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on Efficiency and Productivity |
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Issue of 2021‒02‒15
nine papers chosen by |
| 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: | Enrico Moretti; Claudia Steinwender; John Van Reenen |
| Abstract: | In the US and many other OECD countries, expenditures for defense-related R&D represent a key policy channel through which governments shape innovation, and dwarf all other public subsidies for innovation. We examine the impact of government funding for R&D - and defense-related R&D in particular - on privately conducted R&D, and its ultimate effect on productivity growth. We estimate models that relate privately funded R&D to lagged government-funded R&D using industry-country level data from OECD countries and firm level data from France. To deal with the potentially endogenous allocation of government R&D funds we use changes in predicted defense R&D as an instrumental variable. In both datasets, we uncover evidence of "crowding in" rather than "crowding out," as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. A 10% increase in government-financed R&D generates 4.3% additional privately funded R&D. An analysis of wages and employment suggests that the increase in private R&D expenditure reflects actual increases in R&D employment, not just higher labor costs. Our estimates imply that some of the existing cross-country differences in private R&D investment are due to cross-country differences in defense R&D expenditures. We also find evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries. Finally, we find that increases in private R&D induced by increases in defense R&D result in significant productivity gains. |
| Keywords: | defense, R&D, productivity |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1662&r=all |
| By: | Cingano, Federico; Hassan, Fadi |
| Abstract: | We study the impact of international financial flows on credit allocation exploiting the early 2000s boom of capital inflows in Italy. Using detailed bank-firm matched data we compare the patterns of credit allocation of banks with different exposure to the shock. Exposed banks significantly expand lending to high productivity and low credit-constraint firms. Constrained but high productivity firms also benefit from the shock. These results hold using alternative measures of firm productivity and credit constraints or of bank exposure to the flows, and do not seem to be driven by concurrent changes in bank funding or by the sorting of borrowers and lenders. We also find that the patterns of credit allocation induced by capital inflows have a positive, albeit small, impact on aggregate TFP. These results show that international financial flows did not contribute to increase misallocation. |
| Keywords: | international financial flows; misallocation; productivity |
| JEL: | F30 F43 G21 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:108460&r=all |
| By: | Xinshen Diao; Mia Ellis; Margaret S. McMillan; Dani Rodrik |
| Abstract: | Recent growth accelerations in Africa are characterized by increasing productivity in agriculture, a declining share of the labor force employed in agriculture and declining productivity in modern sectors such as manufacturing. To shed light on this puzzle, we disaggregate firms in the manufacturing sector by size using two newly created panels of manufacturing firms, one for Tanzania covering 2008-2016 and one for Ethiopia covering 1996-2017. Our analysis reveals a dichotomy between larger firms that exhibit superior productivity performance but do not expand employment much, and small firms that absorb employment but do not experience any productivity growth. We suggest the poor employment performance of large firms is related to use of capital-intensive techniques associated with global trends in technology. |
| JEL: | O1 O14 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28344&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 |
| By: | Cheng Chen; Claudia Steinwender |
| Abstract: | When managers have objectives beyond maximizing monetary profits, inefficiencies may arise. An increase in competition may then force managers to improve the productivity of the firm in order to ensure survival. While this hypothesis has received ample theoretical attention, empirical evidence is scarce, mainly because preferences of managers are typically unobserved. In this paper, we exploit the fact that a large literature has documented specific non-monetary preferences of family managers. Using Spanish firm-level data, we compare how family-managed and professionally-managed firms react to import competition shocks. We find that import competition leads to productivity increases in family-managed firms that are initially unproductive. Productivity improvements are driven by family management as opposed to family ownership or non-managing family members. Furthermore, we show that these managers increase efficiency by reducing material usage, which is consistent with them trying to increase their short-term cash flow in order to survive. Finally, productivity improvements seem to be particularly pronounced in multi-generational family firms that also introduce organizational changes. |
| Keywords: | import competition, productivity, family firms, managers |
| JEL: | D22 D23 F14 L21 L22 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1674&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: | 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: | 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 |