nep-sbm New Economics Papers
on Small Business Management
Issue of 2023‒06‒19
twenty-one papers chosen by
João Carlos Correia Leitão
Universidade da Beira Interior

  1. The Transfer of Federally Funded Technology: A Study of Small, Entrepreneurial, and Ambidextrous Firms By Guerrero, Maribel; Link, Albert; van Hasselt, Martijn
  2. Do digitalization spurs SMEs’ participation in foreign markets? By Dolores Añon Higón; Juan A. Daniel Bonvin
  3. Prior Work Experience and Entrepreneurship: The Careers of Young Entrepreneurs By Gendron-Carrier, Nicolas
  4. Acquiring Innovation - Do Chinese acquisitions in developed countries spur innovation at home? By Mariana Spatareanu
  5. Testing an extended knowledge-capital model of foreign direct investment By Kox, Henk L.M.
  6. Productivity Spillovers among Knowledge Workers in Agglomerations: Evidence from GitHub By Lena Abou El-Komboz; Thomas Fackler
  7. Intuit QuickBooks Small Business Index: A new employment series for the US, Canada, and the UK By Akcigit, Ufuk; Chhina, Raman; Cilasun, Seyit Mümin; Miranda, Javier; Ocakverdi, Eren; Serrano-Velarde, Nicolas
  8. Financial Constraints and Firm Size: Micro-Evidence and Aggregate Implications By Miguel Ferreira; Timo Haber; Christian Rorig
  9. The adoption of innovation in international development organisations: Lessons for development co-operation By Benjamin Kumpf
  10. Labour costs and the decision to hire the first employee By Bart Cockx; Sam Desiere
  11. Adoption of CEO Term Limit and Firm Performance (Japanese) By ISHIDA Souhei; SUZUKI Katsushi; NISHIMURA Yoichiro
  12. Environmental regulation and productivity growth in the euro area: testing the Porter hypothesis By Benatti, Nicola; Groiss, Martin; Kelly, Petra; Lopez-Garcia, Paloma
  13. Modeling new-firm growth and survival with panel data using event magnitude regression By Frédéric Delmar; Jonas Wallin; Ahmed Maged Nofal
  14. Bankruptcy recovery rate and small businesses' innovation By Luca Fare; Marcus Dejardin; Eric Toulemonde
  15. Inward Foreign Direct Investment, Transactions, and Domestic Firms' Performance: Evidence from firm-to-firm transaction linkage By ITO Tadashi; TANAKA Ayumu
  16. Can artificial intelligence improve the effectiveness of government support policies? By Kim, Minho; Han, Jaepil
  17. Clean Innovation and Heterogeneous Financing Costs By Emanuele Campiglio; Alessandro Spiganti; Anthony Wiskich
  18. Innovation and the Labor Market: Theory, Evidence and Challenges By Corrocher, Nicoletta; Moschella, Daniele; Staccioli, Jacopo; Vivarelli, Marco
  19. Exploring the drivers of Sustainable Innovation in wine cooperatives: a case-studies analysis By Uliano, Anna; Marotta, Giuseppe; Stanco, Marcello; Nazzaro, Concetta
  20. Determinants of financing demand from microcredit associations by small family farms in Morocco: The case of the Chtouka-Ait-Baha province By Mohamed Adaskou; Abdelkarim Hssoune
  21. Regional Productivity Network in the EU By Camilla Mastromarco; Laura Serlenga; Yongcheol Shin

  1. By: Guerrero, Maribel (Arizona State University); Link, Albert (University of North Carolina at Greensboro, Department of Economics); van Hasselt, Martijn (University of North Carolina at Greensboro, Department of Economics)
    Abstract: In this paper, we study the technology transfer mechanisms used to protect intellectual property by small, entrepreneurial firms that received Phase II research awards from the U.S Small Business Innovation Research (SBIR) program. The technology transfer mechanisms considered are patenting and publishing. Controlling for the agencies that funded the Phase II research (DOD and NIH), we find that the presence of a university as a research partner engenders greater patenting and publishing. We also find that minority-owned firms patent more intensely than do other firms. A portion of the firms patent and publish; we define these firms, based on our advanced review of the literature, to be ambidextrous. Ambidextrous firms are more likely to include a university as a research partner, to be male-owned and minority-owned, and to be relatively small. Our findings represent a new and important advancement to the literature.
