A Non-parametric Estimation of Productivity with Idiosyncratic and Aggregate Shocks: The Role of Research and Development (R&D) and Corporate Tax |
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Authors: | Ioannis Bournakis Mike Tsionas |
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Affiliation: | 1. SKEMA Business School - Lille Campus, 59777, Lille, France;2. Lancaster University, Lancaster, UK |
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Abstract: | We develop a non-parametric technique framework for estimating firm-level Total Factor Productivity (TFP). Our paper has two major novelties: first, we propose a modelling of productivity with both firm-idiosyncratic factors and aggregate shocks. Second, we apply the Bayesian Markov Chain Monte Carlo (MCMC) technique that offers a numerical integration of productivity outside the posterior overcoming the restrictive assumptions about the relationship between productivity and variable production inputs. We implement our methodology in a group of 4,286 manufacturing firms from France, Germany, Italy, and the UK (2001–14). The results show that: (i) aggregate shocks matter for firm TFP evolution. The global financial crisis of 2008 caused severe, albeit short, adverse effects on TFP; (ii) there is substantial heterogeneity across countries in the way firms react to changes in R&D and taxation. German and UK firms are more sensitive to fiscal changes than R&D, while the opposite is true for Italian firms. R&D and taxation effects are symmetrical for French firms; (iii) the UK productivity handicap continues for years after the financial crisis; and (iv) there are substantial knowledge spillovers among German and Italian firms. |
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