crisis levels, reshape firm size dynamics, increase misallocation across firms, and dampen productivity growth over time. |
| Keywords: | productivity, default risk, credit frictions, misallocation |
| Date: | 2026–07–29 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2201 |
| By: | Maczulskij, Terhi |
| Abstract: | Abstract This study examines the effects of the 2004 European Union enlargement on firm productivity and innovation in Finland. Using linked employer–employee and firm-level data, the analysis exploits increased access to workers from the ten new EU member states (EU10). To address the endogenous geographic distribution of immigrants, I construct an instrumental variable based on historically predetermined migration patterns. The results show that increased EU10 employment raises firm labor productivity, the probability of having a granted patent, and STEM employment, while effects on other innovation outcomes are more limited. The responses also differ across sectors. In manufacturing, EU10 employment increases process innovation but reduces STEM employment, whereas in services it increases labor productivity and the probability of having granted patents. Overall, the findings suggest that immigration-induced labor-supply changes can improve firm performance and affect selected dimensions of innovation, with the effects varying across sectors and innovation margins. |
| Keywords: | EU enlargement, Firms, Immigration, Innovation, Instrumental variables, Productivity |
| JEL: | D22 F22 O30 |
| Date: | 2026–08–27 |
| URL: | https://d.repec.org/n?u=RePEc:rif:wpaper:145 |
| By: | Yusuf Emre Akgunduz (Central Bank of Turkiye); Ayse Karasoy (Central Bank of Turkiye); Gokce Karasoy Can (Corresponding author. Bank of England); Elif Ozcan Tok (Bank of England) |
| Abstract: | This paper investigates how pre-pandemic investments in digital technologies influenced firm performance during the Covid-19 crisis and subsequent recovery, using comprehensive administrative data from Türkiye. We construct a novel firm-level digitalisation index based on firm-to-firm trade transactions, capturing a broad spectrum of digital investments including software, hardware, consultancy, and data services. Employing coarsened exact matching and a difference-in-differences framework, we find that more digitalised firms outperformed their less digitalised pairs during the pandemic and post-pandemic years. Specifically, digitalised firms exhibited 3% higher total assets, 4% higher net sales, and 2% higher employment, with even greater gains in profitability (0.44 percentage points), return on assets (0.42 percentage points), and export share (0.16 percentage points). To investigate plausible mechanisms consistent with these effects, we examine whether more digitalised firms expanded their trade networks, experienced lower worker turnover, and achieved higher productivity during the pandemic. We find that these firms added 3% more partners and traded over 2% greater distances with reduced labour churn, and higher productivity. These findings underscore the role of digitalisation in enhancing firm resilience and adaptability in the face of economic shocks. |
| Keywords: | Digitalisation;Covid-19;coarsened exact matching;differences-indifferences;firm performance |
| JEL: | C55 D22 O33 |
| Date: | 2026–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023306 |
| By: | Edoardo Maria Acabbi; Andrea Alati; Luca Mazzone |
| Abstract: | Using administrative data, we document that workers acquire more human capital at more productive firms. Recessions distort workers-firm sorting, flatten the job ladder and impact human capital accumulation, as workers match on average to worse firms. To quantify the aggregate relevance of these effects, we build a directed search model with aggregate risk and worker-firm heterogeneity, in which human capital accumulation depends on firm quality. We estimate the model and show that recessions have persistent negative effects on the productivity of worker-firm matches, with distortions in sorting and human capital accumulation accounting for approximately 35% of cumulative output losses. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.29210 |
| By: | Philip Bunn (Bank of England); Nicholas Bloom (Stanford University); Craig Menzies (Bank of England); Paul Mizen (King's College London); Gregory Thwaites (University of Nottingham); Ivan Yotzov (Bank of England) |
| Abstract: | We present new evidence on how firms set prices using direct questions from a large economy-wide survey of UK firms. Since 2023, 54% of firms report setting prices in a state-dependent manner, as opposed to changing prices at fixed intervals. In contrast, 44% of firms used state-dependent pricing in 2019. Smaller firms, those with a higher share of non-labour costs, and those reporting higher subjective uncertainty around sales and prices are more likely to be state-dependent. We then analyse the implications of price-setting behaviour for inflation dynamics. State-dependent firms experienced a sharper increase in price growth over 2022–23, and also a faster subsequent decline. Using evidence from a randomised survey experiment, firm-level forecast errors and local projections, we show that prices of state-dependent firms respond more strongly to cost shocks. The difference between state-dependent and time-dependent firms is furthermore larger for bigger shocks, consistent with theoretical predictions. |
| Keywords: | Inflation;price-setting;survey data;firms |
| JEL: | C83 D22 D84 E31 |
| Date: | 2026–01–09 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023288 |
| By: | Bo Becker; Efraim Benmelech; Joao Monteiro |