    Keywords: SBIR program; technology transfer; patenting; publishing; intellectual property; ambidexterity; entrepreneurial firms; program evaluation;
    JEL: L21 L26 O34 O38
    Date: 2023–05–30
  2. By: Dolores Añon Higón (Department of Applied Economics II and ERI-CES, Faculty of Economics, Universitat de València, Avda. Tarongers, s/n, 46022 Valencia (Spain).); Juan A. Daniel Bonvin (Department of Applied Economics II, Faculty of Economics, Universitat de València, Avda. Tarongers, s/n, 46022 Valencia (Spain).)
    Abstract: This study aims to empirically examine the impact of the digital transformation on the participation of small and medium-sized enterprises (SMEs) in export and import activities. In this regard, empirical evidence at the firm level is very limited. Using a representative panel of Spanish SMEs from 2001 to 2014, we contribute to the literature by constructing a multidimensional index of digitization at the firm level and estimating a set of dynamic models analyzing the direct and indirect (via total factor productivity) effects of the digital transformation on SMEs’ export and import strategies. Overall, our results show that firm decisions to export and import are simultaneously determined. Moreover, the firms’ degree of digitalization positively influences the probability to export and import, both directly and indirectly through TFP. The direct effect seems to be larger for exports than for imports, while the opposite seems true for the indirect effect.
    Keywords: Exports, Imports, Digital transformation, SMEs, Productivity.
    JEL: D22 D24 F14 O33
    Date: 2023–05
  3. By: Gendron-Carrier, Nicolas (McGill University)
    Abstract: I investigate the mechanisms that drive sorting into entrepreneurship and entrepreneurial success among young individuals. I use Canadian matched owner-employeremployee data to conduct my investigation. Empirically, older entrepreneurs and entrepreneurs who have previously worked in high-wage firms tend to do better. To explain these findings, I develop a dynamic Roy model of career choice that features heterogeneous employers, human capital accumulation, and unobserved heterogeneity across individuals. Among other things, I find that prior work experience is particularly valuable for "subsistence" entrepreneurs. I use the estimated model to evaluate policies designed to promote entrepreneurship.
    Keywords: entrepreneurship, human capital, firm heterogeneity, career choice, dynamic Roy model, unobserved heterogeneity
    JEL: J24 J31 J62 L26
    Date: 2023–05
  4. By: Mariana Spatareanu
    Abstract: Chinese multinationals’ acquisitions of Western firms have increased dramatically in recent years. However, relatively little is known about the effects of these acquisitions on the acquirers’ innovation. Using Chinese acquisitions in Western countries during 2000-2017 and applying matching and difference in difference methods we find that Chinese acquirers innovate more after acquisitions. Their patenting activity significantly picks up after the acquisitions of high-tech firms in developed countries. The results give support to the widespread view that Chinese companies are acquiring foreign technologies through acquisitions; they also show that Chinese companies successfully transfer and incorporate the newly acquired technologies at home, especially if the parent company was an innovator before the acquisition. The results also show that the degree of product complexity of the target firms matters and increases the innovation activity of Chinese acquirers.
    Keywords: M&As, emerging markets MNEs, innovation
    JEL: F23 O31
    Date: 2023–02
  5. By: Kox, Henk L.M.
    Abstract: The knowledge-capital model of foreign direct investment implies that countries with relatively large outward FDI stocks should also have a relative abundance of proprietary knowledge assets. Early versions of the knowledge-capital theory model these assets as if they were only the results of knowledge investments by private firms. We extend the theory by modelling the public-private interaction in knowledge development. This sheds light on the role of the origin country of multinationals. The paper extracts four testable predictions from the model. We to use the inter-country variation in national knowledge-creation systems and foreign-investment performance to test the model. After developing a new dataset that holds knowledge-creation indicators for about 200 countries over the period 2000-2020, we apply a range of non-parametric tests to test the model predictions. Our findings confirm the basic tenet of the knowledge-capital model and show the important role of public knowledge production for outward FDI.
    Keywords: business innovation; public knowledge creation; foreign direct investment; knowledge capital; empirical test; worldwide scope
    JEL: D21 D83 F23 O31 O34
    Date: 2023–05–10
  6. By: Lena Abou El-Komboz (ifo Institute, LMU Munich); Thomas Fackler (ifo Institute, LMU Munich, CESifo, Laboratory for Innovation Science at Harvard)
    Abstract: Software engineering is a field with strong geographic concentration, with Silicon Valley as the epitome of a tech cluster. Yet, most studies on the productivity effects of agglomerations measure innovation with patent data, thus capturing only a fraction of the industry's activity. With data from the open source platform GitHub, our study contributes an alternative proxy for productivity, complementing the literature by covering a broad range of software engineering. With user activity data covering the years 2015 to 2021, we relate cluster size to an individual's productivity. Our findings suggest that physical proximity to a large number of other knowledge workers in the same field leads to spillovers, increasing productivity considerably. In further analyses, we confirm the causal relationship with an IV approach and study heterogeneities by cluster size, initial productivity and project characteristics.
