nep-tid New Economics Papers
on Technology and Industrial Dynamics
Issue of 2018‒11‒19
nine papers chosen by
Fulvio Castellacci
Universitetet i Oslo

  1. New Technologies, Global Value Chains, and Developing Economies By Rodrik, Dani
  2. Robots and reshoring: Evidence from Mexican local labor markets By Faber, Marius
  3. Firm R&D Investment and Export Market Exposure By Bettina Peters; Mark J. Roberts; Van Anh Vuong
  4. Barriers to Entry and Regional Economic Growth in China By Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten
  5. Markups Dispersion and Firm Entry: Evidence from Ethiopia By Kaku Attah Damoah; Giorgia Giovannetti; Marco Sanfilippo
  6. Product market regulation, business churning and productivity: Evidence from the European Union countries By Robert Anderton; Barbara Jarmulska; Benedetta Di Lupidio
  7. Leverage over the Life Cycle and Implications for Firm Growth and Shock Responsiveness By Emin Dinlersoz; Sebnem Kalemli-Ozcan; Henry Hyatt; Veronika Penciakova
  8. Potential output and microeconomic heterogeneity By Davide Fantino
  9. EU-UK global value chain trade and the indirect costs of Brexit By Rita Cappariello; Milan Damjanovic; Michele Mancini; Filippo Vergara Caffarelli