| Abstract: | In 2008, the aggregate market value of U.S.-listed firms was roughly one-third higher than that of European-listed firms. By 2023, it was more than 300% higher, a difference of $34 trillion. The valuation gap is broad-based, rather than concentrated among a few superstar firms, and is driven by differences in firm values, not in the number of listed firms. Across sectors, the gap is larger in R&D-intensive industries and in industries with high returns to scale. European firms’ size is strongly correlated with home-country GDP, whereas U.S. firms’ size is unrelated to home-state GDP. Smaller European firms also face a particularly large cost-of-capital gap and do not appear able to substitute debt for limited access to equity financing, including venture capital. Taken together, these facts suggest that financial and product-market frictions constrain European firms’ ability to scale. |
| JEL: | G12 G15 G32 O36 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35577 |
| By: | Ina Ganguli; Jeffrey Lin; Vitaly Meursault; Nicholas F. Reynolds |
| Abstract: | Over nearly two centuries, US inventions have become increasingly dissimilar: not just fewer head-to-head collisions between inventors, but growing distance between neighboring inventions. We document this secular decline in similarity using validated neural language models applied to the full text of claims in over 11 million US patents (1836–2023), corroborated by a 98% decline in patent interference rates, a measure of independent simultaneous invention. Measuring this correctly requires validation, since different representations of the same patent text can yield opposite conclusions about whether inventions are converging or spreading out. Our validation framework, the first systematic comparison for patent text, selects among these representations. We develop a spatial competition model in which inventors choose locations in idea space. The model explains spreading out and connects it to several independently documented patterns — rising R&D investment per inventor, increasing patent values, weakening knowledge spillovers, and declining research productivity. The mechanism is spatial; as inventors spread out to capture new territory, inventions become more valuable but also more costly for others to absorb. In doing so, the model turns spillover intensity, innovation step size, and research productivity from fixed primitives into outcomes of inventor positioning. A calibrated decomposition attributes roughly 40% of the long-run decline in US research productivity to these spatial forces, alongside traditional explanations such as fishing out and the burden of knowledge. Where inventors stand relative to each other in idea space matters as much for growth as how many of them there are. |
| JEL: | C55 O31 O41 O47 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35499 |
| By: | Loukas Karabarbounis; Bruno Pellegrino; Juliana Salomao |
| Abstract: | We develop a general-equilibrium model of the global economy that integrates heterogeneous firms competing in product markets with countries that allocate capital around the world. Combining a hedonic demand system on the product side with a mean-variance portfolio system on the asset side, we obtain almost closed-form solutions for the equilibrium of the model. We use firm-level data on balance sheets, geographic breakdowns of revenue and employment, and business descriptions along with country-level data on bilateral equity holdings and trade costs to quantify the model to a cross section of roughly 23, 000 listed firms in 48 countries. We use the model to evaluate the reallocation and welfare effects of globalization. Both financial and trade liberalization concentrate activity among the largest firms and raise welfare, with gains being larger in emerging and mid-sized open economies respectively. Product- and capital-market frictions amplify each other, meaning that liberalizing one market reduces the gains from liberalizing the other. |
| JEL: | D2 F36 F60 G11 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35652 |
| By: | Paul Gompers; George Hu; Will Levinson; Sachin Srivastava |
| Abstract: | This paper examines how networks formed through college athletics influence the early-career trajectories of Ivy League graduates. Tracking professional histories of 120, 306 Ivy League graduates, we compare each graduate's actual first job against other potential jobs that the graduate could reasonably have taken. Athletics-based networks, especially team-based connections, materially influence initial job choice. Employing one additional alum from a specific Ivy League collegiate sports team increases the probability that a same-team athlete joins the firm by 193.70% relative to the baseline match probability. Likewise, employing one more Ivy League alum who played a specific Varsity sport increases the probability that any Ivy League athlete who plays the same sport joins the firm by 16.40%, while employing one more alum who played any sport at a specific Ivy League university raises the probability that any Ivy League athlete from the same university joins the firm by 4.60%. For team-based connections, these effects persist whether the alum and the college athlete were direct peers whose college years overlapped or older “network” affiliates whose college years were completely disjoint. Our results demonstrate that college athletics-based social networks materially influence initial job placement and early-career trajectories for top college graduates. More generally, they clarify how non-academic social capital shapes the job searching and matching process within labor markets. |