    Keywords: agglomeration effects; knowledge spillovers; open source; online collaboration;
    JEL: D62 J24 O33 O36 R32
    Date: 2023–05–26
  7. By: Akcigit, Ufuk; Chhina, Raman; Cilasun, Seyit Mümin; Miranda, Javier; Ocakverdi, Eren; Serrano-Velarde, Nicolas
    Abstract: Small and young businesses are essential for job creation, innovation, and economic growth. Even most of the superstar firms start their business life small and then grow over time. Small firms have less internal resources, which makes them more fragile and sensitive to macroeconomic conditions. This suggests the need for frequent and real-time monitoring of the small business sector's health. Previously this was difficult due to a lack of appropriate data. This paper fills this important gap by developing a new Intuit QuickBooks Small Business Index that focuses on the smallest of small businesses with at most 9 workers in the US and the UK and at most 19 workers in Canada. The Index aggregates a sample of anonymous QuickBooks Online Payroll subscriber data (QBO Payroll sample) from 333, 000 businesses in the US, 66, 000 in Canada, and 25, 000 in the UK. After comparing the QBO Payroll sample data to the official statistics, we remove the seasonal components and use a Flexible Least Squares method to calibrate the QBO Payroll sample data against official statistics. Finally, we use the estimated model and the QBO Payroll sample data to generate a near real-time index of economic activity. We show that the estimated model performs well both in-sample and out-of-sample. Additionally, we use this analysis for different regions and industries.
    Keywords: employment, entrepreneurship, index, job creation, small businesses, turnover
    JEL: J23 J63 O47
    Date: 2023
  8. By: Miguel Ferreira; Timo Haber; Christian Rorig
    Abstract: Using a unique dataset covering the universe of Portuguese firms and their credit situation we show that financially constrained firms are found across the entire firmsize distribution, even in the top 1%. Incorporating a richer, empirically supported, productivity process into a standard heterogeneous firms model generates a joint distribution of size and credit constraints in line with the data. The presence of large constrained firms in the economy, together with their elevated capital share, explains about 66% of the response of output to a financial shock. We conclude by providing microevidence in support of themodel mechanism.
    Keywords: Firmsize; business cycle; financial accelerator
    JEL: E62 E22 E23
    Date: 2023–05
  9. By: Benjamin Kumpf
    Abstract: Addressing 21st century development challenges requires investments in innovation, including the use of new approaches and technologies. Currently, many development organisations prioritise investments in isolated innovation pilots that leverage a specific approach or technology rather than pursuing a strategic approach to expand the organisation’s toolbox with innovations that have proven their comparative advantage over what is currently used. This Working Paper addresses this challenge of adopting innovations. How can development organisations institutionalise a new way of working, bringing what was once novel to the core of how business is done?Analysing successful adoption efforts across five DAC agencies, the paper lays out a proposed process for the adoption of innovations. The paper features five case-studies and concludes with a set of lessons and recommendations for policy makers on innovation management generally, and adoption of innovation in particular.
    Keywords: diffusion of innovation, innovation, innovation management, international development, organisational development
    JEL: L3 L30 L31 L32 O3 O32 O33
    Date: 2023–06–05
  10. By: Bart Cockx (IRES/LIDAM, UCLouvain. Department of Economics, Ghent University, Belgium. IZA, Bonn, Germany. CESIfo, Munich, Germany. ROA, Maastricht University, the Netherlands.); Sam Desiere (Department of Economics, Ghent University, Belgium. IZA, Bonn, Germany.)
    Abstract: Firms without paid employees account for up to 80% of all firms, but only a small minority ever hires. This paper investigates the relationship between labour costs and the decision to hire a first employee and become an employer. Leveraging a unique policy in Belgium that permanently reduced the labour cost of the first employee by 13%, we find that the number of new, first-time employers jumped by 31% immediately following the reform. The elasticity of the probability to hire the first employee with respect to the labour cost is −2.39 [95% CI: −3.45, −1.25].