  1. By: Rodrik, Dani
    Abstract: Many of the exports of developing countries are channeled through global value chains (GVCs), which also act as conduits for new technologies. However, new capabilities and productive employment remain limited so far to a tiny sliver of globally integrated firms. GVCs and new technologies exhibit features that limit the upside and may even undermine developing countries' economic performance. In particular, new technologies present a double whammy to low-income countries. First, they are generally biased towards skills and other capabilities. This bias reduces the comparative advantage of developing countries in traditionally labor-intensive manufacturing (and other) activities, and decreases their gains from trade. Second, GVCs make it harder for low-income countries to use their labor cost advantage to offset their technological disadvantage, by reducing their ability to substitute unskilled labor for other production inputs. These are two independent shocks that compound each other. The evidence to date, on the employment and trade fronts, is that the disadvantages may have more than offset the advantages.
    Keywords: Economic Growth; GVC; International Trade
    JEL: O33 O40
    Date: 2018–10
  2. By: Faber, Marius (University of Basel)
    Abstract: Robots in advanced economies have the potential to reduce employment in offshoring countries by fueling reshoring. Using robots instead of humans for production may reduce the relative cost of domestic production and, in turn, lower demand for imports from offshoring countries. I analyze the impact of robots on employment in an offshoring country, using data from Mexican local labor markets between 1990 and 2015. A recent literature shows that the effect of robots on local employment can be estimated by regressing the change in employment on exposure to domestic robots in local labor markets. I similarly construct a measure of exposure to foreign robots , assuming that the share of US robots competing with Mexican labor is proportional to that industry's initial reliance on Mexican imports. Using robot penetration in the rest of the world (i.e., neither in Mexico nor in the US) as an instrument for domestic and foreign robotization, I show that the use of robots in the US has a robust and sizable, negative impact on employment in Mexico by reducing exports to the US. The effect is not driven by pre-existing trends, the automotive industry or migration patterns. It is strongest for low-skilled machine operators and technicians in highly robotized manufacturing industries as well as high-skilled managers and professionals in the service industry.
    Keywords: Technology: trade; robots; reshoring; offshoring
    JEL: F16 O14 O33
    Date: 2018–10–30
  3. By: Bettina Peters; Mark J. Roberts; Van Anh Vuong
    Abstract: In this article we study differences in the returns to R&D investment between firms that sell in international markets and firms that only sell in the domestic market. We use German firm-level data from the high-tech manufacturing sector to estimate a dynamic structural model of a firm's decision to invest in R&D and use it to measure the difference in expected long-run benefit from R&D investment for exporting and domestic firms. The results show that R&D investment leads to a higher rate of product and process innovation among exporting firms and these innovations have a larger impact on productivity improvement in export market sales. As a result, exporting firms have a higher payoff from R&D investment, invest in R&D more frequently than firms that only sell in the domestic market, and, subsequently, have higher rates of productivity growth. The endogenous investment in R&D is an important mechanism that leads to a divergence in the long-run performance of firms that differ in their export market exposure. Simulating the introduction of trade tariffs we find a substantial reduction in firms' productivity growth and incentive to invest in R&D.
    JEL: F14 L25 O3
    Date: 2018–11
  4. By: Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten
    Abstract: The non-state manufacturing sector has been the engine of China's economic transformation. Up through the mid-1990s, the sector exhibited large regional differences; between 1995 and 2004 we observe rapid convergence in terms of productivity, wages, and new firm start-up rates. To analyze the drivers of this behavior, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and a novel entry barrier. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance across prefectures and over time. Entry barriers turn out to be the salient factor explaining performance differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector. Thus, the downsizing of the state sector after 1997 may be important in explaining the regional convergence and manufacturing growth after 1995.
    Keywords: Chinese economic growth; SOEs; fi rm entry; entry barriers; capital wedges; output wedges; SOE reform
    JEL: O11 O14 O16 O40 O53 P25 R13 D22 D24 E24
    Date: 2018–11–07
  5. By: Kaku Attah Damoah; Giorgia Giovannetti; Marco Sanfilippo
    Abstract: This paper examines if and to what extent micro-level distortions affect structural transformation in a developing country by creating entry barriers. We show that while average price-cost margin trigger firm entry, a large dispersion of markups deters new firms from entering the market, thereby disrupting the process of new enterprise creation. We exploit information from the Ethiopian annual census of manufacturing establishments to estimate markups and then dispersion at sector and location-sector wide levels. Results show that higher markups dispersion significantly reduces entry rate into a market even in presence of expected positive average markups. Extension of our framework shows that market distortions caused by markup dispersion are related to a statistically significant drop in aggregate TFP and employment growth. Policies fostering competition on the other hand can reduce entry barriers created by market distortions.
    Keywords: Firm Entry, Markup Dispersion, African Manufacturing, Ethiopia
    JEL: D22 L22 O14 O25
    Date: 2018
  6. By: Robert Anderton; Barbara Jarmulska; Benedetta Di Lupidio
    Abstract: This paper empirically investigates the effects of product market regulation on business churning (i.e. entry and exit of firms) and their impacts on productivity, using annual data for the period 2000-2014 across individual EU countries and sectors. The paper hypothesises that product market reforms, which reduce entry barriers and increase the degree of competition, can allow new firms to enter the market and compete vis-à-vis incumbent firms. The higher competitive pressures can push competitive incumbent firms to innovate while other less productive and inefficient firms may exit. These possible mechanisms can result in improvements to the average industry-level productivity. By using business demography data (i.e, business churning) at the industry and firm size level, we perform a panel data analysis across European countries and sectors to evaluate the effect of product market regulation on firm churning and their impacts on productivity. In particular, we differentiate between micro (less than 10 employees) and other firms given the substantial degree of heterogeneity among these two size classes both in terms of business churning and productivity growth. The paper finds that reducing product market regulation increases business dynamism (i.e. increases the churn rate) by facilitating firms’ entry and exit which, in turn, boosts sectoral total factor productivity.
    Keywords: product market regulation; business churning; productivity; EU
    Date: 2018
  7. By: Emin Dinlersoz; Sebnem Kalemli-Ozcan; Henry Hyatt; Veronika Penciakova
    Abstract: We study the leverage of U.S. firms over their life-cycle and implications for firm growth and responses to shocks. We use a new dataset that matches private firms’ balance sheets to U.S. Census Bureau’s Longitudinal Business Database (LBD) for the period 2005–2012. A number of stylized facts emerge. First, firm size and leverage are strongly positively correlated for private firms, both in the cross section of firms and over time for a given firm. For public firms, there is a weak negative relation between leverage and size. Second, young private firms borrow more, but firm age has no relation to public firms’ leverage. Third, while private firms switch from debt to equity financing as they age, public firms slightly reduce equity financing as they age. Building on this “normal times” benchmark and using the “Great Recession” as a shock to financial conditions, we show that, for private firms, firm size can serve as a good predictor of financial constraints. During the Great Recession, leverage declines for private firms, but not for public firms. We also provide evidence that private firms’ growth is positively related to leverage, as they finance their growth during normal times with short-term borrowing, whereas the relationship between leverage and firm growth is negative for public firms. These results suggest that public firms are not financially constrained during normal times or during crisis, but private firms are.
    JEL: E23 G32
    Date: 2018–11
  8. By: Davide Fantino (Bank of Italy)
    Abstract: I estimate potential output growth using a production function approach applied to individual firm-level data for Italy. The dataset includes 360,000 non-financial corporations over the period 2004-15. I compare these estimates with those obtained from aggregate data, with a view to extracting additional information on the drivers of potential output in recent years. The approach based on individual firm-level data suggests a more sluggish potential growth before the crisis and a stronger recovery afterwards; the main reason is that estimates based on aggregate data are likely to suffer from aggregation biases and endogeneity problems. I find that the contributions of labour and capital to potential output growth decline over time and that unobserved firms’ productivity explains most of the recovery after 2009; turnover has a substantial negative impact during the crisis, but a positive one afterwards. All the main economic sectors are affected by the financial crisis; potential growth in manufacturing is less damaged during the crisis and recovers afterwards; the service sector is recovering slowly, while construction firms are still not recovering.
    Keywords: potential output, heterogeneity, aggregation bias
    JEL: D24 E23
    Date: 2018–11
  9. By: Rita Cappariello (Bank of Italy); Milan Damjanovic (Bank of Slovenia); Michele Mancini (Bank of Italy); Filippo Vergara Caffarelli (Bank of Italy)
    Abstract: Production networks in the European Union (EU) and the United Kingdom (UK) are highly integrated and Brexit poses a threat to supply and demand linkages across the Channel. In a world of Global Value Chains (GVCs), tariffs might be more harmful than in a world where trade is purely direct. In this paper we highlight the features of GVC-trade between the EU and the UK, disentangling the complex network of bilateral EU-UK value-added flows. Assuming that following Brexit the UK adopts the same Most-Favoured-Nation tariff schedule as the EU, we compute the direct and indirect costs of these tariffs, taking into account the EU-UK GVC-trade patterns. Tariffs would add almost 1 percentage point to the cost of manufacturing inputs in the UK, while the corresponding input cost in the EU would be only marginally affected, despite some heterogeneity at the country-level.
    Keywords: Brexit, tariffs, global value chains
    JEL: D57 F13 F15
    Date: 2018–11

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