Agglomeration Economies and Productivity Growth in Manufacturing Industry: Empirical Evidence from Indonesia

This study examines the effect of agglomeration economies on productivity growth in Indonesian manufacturing industries during the first decade of this century. Productivity growth is measured at the firm level using the Färe‐Primont Productivity Index. Each firm's productivity growth is then regressed against a set of firm and industry characteristics, including three measures of agglomeration representing the effects of specialisation, diversity and competition. The results show evidence of a positive specialisation effect and a negative diversity effect for aggregate manufacturing and sub‐sectors. Furthermore, there are mixed effects across industries, suggesting that Porter's competition externalities stimulate firm productivity growth under some conditions but not others.     

Offshoring,immigration, and the native wage distribution

Abstract This paper presents a simple model that examines the impact of offshoring and immigration on wages and tests these predictions using U.S. state‐industry‐year panel data. According to the model, the productivity effect causes offshoring to have a more positive impact on low‐skilled wages than immigration, but this gap decreases with the workers’ skill level. The empirical results confirm both of these predictions and thus present direct evidence of the productivity effect. Furthermore, the results provide important insight into how specific components of offshoring and immigration affect the wages of particular types of native workers.     

Products and Productivity*

When firms make decisions about which product to manufacture at a more disaggregated level than observed in the data, measured firm productivity reflects both characteristics of the firm and attributes of the products that are non‐randomly chosen by the firm. This paper develops a model of industry equilibrium in which firms endogenously sort across products and characterizes the resulting bias in measured firm and aggregate productivity. Calibrating the model's parameters, we show that endogenous product selection can have quantitatively important effects on measured firm and aggregate productivity and their response to changes in parameter values.     

Reassessing the productivity gains from trade liberalization

This paper reassesses the impact of trade liberalization on productivity. We build a new, unique database of effective tariff rates at the country‐industry level for a broad range of countries over the past two decades. We then explore both the direct effect of liberalization in the sector considered, as well as its indirect impact in downstream industries via input linkages. Our findings point to a dominant role of the indirect input market channel in fostering productivity gains. A 1 percentage point decline in input tariffs is estimated to increase total factor productivity by about 2 percent in the sector considered. For advanced economies, the implied potential productivity gains from fully eliminating remaining tariffs are estimated at around 1 percent, on average, which do not factor in the presumably larger gains from removing existing non‐tariff barriers. Finally, we find suggestive evidence of complementarities between trade and FDI liberalization in boosting productivity. This calls for a broad liberalization agenda that cuts across different areas.     

Markets and the non‐monotonic relation between productivity and establishment size

Abstract A model of monopolistic competition is presented in which the relation between the productivity and input size of producers is non‐monotonic and bell‐shaped. The model predicts that markets matter and the average size of the producers is directly scaled by the size of the market. An indirect effect increases the cutoff productivity, making the bell narrower in larger markets or when the transportation cost falls. Empirical evidence from the concrete industry and a few other 4‐digit industries supports the model’s predictions. The bell‐shaped relation has especially important implications on how size distributions are formed across localized versus globalized market industries.     

Uncertainty and Investment: Evidence from Australian Firm Panel Data

This paper investigates the key drivers of fixed firm investment of listed non‐financial companies in Australia over the period from 1987 to 2009. A Tobin's q model of investment is augmented to account for the effect of economic uncertainty on the investment decision. The effects of Tobin's q, sales and cash flows on firm investment rate are also analysed and discussed. Consistent with existing literature, this research finds clear evidence of negative effects of both macroeconomic and firm idiosyncratic uncertainty on Australian firm investment. However, evidence also shows that firm‐specific uncertainty is more important in explaining firm investment than macroeconomic uncertainty.     

The effects of foreign direct investment on domestic firms

This paper uses firm‐level panel data to investigate empirically the effects of foreign direct investment on the productivity performance of domestic firms in three emerging economies of Central and Eastern Europe: Bulgaria, Romania and Poland. To this end, a unique firm‐level panel dataset is used with detailed information on foreign ownership at the firm level. Two main questions are addressed in the present paper: (1) do foreign firms perform better than their domestic counterparts? (2) do foreign firms generate spillovers to domestic firms? The estimation technique in this paper takes potential endogeneity of ownership, spillovers and other factors into account by estimating a fixed effects model using instrumental variables in the general methods of moment technique for panel data. Only in Poland, do foreign firms perform better than firms without foreign participation. Moreover, for all three countries studied here, I find no evidence of positive spillovers to domestic firms, on average. In contrast, on average, there are negative spillovers to domestic firms in Bulgaria and Romania, while there are no spillovers to domestic firms in Poland. This suggests a negative competition effect that dominates a positive technology effect. JEL classification: D24, F14, O52, P31.     