    Keywords: nonemployers, hiring decisions, payroll taxes, small businesses
    JEL: D22 H25 J08 J23 L26 M13
    Date: 2023–05–17
  11. By: ISHIDA Souhei; SUZUKI Katsushi; NISHIMURA Yoichiro
    Abstract: This study examines the determinants of the adoption of a term limit system, in which the tenure of the CEO is predetermined, and the impact of adopting the system on firm performance. Our results show that firms with more R&D investment, lower financial institutional shareholdings, and a greater number of educated CEO candidates are more likely to adopt the term-limit system. The relationship between the tenure system and firm performance is an inverted U-shaped for the non-term-limit firms, but no such relationship is found for the term limit firms. We find that the market value of firms that adopt the term limit is higher than that of firms that do not adopt the term limit in the years following CEO turnover, and that CEO turnover takes place before performance would have deteriorated due to the prolonged CEO tenure that would have occurred otherwise in the firms that adopt the term limit. These results are consistent with the idea that the term limit system is adopted in those firms with large disadvantages due to obsolescence of CEO capabilities, rigid strategies, and deteriorating corporate governance caused by long CEO tenure, as well as in those firms with small CEO turnover costs.
    Date: 2023–04
  12. By: Benatti, Nicola; Groiss, Martin; Kelly, Petra; Lopez-Garcia, Paloma
    Abstract: This paper analyses the impact of changes in environmental regulations on productivity growth at country- and firm-level. We exploit several data sources and the environmen-tal policy stringency index, to evaluate the Porter hypothesis, according to which firms’ productivity can benefit from more stringent environmental policies. By using panel local projections, we estimate the regulatory impact over a five-year horizon. The identification of causal impacts of regulatory changes is achieved by the estimation of firms’ CO2 emissions via a machine learning algorithm. At country- and firm-level, policy tightening affects high-polluters’ productivity negatively and stronger than their less-polluting peers. However, among high-polluting firms, large ones experience positive total factor productivity growth due to easier access to finance and greater innovativeness. Hence, we do not find support for the Porter hypothesis in general. However for technology support policies and firms with the required resources, policy tightening can enhance productivity. JEL Classification: O44, Q52, Q58
    Keywords: emissions, environmental regulation, euro area, Porter hypothesis, productivity
    Date: 2023–05
  13. By: Frédéric Delmar (EM - emlyon business school); Jonas Wallin; Ahmed Maged Nofal
    Date: 2022–09
  14. By: Luca Fare; Marcus Dejardin; Eric Toulemonde (Development Finance and Public Policies, University of Namur)
    Abstract: Small businesses often face a high risk of bankruptcy and harsh financing conditions, which can hamper them to engage in innovation. This paper investigates whether a bankruptcy system that guarantees a good recovery rate for creditors in case of firms’ liquidation stimulates small businesses’ innovation investments through lower interest rates and therefore easier access to credit. With the help of a borrower-lender model we derive insights about the interactions between bankruptcy recovery rate, borrowing interest rates and firms’ investments in innovation. The model gives theoretical underpinnings for a subsequent empirical analysis. By using a cross-country sample of micro (1-9 employees)-, small (10-49 employees)-, and medium (50-249 employees)-sized enterprises (MSMEs), our study provides three main results. It shows that an increase in the bankruptcy recovery rate a) is positively associated to MSMEs’ investments in innovation (investment effect); b) reduces the share of MSMEs that are credit constrained because the cost of borrowing is too high (constraint effect); c) reduces the interest rates dispersion for high profitable MSMEs (dispersion effect). Overall, our findings suggest that improving creditors recovery rate can help promoting the innovative behaviour of small businesses through easier financing conditions.
    Date: 2023–05
  15. By: ITO Tadashi; TANAKA Ayumu
    Abstract: Many studies have attempted to use industry-level variations in the presence of foreign firms to estimate the impact of foreign firms on domestic firms. However, owing to the limitations of industry-level data, the channels through which foreign firms influence domestic firms are unclear. Our study used a large set of Japanese firm-to-firm transaction data to test whether domestic firms’ performance improves through firm-to-firm transactions with foreign-affiliated firms. Our empirical analyses using the state-of-the-art technique of causal inference, such as event study design and staggered difference-in-differences estimator, show no evidence of positive spillover effects of MNEs on domestic firms through business transactions.
