Slow recoveries

Economies respond differently to aggregate shocks that reduce output. While some countries rapidly recover their pre-crisis trend, others stagnate. Recent studies provide empirical support for a link between aggregate growth and plant dynamics through its effect on productivity: the entry and exit of firms and the reallocation of resources from less to more efficient firms explain a relevant part of transitional productivity dynamics. In this paper, we use a stochastic general equilibrium model with heterogeneous firms to study the effect on aggregate short-run growth of policies that distort the process of birth, growth, and death of firms, as well as the reallocation of resources across economic units. Our findings show that indeed policies that alter plant dynamics can explain slow recoveries. We also find that output losses associated to delayed recoveries are large.     

Entry and exit as a source of aggregate productivity growth in two alternative technological regimes

This paper proposes a neo-Schumpeterian model in order to discuss how the mechanisms of entry and exit contribute to industry productivity growth in alternative technological regimes. Our central hypothesis is that new firms generate gains in aggregate productivity by increasing both the productivity level and competition intensity. By assuming that firms learn about the relevant technology through a variety of sources, and by allowing a continuous flow of entry and exit into the market, our study shows that firm exit and output contraction take mostly place among less productive firms, while output expansion and entry are concentrated among the more efficient ones. The greater is the competitive pressure generated by new entrants, the higher is the expected productivity level of established firms. Overall, our analysis suggests that micro analysis is the proper complement to aggregate industry studies, as it provides a considerable insight into the causes of productivity growth.     

Government subsidy and aggregate productivity dynamics: Evidence from China

Based on data for Chinese manufacturing firms from 1999 to 2007, this study explores the dynamic evolution of aggregate total factor productivity (TFP) from the perspective of firmsʼ entry and exit. It also quantifies how government subsidies influence the aggregate productivity growth. By decomposing aggregate productivity growth into components, including technological progress, reallocation, entry, and exit effects, we found that aggregate TFP growth in Chinese manufacturingfollows an upward trend during the sample period. This tendency originates from the contribution of technological progress, reallocation, and exit effects. Moreover, the effects of these four components on aggregate TFP growth of different industries, regions, and ownership types are different. Furthermore, technological progress, reallocation, and exit effects are important pathways for government subsidies to promote aggregate TFP growth in Chinese manufacturing.     

产业政策提升中国数字企业的全要素生产率了吗？

提升数字企业全要素生产率是促进数字经济高质量发展的必要方式,而产业政策的有效使用将对这一过程起到重要的推动作用。本文利用2007-2020年中国数字行业上市企业的面板数据,实证检验了政府补贴、税收优惠、信贷支持和市场准入四类产业政策对数字企业全要素生产率的影响。研究发现,信贷支持显著促进了数字企业全要素生产率的提升,市场准入则起到显著的负向作用,政府补贴和税收优惠对数字企业全要素生产率的增长无明显效果,该结论在进行一系列稳健性检验后仍保持稳健。异质性和作用机制检验的结果表明,产业政策对数字企业全要素生产率存在产权、企业规模和企业生命周期方面的异质性作用,信贷支持和市场准入则分别通过缓解企业融资约束和加剧企业过度投资的方式影响数字企业的全要素生产率。本文的研究结论对于政府制定更为精准有效的产业政策具有一定的启示意义。     

Credit Market Failures and Policy

In a simplified version of the Stiglitz and Weiss (1981) model of the credit market we characterize optimal policies to correct market failures. Widely applied policies, notably interest-rate subsidies and investment subsidies, are compared to the theoretical optimum.     

A model of occupational choice,offshoring and immigration

This paper develops a two‐country model of offshoring and immigration with occupational choice and endogenous firm productivity. Individuals in Home choose to become entrepreneurs or workers, whereas those in Foreign can only be employed as workers. Entrepreneurs produce output using a fixed set of tasks that can be performed locally or abroad. The model predicts that pro‐immigration policies increase the number of entrepreneurs, raise productivity, and improve the aggregate welfare. It also predicts that lowering offshoring costs generates job polarization and welfare polarization, but improves the aggregate welfare.     

Occupational choice and entrepreneurship: effects of R&D subsidies on economic growth

Most R&D-based growth models fail to explicitly account for the role of entrepreneurs in economic growth. By contrast, this study accounts for this factor and constructs an overlapping-generations model that includes entrepreneurial innovation and the occupational choice of becoming an entrepreneur or a worker. For the role of entrepreneurs, even a policy intended to encourage innovation can negatively affect economic growth. For the effect of such policies, I focus on the role of R&D subsidies. I show that while R&D subsidies promote entrepreneurs’ R&D activities, they increase workers’ wages by boosting labor demand. Thus, it is more attractive to be a worker, which reduces the number of entrepreneurs. Subsidies can have both a negative and positive effect on growth, which results in an inverted U-shaped relationship between R&D subsidies and growth. In addition, a growth-maximizing R&D subsidy rate exists, although this rate is too high to maximize the welfare level of any one generation. When individuals are heterogeneous in their abilities, R&D subsidies reduce intra-generational inequalities.     

