Political openness and the growth of small and medium enterprises: empirical evidence from transition economies

This paper examines the growth determinants of small and medium enterprises (SMEs) in transition and emerging economies, with a specific focus on the growth effects of political openness. Our findings indicate that product and process innovation, foreign market exposure through exports, providing training programs for employees, and the education level of employees are important growth factors for SMEs in transition economies. We also find that democracy and political openness have an adverse impact on the growth prospect of SMEs in transition economies. On the other hand, the negative effect of political openness on firm growth is decreasing as the proportion of the firm’s labor force with a university degree increases—a finding suggesting that the collective bargaining of low-skilled workers may hinder the growth of small firms in transition economies.     

Information technology,efficiency and productivity: evidence from Korean local governments

This study evaluates the performance of Korean local government by measuring their technical efficiency (TE) and total factor productivity (TFP) growth and, more importantly, examining the impact of information technology (IT) on this performance. The study is different from received analysis in that a unique measure of the state of IT–the Informatization Index–is used to investigate the impact of IT on both TE and TFP growth. Empirical analyses are conducted on data from 222 Korean local governments for the period 1999 to 2001. In particular, data envelopment analysis techniques are applied to calculate TE scores and TFP growth rates for sampled local governments. The empirical findings confirm the positive impact IT has in improving technical efficiency and accelerating productivity growth. The estimated coefficients are correctly signed (with other regional characteristics controlled for) when TE scores and TFP growth rates are regressed on the Index. In addition, the findings indicate that economies of density are present in the production of local public services.     

Determinants of labour productivity: Comparison between developing and developed countries of Asia‐Pacific

The current study investigates the trends in labour productivity of the major developing and developed economies of the Asia‐Pacific region and examines its determinants over the period 1980–2014. The study analyses capital deepening, human capital, technology, share of agriculture in GDP, financial development, institutional quality, inflation as well as macroeconomic variables as potential determinants of productivity, and identifies the differences in the impact of these factors on the productivity of developing and developed countries. Using panel cointegration and group‐mean fully modified ordinary least squares estimation, the study finds that capital deepening, human capital, technology, institutional quality and macroeconomic variables (i.e. government size and openness) are significant determinants of labour productivity of both developing and developed economies of the Asia‐Pacific region. The study further finds that while both trade openness and foreign direct investment affect productivity of developing economies positively, only trade openness has a positive and significant impact on the productivity of developed economies. The share of agriculture in GDP affects the labour productivity of developing Asia‐Pacific economies significantly but not that of developed economies. Furthermore, capital deepening has a much higher impact on the productivity of developing Asia‐Pacific economies than that of developed economies.     

Entrepreneurship and productivity: The slow growth of the planned economies

Trends in gross domestic product (GDP) and total factor productivity (TFP) growth in the former socialist economies seem to indicate that these economies were converging to unusually low long-run growth rates in the late 1980s. In this paper we develop an endogenous growth model of entrepreneurship that is able to account for the difference in long-run performance between centrally planned economies and market-oriented ones. Long-run growth rates of output and productivity are determined by the growth of the stock of managerial knowledge, which in turn depends on the share of the population involved in entrepreneurial activities and on the time that spent on those activities. We analyze the effect of two characteristics of centrally planned economies on their growth performance. First, in centrally planned economies factors of production are distributed by the central planner to the firms' managers through a contest that uses up some of the managers' productive effort. Second, the leadership is “egalitarian,” in the sense that it treats individuals with different abilities equally. We show that these two features reduce the fraction of people becoming entrepreneurs/managers, as well as their managerial effort, which in turn reduces long-run output and TFP growth. Furthermore, we find that centrally planned economies have lower income inequality and slightly higher capital–output ratios, which is consistent with these countries' experiences.     

Openness, Productivity and Growth: What Do We Really Know?

Comparative data for 93 countries are used to analyse the robustness of the relationship between openness and total factor productivity growth. Nine indexes of trade policy are used to investigate whether the evidence supports the view that total factor productivity growth is faster in more open economies. The results are robust to the use of openness indicator, estimation technique, time period and functional form, and suggest that more open countries experienced faster productivity growth. Although the use of instrumental variables help dealing with endogeneity, issues related to causality remain somewhat open, and require time series analyses to be adequately addressed     

Does international openness affect the productivity of local firms?

This paper examines how international openness can change firm productivity in south‐eastern Europe (SEE), a crucial question for middle‐income countries. Using firm‐level data for six transition economies over the 1995–2002 period, we identify whether foreign ownership and propensity to trade with more advanced countries can bring about higher learning effects. We find that: (i) foreign ownership has helped restructure and enhance the productivity of local firms in four out of six countries; (ii) exporting to advanced markets has a larger impact on productivity growth in four countries, especially when the firm's absorptive capacity is taken into account; (iii) in contrast, exporting to the less competitive markets of the former Yugoslavia seems to negatively affect productivity growth in three countries; and (iv) learning effects from importing are similar to those from exporting. Our results suggest that trade liberalization is not uniformly beneficial. Regional composition of trade flows and absorptive capacity of local firms matter. Thus, trade liberalization within the SEE region may not provide a substitute for a general trade liberalization which includes access to the more competitive markets of countries belonging to the Organization for Economic Co‐operation and Development.     