    Date: 2023–03
  16. By: Kim, Minho; Han, Jaepil
    Abstract: Despite high hopes for artificial intelligence (AI) to generate powerful innovations across the public sphere backed by its strong prediction skills, Korea has not fully brought the technologies into the public sector in tasks like identifying policy target groups and managing follow-up tasks in line with its policy objectives.Recent cases of AI-applied public services in Korea show limited usage, mainly replacing simple repetitive tasks. Few leading countries are trying to apply AI-based analysis to select promising policy target groups to effectively achieve policy goals and follow up on the performance of public projects. While the existing management system for policy performance is mostly about ex-post assessment of project outcomes, the application of AI technologies signifies a shift to data-driven decision-making that uses ex-ante forecasts of policy effects. An analysis of AI-applied recipient selection of small and medium enterprise (SME) policy support programs demonstrated the efficiency of AI in predicting the performance of beneficiary firms after the program and AI's potential to significantly improve the effectiveness of public support by providing helpful information in screening out unfit SMEs. Using firm-level data, this study applies machine learning to various public financing programs (subsidies or loans for SMEs) funded by the Ministry of SMEs and Startups and finds that AI helps predict the growth of recipient firms in the years following policy support. The application of AI in identifying fitting recipients likely to achieve intended objectives may increase project effectiveness. In a KDI survey in 2020, respondents pointed out that what hinders transitioning into a system of AI-applied, data-driven policymaking in the public sector are: 1) incomplete standardization and linkage of policy information between governmental ministries and 2) lack of expertise in technology utilization in the public sector. By developing a strategy to propel a transition into data-driven policymaking in the public sector, coordinated national-level efforts must be made to heighten policy effectiveness across different public fields, including education, health care, public safety, national defense, and business support. One way to adopt AI technologies in the public sector is by designing a policy to support technology adoption for competent public institutions. Support measures may cover system, data platform, security, organizational consulting, training, etc. Detailed strategies are: 1) unifying existing data management systems into one single platform, 2) reorganizing the way government work gets done to enable efficient exchange of policy information, and 3) building a trust-based public-private partnership. By examining the policy cycle from planning and implementation to evaluation, it is important to clarify areas for AI to contribute to policy decision-making. Also, the government needs step-by-step strategies toward data-driven policymaking, such as setting clear project objectives, selecting and sharing data, establishing system and security, and promoting operational transparency.
    Keywords: Artificial intelligence, Public sector, SME policy, South Korea
    Date: 2022
  17. By: Emanuele Campiglio; Alessandro Spiganti; Anthony Wiskich
    Abstract: Access to finance is a major barrier to clean innovation. We incorporate heterogeneous and endogenous financing costs in a directed technical change model and identify optimal climate mitigation policies. The presence of a financing experience effect induces more ambitious policies in the short-term, both to shift innovation and production towards clean sectors and to reduce the financing cost differential across technologies, which further facilitates the transition. The optimal climate policy mix between carbon taxes and clean research subsidies depends on whether experience is gained through clean production or research. In our benchmark scenario, where clean financing costs decline as cumulative clean output increases, we find an optimal carbon price premium of 47% in 2025, relative to a case with no financing costs.
    Keywords: carbon tax, directed technological change, endogenous growth, financing experience effect, innovation policy, low-carbon transition, optimal climate policy, sustainable finance
    JEL: H23 O31 O44 Q55 Q58
    Date: 2023–05
  18. By: Corrocher, Nicoletta; Moschella, Daniele; Staccioli, Jacopo; Vivarelli, Marco
    Abstract: This paper deals with the complex relationship between innovation and the labor market, analyzing the impact of new technological advancements on overall employment, skills and wages. After a critical review of the extant literature and the available empirical studies, novel evidence is presented on the distribution of labor-saving automation (namely robotics and AI), based on natural language processing of US patents. This mapping shows that both upstream high-tech providers and downstream users of new technologies - such as Boeing and Amazon - lead the underlying innovative effort.
    Keywords: Innovation, Technological Change, Skills, Wages, Technological Unemployment
    JEL: O33
    Date: 2023
  19. By: Uliano, Anna; Marotta, Giuseppe; Stanco, Marcello; Nazzaro, Concetta
    Abstract: With the current social, economical, and environmental scenarios, the intensive farming is no longer viable. In this context, innovation may play a crucial role. In particular, responsible innovation represent a value creation driver, allowing farms to realize internal economies and external social economies. The development of innovative processes is particularly suited to cooperatives, as they generate a competitive advantage and allow to overcome two constraints to sustainable innovation adoption: high costs and complexity. These aspects, which highlight the significant role of cooperation and innovation in the shared value creation process, have not been broadly addressed in previous contributions, especially regarding the wine sector. Therefore, this study aims to investigate the drivers of innovation processes for shared value creation in wine cooperatives. A 2-step analysis was implemented, including the definition of an interpretative model on the drivers of sustainable innovation processes for shared value creation in cooperatives, and a comparative analysis among two wine cooperatives, in order to validate such model. Results have validated the hypothesized scheme: in both cases, the drivers included in the model are essential for the adoption of innovations in viticulture. In particular, governance mechanisms and the very effectiveness of innovations change according to the territorial context.