Credit market imperfection,labor supply complementarity,and output volatility

This paper argues that output volatility depends on the degree of credit market imperfection. In the early stages of financial development, agents are constrained in their borrowing ability. As a result, the individual savings, affected by the labor supply, play a dual role in the economy, having repercussions on the interest rate. On the one hand, high savings imply high investment, low marginal product of capital and thus low interest rate. On the other hand, high savings affect the agents' ability to run highly productive investment projects, which increases the interest rate. When the former effect is dominant, a dynamic complementarity between individual and aggregate labor supply arises. This leads to a local and global indeterminacy of equilibrium paths. If the borrowing constraint is relaxed, the complementarity between individual and aggregate labor supply decisions weakens, equilibrium becomes globally unique and the possibility of having aggregate fluctuations in output disappears.     

POLICY COMPROMISES: CORRUPTION AND REGULATION IN A DEMOCRACY

This paper evaluates the extent of regulation in a democracy with corruption. Elected politicians can restrict entry of firms in exchange for bribes from entrepreneurs. Full liberalization implies free entry and allocative efficiency. Voters re‐elect politicians based on observed performance. We demonstrate that voters agree to tolerate corruption and inefficient regulation; that efficient policies can be promoted by productivity growth; that productivity growth reduces the cost of providing wage incentives; and that corruption is procyclical and economic policy is countercyclical in a corrupt democracy.     

Supply and Demand in the Theory of Long-run Growth: Introduction to a symposium on demand-led growth

Recent developments in growth theory have encouraged a revisionist interpretation of the field. According to this interpretation long-run growth should be, and always has been, interpreted as a supply-side process. The focus of this symposium is the macro-economics of demand-led growth. As a precursor to the contributions that follow, two central insights of demand-led growth theory are highlighted. First, chronic effective demand problems create a role for aggregate demand in determining the utilization rates of productive resources, even in the long run. Second, the demand-led actual rate of growth influences both the accumulation and productivity of factor inputs, and hence the economy's potential rate of growth.     

R&D Policies and Endogenous Growth: A Dynamic General Equilibrium Analysis of the Case for Canada*

This paper utilizes a general equilibrium R&D model of endogenous growth via increasing capital variety to examine the impact of alternative policies on productivity and economic growth. The model is calibrated using data from the Canadian economy. Findings reveal that direct incentives such as subsidies to R&D activities would have the highest productivity impact on the Canadian economy, that an increase in subsidies to the users of R&D capital (output) would have a positive but smaller impact, and trade liberalization would have minimal effects on productivity growth via its impact on international R&D spillovers.     

Policy distortions and aggregate productivity with heterogeneous establishments

We formulate a version of the growth model in which production is carried out by heterogeneous establishments and calibrate it to US data. In the context of this model we argue that differences in the allocation of resources across establishments that differ in productivity may be an important factor in accounting for cross-country differences in output per capita. In particular, we show that policies which create heterogeneity in the prices faced by individual producers can lead to sizeable decreases in output and measured total factor productivity (TFP) in the range of 30 to 50 percent. We show that these effects can result from policies that do not rely on aggregate capital accumulation or aggregate relative price differences. More generally, the model can be used to generate differences in capital accumulation, relative prices, and measured TFP.     

Sectoral differentiation, allocation of talent, and financial development

I present a theory of development in which heterogeneously talented entrepreneurs require credit to start new projects and open new sectors. During development the variety of sectors expands, which allows better sorting of entrepreneurial talent. The paper shows that, in addition to increasing the average productivity of matches between agents and sectors, this process also mitigates informational frictions in the financial markets. Furthermore, the impact of sectoral variety on the operation of financial markets gives rise to an interesting feedback between financial development and R&D effort, which may lead to different types of dynamics. A successful economy exhibits a progressive increase in the variety of sectors, which in turn enhances the operation of financial markets. However, a poverty trap may also arise. This situation is characterised by a rudimentary productive structure with poor matching of skills to activities and severely inefficient credit to talented entrepreneurs.     