| JEL: | I23 J24 J38 J4 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35527 |
| By: | R. Andrew Butters; Jackson Dorsey; Ivan Rudik |
| Abstract: | How much does pricing pollution cut aggregate emissions, and at what cost? We develop a microfounded equilibrium model of firm production and abatement that can be estimated from standard firm financial and emissions data, without observing abatement effort directly. The model captures three adjustment margins: short-run input substitution, reallocation of output from dirty to cleaner firms, and long-run clean technology adoption. Applying it to the first 17 years of the European Union Emissions Trading System (EU-ETS), we find input substitution is rigid: firms cannot cut emissions in the short run without cutting output. Reallocation instead drives nearly all of the short-run aggregate emissions response, concentrated in sectors with heterogeneous emissions intensities, like power and cement, or with elastic demand, like refining. Clean technology adoption also responds causally to permit price shocks, reducing firms’ emissions intensity over the five years that follow. Doubling the permit price cuts aggregate emissions 23% in the short run and 31% in the longer run after induced clean technology adoption. In the short run, output falls by 4%, primarily because carbon costs pass from upstream polluting industries like electricity to downstream producers. In the long run, output falls just 2.5%, as clean technology adoption dampens these supply-chain impacts. Carbon pricing thus delivers substantial emissions reductions with moderate output effects, and much of the economic burden falls on downstream firms through higher upstream input costs. |
| JEL: | D22 E23 Q52 Q54 Q58 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35682 |
| By: | Karlsson, Jimmy (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Carbon taxation is one of the main policy instruments for reducing greenhouse gas emissions, yet there is still limited evidence on its effects on firms and workers. This paper studies the environmental and economic effects of carbon taxation, with a particular focus on heterogeneity in labor demand across worker groups. I exploit a reform that increased the effective carbon tax for a subset of Swedish manufacturing firms between 2011 and 2018, and combine administrative firm data with matched employer-employee records in a difference-in-differences design. The reform reduced emissions by about 30%, primarily through substitution away from fossil fuels toward biofuels and district heating. It also reduced revenue and employment, with the strongest negative effects concentrated among emission-intensive firms. The employment effects are driven mainly by older workers without a high school degree, although older, highly educated workers are also negatively affected in the most exposed firms. Additional evidence suggests that firms adjusted labor demand primarily through lower hiring rather than higher separations. Scaled by the average increase in effective tax rates (measured in euro per ton CO2), the estimates imply semi-elasticities of -0.58% for emissions and -0.20% for employment among low-educated workers. These results suggest that carbon taxation can substantially reduce industrial emissions, but with concentrated labor-market costs. |
| Keywords: | Carbon taxation; Climate change; Firm performance; Inequality; Employment |
| JEL: | H23 J23 L60 Q52 Q58 |
| Date: | 2026–08–24 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1564 |
| By: | Benjamin Crampton (Bank of England); Rupert-Hu Gilman (Bank of England); Rebecca Mari (Bank of England) |
| Abstract: | This paper examines the exposure of UK firms to flood risk and the impact that past floods have had on corporate outcomes. Through the use of a novel data set that combines highly granular business premise information with flood maps and financial records, we first identify the specific regions, sectors and characteristics of firms where flood risk is most concentrated. Firm-level exposure is significantly influenced by sorting dynamics, with larger premises being more at risk. Second, we demonstrate that flood impacts are highly damaging to firms: they significantly increase the likelihood of business termination for small and medium-sized firms; for surviving firms, there are large negative impacts to revenue, employment, and total assets, with large firms and those in natural resource-related sectors being most affected. |
| Keywords: | Floods;climate change;physical risk |
| JEL: | Q54 R12 E23 |
| Date: | 2026–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023309 |
| By: | Harald Fadinger; Lei Li; Sophia Praetorius; Jan Schymik |
| Abstract: | We study how the U.S.–China trade war affected manufacturing activity in third countries using a novel plant-level dataset covering millions of establishments in 50 major economies, including affiliates of more than 200, 000 multinational enterprises (MNEs). Combining establishment-level data with detailed tariff information, we estimate the effects of U.S. and Chinese punitive bilateral output and input tariffs on sales, employment, and establishments across countries, industries, and stages of production. We find that third-country effects of the trade war are highly heterogeneous and largely offsetting, yielding moderately negative net effects overall. Most of the adjustment is driven by multinational enterprises reallocating activity across affiliate networks, while domestic firms respond much less. |
| Keywords: | global value chains, firm location choice, multinational enterprise, trade policy, tariffs, tariff elasticity, upstreamness, downstreamness, output tariffs, input tariffs, third-country effects of trade policy |