    Keywords: Environmental Economics and Policy, Research and Development/Tech Change/Emerging Technologies
    Date: 2023–03
  20. By: Mohamed Adaskou (FSJES - Faculté des sciences juridiques économiques et sociales d’Agadir); Abdelkarim Hssoune (FSJES - Faculté des sciences juridiques économiques et sociales d’Agadir)
    Abstract: This article examines the determinants of demand for microcredit by small family farms in the Chtouka-Ait-Baha province of Morocco. The study was conducted with 296 farmers using a stratified sampling method.The data was analyzed using Logit model. The results show that socioeconomic characteristics such as income, facing usury interest and proximity to microcredit association (MCA) have a negative and significant relationship with the probability of microcredit demand. However, credit information and engagement in non-agricultural activities have a positive and significant relationship with the probability of microcredit demand. With regard to the intrinsic characteristics of small family farms, the study shows a negative relationship between the number of cattle and the available surface area with the probability of microcredit demand, and a positive relationship between the cultivated area and microcredit demand. This article recommends the implementation of financial products that are better suited to the needs of small family farms and a better structuring of the agricultural sector to improve access to financing and encourage diversification of activities. These recommendations can strengthen the role of microcredit associations in financing small family farms in Morocco and contribute to the economic and social development of rural areas.
    Abstract: Cet article examine les déterminants de la demande de microcrédit par les petits exploitants agricoles familiaux dans la province Chtouka-Ait-Baha au Maroc. L'étude a été menée auprès de 296 exploitants agricoles en utilisant une méthode de sondage stratifiée. Les données ont été analysées à l'aide d'un modèle Logit. Les résultats montrent que les caractéristiques socioéconomiques telles que le revenu, la confrontation de l'intérêt à l'usure et la proximité de l'Association de microcrédit (AMC) ont une relation négative et significative avec la probabilité de demande de microcrédit. Cependant, l'information sur le crédit et l'exercice d'une activité non agricole ont une relation positive et significative avec la probabilité de demande de microcrédit. En ce qui concerne les caractéristiques intrinsèques des petites exploitations agricoles familiales, l'étude montre une relation négative entre le nombre de bovins et la superficie disponible avec la probabilité de demande de microcrédit, et une relation positive entre la superficie cultivée et la demande de microcrédit. L'article recommande la mise en place de produits financiers plus adaptés aux besoins des petites exploitations familiales et une meilleure structuration du secteur agricole pour améliorer l'accès aux financements et encourager la diversification des activités. Ces recommandations peuvent renforcer le rôle des associations de microcrédit dans le financement des petites exploitations agricoles familiales au Maroc et contribuer ainsi au développement économique et social des zones rurales.
    Keywords: Chtouka-Ait-Baha, determinant, logit model, microcredit, small family farm, déterminant, microcrédit, modèle logit, petite exploitation familiale
    Date: 2023–04–16
  21. By: Camilla Mastromarco; Laura Serlenga; Yongcheol Shin
    Abstract: We develop a unified stochastic frontier model which controls for the local spatial correlation and the global factor dependence as well as parameter heterogeneity, simultaneously. We then propose the regional productivity network analysis to examine the diffusion impacts of the capital intensity on the labour productivity in the EU. We apply the proposed approach to the dataset consisting of 202 regions in the EU15 countries over 1980-2019, and convincingly unveil that the technological shock diffuses from efficient regions operating on or near the frontier to inefficient regions. This suggests that policies to enhance domestic absorption capacity appear better suited to net receivers of technological shocks whilst policies to attract more R&D investments are appropriate to their transmitters. In this regard we stress the importance of investing European funds in peripheral regions to address regional inequality and polarisation.
    Keywords: spatial stochastic frontier model with factors and heterogeneity, CCEX-IV estimator, regional productivity network analysis in the EU, efficiency clusters
    JEL: C13 C33 D24 O47
    Date: 2023

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