Labour Productivity: A Comparative Analysis of the European Union and United States, 1994–2007

This article confirms that labour productivity in the European economies has continued to slow down in recent years. U.S. productivity growth has been higher than in the EU, but only since 2001. At the same time, both economies have modified previous employment performance: EU employment growth is now higher than in U.S. This article proposes that productivity growth be explained by demand dynamics, and investment in particular, not forgetting the influence of employment, along with other factors such as new technologies.     

Financial market development and trade openness: evidence from emerging economies

International trade is said to be the engine of economic growth. Despite an enormous effort to explain this phenomenon, the relationship between financial market development and trade openness and integration into the world economy is still an enigma. This article investigates the relationship between financial market development and trade openness. To do this, we develop a long-run and short-run model (a bounds testing approach to cointegration) for 18 emerging economies over the period 1980 to 2011. Estimates from all models show that financial market development, including both the stock market and the banking sector, has significant effect on trade openness in both short-run and long-run phenomena in the majority of countries. Despite many similarities among emerging economies, additional evidence suggests that the link between either stock market development or banking sector development with trade openness works via each country’s specific structure.     

Sectoral Energy- and Labour-Productivity Convergence

This paper empirically investigates the development of cross-country differences in energy- and labour productivity. The analysis is performed at a detailed sectoral level for 14 OECD countries, covering the period 1970–1997. A σ-convergence analysis reveals that the development over time of the cross-country variation in productivity performance differs across sectors as well as across different levels of aggregation. Both patterns of convergence as well as divergence are found. Cross-country variation of productivity levels is typically larger for energy than for labour. A β-convergence analysis provides support for the hypothesis that in most sectors lagging countries tend to catch up with technological leaders, in particular in terms of energy productivity. Moreover, the results show that convergence is conditional, meaning that productivity levels converge to country-specific steady states. Energy prices and wages are shown to positively affect energy- and labour-productivity growth, respectively. We also find evidence for the importance of economies of scale, whereas the investment share, openness and specialization play only a modest role in explaining cross-country variation in energy- and labour-productivity growth.      

The effect of unemployment on labour productivity: an international comparative analysis

This is a comparative empirical analysis of the effect of unemployment - via a ‘work-intensity effect’ and/or a ‘workplace-innovation effect’ - on manufacturing productivity growth in eight advanced capitalist economies. My econometric results confirm earlier findings of positive work-intensity and workplace-innovation effects of unemployment on productivity growth in the United States; but I do not obtain similarly strong results for the other countries, and in Germany and Sweden I find evidence of negative unemployment effects. My findings are consistent with the comparative hypothesis that the sign and strength of unemployment effects on productivity growth will vary negatively with the degree to which a country's socioeconomic environment is characterized by cooperative capital-labour relations and worker security.     

A century of economic growth in Latin America

This paper makes a contribution to the study of economic growth in developing countries by analyzing the six largest Latin American economies over 105 years within a two-equation framework. Confirming previous findings, physical and human capital prove to be key determinants of GDP per head growth. However, a more controversial result is an overall negative conditional correlation between trade openness and GDP per head growth — though openness has a positive link via investment. The evidence also shows that macroeconomic instability has been a drag on long-term growth in the region.     

A tale of industrial stagnation from Africa

Many African economies have experienced rather dismal industrial development since the 1980s. The consensus is that African firms lack competitiveness in a world with increasing trade openness. What determines competitiveness? A well‐known explanation is that resource endowments in Africa favour land not labour, which results in high wages, especially in comparison with ‘labour abundant’ Asian economies. This paper examines the validity of this view on the basis of the case of Sudan. We demonstrate that the lack of competitiveness of manufacturing industries is not caused by high wages. Assuming a direct relationship between labour productivity and international competitiveness, we argue that acute capacity underutilisation, caused by supply‐side constraints, lowers manufacturing productivity, which in turn negatively influences competitiveness.     

Business cycle, unemployment benefits and productivity shocks

The dimension of aggregate fluctuations is quite different between the European and US economies. Such a result fully justifies attention to non-Walrasian features for improving the empirical performance of the RBC model. In this paper, we introduce two features, present in European economies, into the standard general setting of the infinite-horizon stochastic growth paradigm: trade union behavior and unemployment benefits. We show that this non-Walrasian economy (i) improves the ability to account for the stylized facts, (ii) displays realistic features in explaining the employment and productivity puzzles, (iii) may account for contractions.     