| JEL: | F13 F14 F23 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12942 |
| By: | Jonathan Hall; Jason Hicks; Morris M. Kleiner; Yun taek Oh |
| Abstract: | We examine whether occupational licensing improves service quality and safety using trip-level Uber data that include driver ratings and telematics-based measures of driving behavior. Exploiting quasi-random assignment from proximity-based dispatch, we compare trips served by licensed and unlicensed drivers in two settings: a cross-border comparison between New York City and New Jersey, and a deregulation event in Houston. Across settings and specifications, including instrumental variable estimates, we find no consistent evidence that licensing improves consumer outcomes. In Houston, post-deregulation entrants are indistinguishable from previously licensed drivers on ratings and driving behavior, despite differing markedly in experience and age. |
| JEL: | J0 J44 J48 J89 K29 L10 L8 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35635 |
| By: | Ricardo Perez-Truglia; Jeffrey Yusof |
| Abstract: | The rise of superstar firms has made dominant companies central to modern economic life, and antitrust enforcement is one of the main policy tools for regulating their market power. Public opinion can shape the political and regulatory environment in which antitrust enforcement takes place, yet there is little direct evidence on what drives these preferences. We conduct a pre-registered information-provision experiment with 4, 000 American households. Respondents were told about one of five real antitrust cases and randomly assigned to information treatments designed to study four potential drivers of support for antitrust enforcement: perceived market share, perceived consumer harm, perceived unfair competition, and perceived negative image. All four treatments moved the beliefs they were designed to affect, but their effects on demand for antitrust differed sharply. Information about consumer harm had the most systematic effects: it increased plaintiff support and support for break-up and conduct remedies, with effects remaining visible one month later, and also spilled over to broader support for antitrust policies. By contrast, and contrary to expert forecasts, information about market share had no meaningful effect on demand for antitrust enforcement. The findings suggest that the public thinks like economists in one key respect: they do not care about market share per se, but respond instead to consumer harm. One factor outside the core economic framework, perceived unfair competition, also matters, though its effects are more limited in scope. We discuss implications for policymakers and regulators. |
| JEL: | C90 D83 K21 L40 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35503 |
| By: | Tomás Domínguez-Iino; Jonathan T. Elliott; Allan Hsiao |
| Abstract: | The green energy transition will be powered by the mining and processing of lithium, nickel, and cobalt, which are critical for the production of advanced batteries. These minerals are concentrated geographically but traded globally, allowing key mining countries to exercise market power through policy intervention. Advanced batteries use multiple minerals in combination, and this joint use creates interdependence across mineral markets. We study the geopolitical implications of these forces and their consequences for green technology adoption worldwide. We quantify supply chain vulnerability, international policy spillovers, and the potential for mineral cartels. |
| JEL: | L13 L72 Q37 Q56 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35654 |
| By: | Ha Minh Nguyen |
| Abstract: | How do demographic trends shape the adoption of AI and automation technologies? This paper provides the first large-scale cross-country firm-level test of the demographic–automation hypothesis using World Bank Enterprise Surveys data covering 89, 380 firms across 144 countries from 2022 to 2025. I classify adopters by applying a large language model to firms’ open-ended process innovation descriptions, identifying 1, 656 AI and automation adopters (1.9 percent of the sample). A ten-percentage-point increase in the old-age dependency ratio raises process adoption probability by approximately 0.6 percentage points, after accounting for countries’ income levels, digital infrastructure, firm size and sector, and broad regional and time differences. The result is robust across specifications and supported by an instrumental variable strategy based on predetermined demographic cohort structure. Heterogeneity analysis shows the effect concentrates in manufacturing, large firms, and developing economies for the broad adoption measure; restricting to firms with explicit references to AI reverses the sector pattern, with services firms significantly more likely to adopt than manufacturing firms, pointing to distinct sectoral profiles for software-based AI and hardware-based automation. Aging also predicts firms’ development of AI-enabled products across both manufacturing and services. The results indicate that demographic aging shapes AI and automation adoption through both process and product innovation channels: firms substitute technology for increasingly scarce and costly labor in production, and separately develop AI-enabled products for labor-constrained customers. |
| Keywords: | Aging; automation; artificial intelligence; firm-level; technology adoption; labor-saving technology; World Bank Enterprise Surveys; demographics; labor substitution |
| Date: | 2026–08–21 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/176 |