Who wins and who loses from state subsidies?

China is perceived to rely on subsidizing firms in targeted industries to improve their performance and stay competitive. We implement an approach that allows for the joint estimation of direct and indirect effects of subsidies on subsidized and non-subsidized firms. We find that firms that receive subsidies experience a boost in productivity. However, our approach highlights the importance of indirect effects, which are generally neglected in the literature. We find that, in general but not always, non-subsidized firms experience reductions in their productivity growth if they operate in a cluster where other firms are subsidized. These negative externalities depend on the share of firms that receive subsidies in the cluster. Aggregating direct and indirect effects into a (weighted) total effect shows that this negative indirect effect tends to dominate. We interpret our results in light of a simple heterogenous firm model, which highlights that subsidization in a competitive environment of firms may potentially harm non-subsidized firms.     

EXPORTS AND JOBS: THE CASE OF JAPAN, 1975–2006

This paper asks how much employment is created by increasing goods and services exports and how the export dependence of employment has changed over time. Using the newly developed Japanese input‐output table for 1975–2006, this paper estimates the effect of exports on an industry's employment (i.e., direct effect) and the effect on other industries' employment (i.e., indirect effect). One of our major findings is that the magnitude of the indirect effect exceeded that of the direct effect over almost the entire period. This implies that more than half of the effects of exports appeared through intraindustry linkages. We also found the indirect effect of goods exports is not limited to goods industries. As a result, the increases in the export dependence of employment are not limited to major Japanese export‐oriented industries such as electrical machinery, motor vehicles, and general machinery. In identifying the potential risks of negative external shocks, it is important for policy makers to estimate how much employment is indirectly as well as directly dependent on exports. (JEL F16, F14)     

Corruption,Bureaucracy and Firm Productivity in Africa

This paper estimates the impact of corruption and poor bureaucratic quality on firm productivity for a unique dataset with firm‐specific data of more than 900 firms over 12 years for Ghana, Kenya and Tanzania. We first discuss why poor bureaucratic quality and, especially, corruption are expected to have negative impacts on firm productivity. We then employ Data Envelopment Analysis to estimate firm productivity and pooled OLS and Tobit regression analysis to estimate the effects of corruption and bureaucratic quality on firm productivity. We find that less productive firms are more likely to engage in corrupt activities; both poor bureaucratic quality and corruption reduce firm productivity; and corruption has a greater negative impact on productivity.     

Foreign direct investment and vertical integration of production by Japanese multinationals in Thailand

We test the vertical model of foreign direct investment (FDI) empirically using firm level information on Japanese multinational activity in Thailand. These data allow us to investigate the effects of both home country (Japan) and host country (Thailand) characteristics on the inter-industry pattern of FDI. For 85 manufacturing industries over the period from 1985 to 1995, we find a positive influence of industry variation in skill intensity and market size in the host country and a negative effect of transport costs on the amount of FDI. These results provide strong direct econometric evidence of vertical integration of production across the countries. Journal of Comparative Economics 32 (4) (2004) 805–821.     

研发创新抑制波动机制分析*——基于企业生产供给波动视角

本文基于种类扩展型技术进步框架构建了理论模型,分析研发创新对企业层面生产供给波动的影响效应以及其作用机理,并利用中国制造业企业数据对理论模型进行验证。本文发现,研发创新带来的更多技术种类能够在一定程度上抵御生产波动的风险,企业研发创新强度越大、全要素生产率越高,则企业产出波动性和生产率波动性越小。进一步研究发现,研发投入是通过扩展技术种类范围、提升全要素生产率间接地抑制波动,而研发产出会对企业层面波动产生直接和间接的抑制作用。因此,本文揭示了“创新性毁灭”之外研发创新影响企业层面波动的另一种机制,为改善供给状况、平抑实体经济波动提供了政策启示。     

The productivity trend in Iran Evidence from manufacturing firms

Iran has been experiencing slow growth for the past ten years. Using plant‐level information, we show that on average firm‐specific productivity in manufacturing sectors declined at the rate of 2.6% annually, while large top decile firms experienced a modest growth in productivity between 2005 and 2011. We decompose this trend and find that within‐plant variation is its main driving force while the between firms and industries component is insignificant. We test several alternative explanations that may contribute to these negative trends. We show that the subsidy reform had a negative effect, while privatization seems to have had no effect. Private management not affected productivity growth, while firm size is associated with higher productivity growth. Also, we find that productivity growth decreases with the energy intensity of the firm. We also find that R&D expenditures significantly increase productivity growth, while the R&D sales ratio is about 0.5% in manufacturing sectors, which is about one‐fifth of the world average. A one‐percent point increase in R&D expenditures increases productivity growth by 0.5%.     