Economic openness and income growth in developing countries: a regional comparative analysis

This article examines and compares the openness–growth relationship between the high-performing Asian economies (HPAEs) and the rest of the developing world (Sub-Saharan Africa-SSA, South East Asia-SEA and Latin America and Caribbean-LAC). We applied the SYS-GMM estimator to a dynamic standard endogenous growth model which relates economic openness to real per capita income growth. A few key findings emerged from this study. First, economic openness led to increase in real per capita GDP growth in HPAEs and SSA, but not in LAC and SEA. Second, openness to trade accelerated income convergence among countries in SSA, SEA, and HPAEs, however, whereas foreign direct investment inflows accelerated income convergence only in SSA, it rather de-accelerated income convergence in HPAEs. Thirdly, the HPAEs recorded higher positive effect of openness on real per capita GDP growth than any of the other developing regions because they created sufficient stock of human capital that enhanced their absorptive capacity of imported advanced technology. They also created a more stable macroeconomic environment which consolidated the income growth gains from openness. The results of this study highlight the importance of the implementation of policies that are complementary to economic openness in promoting economic growth in the developing world.     

Did the rising importance of services decelerate overall productivity improvement of Turkey during 2002–2007?

This paper answers the question of what would have been the growth rate of aggregate productivity in Turkey between 2002 and 2007, had it realized China’s rates of productivity growth in agriculture, industry, and services. It does this in a three-sector general equilibrium model calibrated to the Turkish economy over the 2002–2007 period. The main findings are: (i) Turkey would have had much higher aggregate productivity growth over this period if it had experienced China’s service sector productivity growth; (ii) very low productivity growth rates in finance and in the non-market service sector are the main culprits behind Turkey’s weak service-sector performance.     

What determines productivity performance of telecommunications services industry? A cross-country analysis

This article investigates the key factors that determine the productivity performance of telecommunications services industry. A simple theoretical model is used to illustrate that the Total Factor Productivity (TFP) growth is attributable to the effects of scale economies, market competition and technical change. We then examine empirically the effect of various factors on the TFP growth in the industry using panel data in 12 Organization for Economic Co-operation and Development (OECD) countries for the period 1983 through 2003. The empirical results are consistent with the theoretical prediction. A new finding in this article is that higher machinery and equipment (M&E) capital intensity and human capital contribute to higher TFP growth in the telecommunications services industry. The decomposition analysis also suggests that technical change induced by changes in M&E capital intensity and human capital are important sources of productivity performance in the industry across the OECD countries, contributing to about 20–50% and 2–7% of TFP growth, respectively. These findings highlight the importance of improving the conditions for M&E capital investment and the quality of human capital, which in turn could facilitate the adoption of new technologies and enhance the productivity in the industry.     

Cross‐country evidence on the determinants of inclusive growth episodes

Widening income disparities and slow productivity growth in most advanced and several emerging‐market economies have rekindled interest in the empirical analysis of the determinants of inclusive growth, defined in this paper as episodes of increases in GDP per capita without a concomitant deterioration in the distribution of household disposable income. The empirical analysis is based on a chronology of inclusive growth episodes between 1980 and 2013 for a sample of 78 countries. Logit and multinomial probit estimations show that human capital accumulation, the redistributive potential of tax‐benefit systems, increases in multifactor productivity and labor force participation, as well as trade openness and a range of institutional factors, including political system durability and electoral regimes, are important determinants of the probability of occurrence of inclusive growth. This empirical evidence contributes to the policy debate about how countries can deal with efficiency–equity tradeoffs.     

Capital accumulation,output growth and disparities in labour productivity among Canadian regions

This paper extends the original formulation of the Verdoorn Law and derives a productivity equation in order to measure the effects of capital accumulation, scale economies, and technical progress on growth of productivity in the manufacturing sector of six Canadian regions. Productivity growth appears to be strongly influenced by growth of output but the impact of capital accumulation, although small, is not negligible. The results also indicate that there is evidence of substantial economies of scale in all regions and, contrary to common belief, that productivity growth rate adjusted for cyclical variations continued to decline during the 1980s. The fall in the output growth rate is found to be responsible for most of this decline     

Japan's oligopolies: Potential economy wide gains from structural reforms

Japan's slowdown preceded those in the other advanced economies and is therefore of global significance. While its initial causes were financial, a resurgence will depend on productivity growth, key determinants of which are investment and industrial structure. This paper focuses on the costs of a structure dominated by oligopolies and the potential gains from combined competition and tax reform. We first identify industry concentration levels and economic rents using firm specific data and then incorporate these in a calibrated economy-wide model. Simulations suggest that competition policy and more openness to investment in services could deliver 5–17% of additional GDP. These stimulate investment via returning external wealth. Gains are spread most evenly if competition policy is combined with company tax reform. This retains fiscal balance and improves the domestic purchasing power of all Japanese incomes.     

Market institutions,labor market dynamics,and productivity in Argentina during the 1990s

This paper addresses the effects of policy shocks and structural reforms on the dynamic behavior of manufacturing job flows and productivity in Argentina during the 1990s, and the contribution of job reallocation to productivity. The main findings are: (a) shocks to labor taxes have allocative effects, while financial shocks have aggregate effects; (b) import tariffs appear to protect obsolete jobs; (c) sectoral differences in labor intensity, openness, financial dependence and workers’ strength shape the responses to shocks; (d) intra‐ and inter‐sectoral reallocations contribute positively to productivity; and (e) trade liberalization and labor market flexibilization favor reallocation and creative destruction.