Productivity Performance of Export Market Entry and Exit: Evidence from Indian Firms

This paper contributes to the literature on exporting and firm productivity, focusing on export entry (efficiency), learning (post‐entry growth) and exit (inefficiency) by Indian firms. Drawing on 7000 firms during 1989–2009, our main objective is to examine the effect of exporting on firm productivity, correcting for selection bias using propensity‐score matching, which allows a “like‐for‐like” comparison between new exporters and nonexporters. Robust to different matching estimators, we find evidence of learning‐by‐exporting that new exporters acquire rapid productivity growth after entry, relative to nonexporters. We also find that (1) exporters are more productive than nonexporters; (2) productive firms tend to self‐select in entering the exporting market, and (3) least productive exporters are found to exit the export market as they experience adverse productivity effect prior to the year of exit. Our robust result on learning‐by‐exporting suggests that entering export market does appear to be a channel explaining the Indian recent growth miracle.     

Productivity in a Distorted Market: The Case of Brazil's Retail Sector

In a model of monopolistic competition with heterogeneous firms, distortions in prices drive a wedge between the marginal revenue products of factor inputs across firms. We use census data for Brazil's retail sector to study implications for aggregate productivity and relate distortions to regional variation in regulation using a differences‐in‐differences approach. Taxes, entry regulation, and access to credit may create distortions to output and capital that varies by firm size. Potential gains from reallocation have not diminished despite the process of services liberalization in the 1990s.     

Did the pattern of aggregate employment growth change in the euro area in the late 1990s?

This paper examines whether the pattern of growth in euro area employment seen in the period 1997 to 2001 differs from that recorded in the past and what could be the reasons. First, a standard employment equation is estimated for the euro area as a whole. This shows that the lagged impact of both output growth and real labour cost growth, together with a productivity trend and employment ‘inertia’, can account for most of the employment developments between 1970 and the early 1990s. Conversely, these traditional determinants can only explain part of the employment development seen in recent years (1997 to 2001). Second, the paper shows sound evidence of a structural break in the aggregate employment equation in the late 1990s. Third, the paper provides some tentative explanations for this change in aggregate employment developments, using in particular country panels of institutional variables and of active labour market policies but also cross-sectional analyses. Among the relevant factors likely to have contributed to rising aggregate employment in recent years are changes in the sectoral composition of euro area employment, the strong development of part-time jobs, lower labour tax rates and possibly less stringent employment protection legislation and greater subsidies to private employment.     

Demographic change,human capital accumulation and R&D‐based growth

Employing an overlapping generations model of R&D‐based growth with endogenous fertility and education decisions, we examine how demographic changes induced by an increase in life expectancy influence the long‐run growth rate of the economy. We demonstrate that life expectancy, when relatively low (high), positively (negatively) affects economic growth. This paper also compares the growth implications of child education subsidy policies (i.e., policies for enhancing basic education) and child rearing subsidy policies (i.e., pro‐natal policies) and demonstrate that while the child education subsidies consistently foster economic growth, child rearing subsidies may negatively affect economic growth.     

Is there an export or import-led productivity growth in rapidly developing Asian countries? a multivariate VAR analysis

In contrast to cross-country studies, the paper investigates the relationships between trade and labour productivity for nine rapidly developing Asian countries in a time-series framework using a vector error-correction model. Independent tests on the long-run and short-run relationship between trade variables of exports and imports and productivity are conducted. The results suggest that trade has an important impact on productivity and output growth in the economy, however it is imports that provide the important?‘virtuous’?link between trade and output growth. The results indicate that exports and imports have qualitatively different impacts on labour productivity. The long-run result shows that there is no causal effect from exports to labour productivity growth for Hong Kong, Indonesia, Japan, Taiwan and Thailand; thereby suggesting that there is no export-led productivity growth in these countries. However, significant causal effects were found from imports to productivity growth, suggesting import-led productivity growth in India, Indonesia, Malaysia, Philippines, Singapore and Taiwan. In addition, the results indicate that imports tend to have greater positive impact on productivity growth in the long run.     

The impact of productivity and demand shocks on structural dynamics: Evidence from Austrian manufacturing

Based on Pasinetti's model of structural dynamics we develop an empirical identification strategy for aggregate and sectoral labor productivity and demand shocks in a structural vector autoregressive model with long-run restrictions. Impulse response analysis shows that we can distinguish four patterns of the effects of changes in demand and productivity growth on sectoral output growth. For some industries demand is indeed the factor driving sectoral growth. Labor productivity and demand shocks are closely associated with the growth rates of employment and output across industries. However, there is less correlation with entry and exit. This suggest that structural change within and between industries may have quite different determinants.     

The Role of Demand in Macroeconomics

I argue that the standard approach represented by real business cycle theory is misguided, and that a fundamentally different approach is necessary. The new approach, based on the method of statistical mechanics, leads us to a new concept of “equilibrium”. In equilibrium we must have a distribution of productivities rather than a unique level of productivity. We then find that demand plays a crucial role in the determination of the aggregate output, as the old Keynesian economics claims. I show that the demand constraint is important not only in short‐run but also in long‐run economic growth.