FDI and productivity growth: the role of inter‐industry linkages

Abstract There is a large literature on the effects of foreign direct investment (FDI) on productivity through inter‐industry economic linkages. This paper contributes to the literature by focusing on the developed economy of Canada. It finds that FDI generates strong effects on total factor productivity (TFP) growth through both forward and backward inter‐industry linkages, and increase in an industry's absorptive capacity raises the effects of FDI on TFP growth through forward inter‐industry linkages. For R&D intensive industries, the effects of FDI on TFP growth through inter‐industry linkages are small, but imports turn out to be an important source for TFP growth.     

Disentangling barriers to internationalization

Abstract. Recent literature on multinational firms has focused on low productivity as a barrier to the internationalization of firms. But labour market frictions or financial constraints may also hamper internationalization. In order to assess the importance of these barriers, we present new empirical evidence on the extensive and intensive margin of exports and foreign direct investment (FDI) based on micro‐level data of German firms. First, we find a positive impact of firm size and productivity on firms’ international activities. Second, labour market frictions can constitute barriers to foreign activities. Third, self‐reported financial constraints have no impact on firms’ internationalization decisions. JEL classification: F23, G2     

Market Size and the Survival of Foreign‐owned Firms*

We develop a general equilibrium model with heterogeneous firms and foreign direct investment cost uncertainty and investigate the survival of foreign‐owned firms. The survival probabilities of foreign‐owned firms depend on firm‐level characteristics, such as productivity, and host country characteristics, such as market size. We show that a foreign‐owned firm will be less likely to be shut down when its parent firm's productivity is higher and its indigenous competitors are less productive. Although a larger market size will always reduce the survival probability of indigenous firms, it can lead to a higher survival probability for foreign‐owned firms if their parent firms are sufficiently productive.     

Services liberalization and productivity of manufacturing firms

Employing a unique database of Ukrainian firms in 2001–07, we use the external push for liberalization in the services sector as a source of exogenous variation to identify the effect of services liberalization on total factor productivity (TFP) of manufacturing firms. The results indicate that a standard deviation increase in services liberalization within a firm is associated with a 9.2 percent increase in TFP. The effect is stronger for firms with high productivity, bringing about a reallocation of resources within an industry. Industry‐level results show that the effect of reallocation on industry productivity is almost as strong as the within‐firm effect. The dynamic interaction of services liberalization and TFP through the investment channel reinforces the effect. The effect is robust to different estimation methods and to different sub‐samples of the data. In particular, it is more pronounced for domestic and small firms.     

Second thoughts on the exporter productivity premium

Abstract Contrary to the prevailing interpretation, this paper shows that the central models of trade with heterogeneous firms ( Melitz 2003 ; Bernard et al. 2003 ) exhibit ambiguous predictions for the exporter productivity premium. This prospect arises because of differences between theoretical and empirical representations of firm productivity. Instead of marginal productivity, we examine in both models the theoretical equivalent of empirically observable productivity (value‐added per employee). Given the presence of fixed export costs or heterogeneous mark‐ups and trade costs, the observable productivity of exporters in proximity to the export‐indifferent firm turns out to be lower than that of non‐exporters; that is, the productivity distributions overlap. The paper reviews empirical literature that reports non‐positive exporter productivity premia in firm‐level data and discusses implications for empirical research on exporter performance, including learning and the role of non‐parametric regressions (stochastic dominance, quantile regressions), fixed costs, and productivity distributions.     

Productivity Catch‐up Between Chinese and Taiwanese Electronics Firms

This paper aims to depict the patterns of China's productivity catch‐up with Taiwan in the electronics industry over the period 2001–2007. Specifically, we investigate the roles that ownership structure and innovation efforts play in the dynamics of the productivity gap. The firm‐level evidence suggests that the labour productivity gap between Chinese and Taiwanese electronics firms has narrowed during the past decade. Second, the narrowing of the labour productivity gap has occurred in foreign‐owned enterprises rather than in local firms. Examining the determinants of productivity catch‐up show that R&D significantly contributes to Chinese electronics firms' catching up with their Taiwanese counterparts.     

HOW DID EXCHANGE RATES AFFECT EMPLOYMENT IN U.S. CITIES?

We estimate the effects of exchange rate on U.S. employment, exploiting differences in industrial composition across major cities. We find that a 1% depreciation of export‐weighted real exchange rate has a positive 0.98% direct effect on manufacturing employment. Its indirect effect on local nonmanufacturing employment rises with the size of the local manufacturing sector, consistent with the hypothesis that there exists a local spillover from the tradable to the nontradable sector. In cities with heavy concentration of manufacturing employment, the indirect effect is statistically significant and about 60% as large as the direct effect measured by the number of jobs. (JEL F3, F1, J2)