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Firm Dynamics, Productivity and Allocation of Resources

Paper Session

Sunday, Jan. 7, 2018 8:00 AM - 10:00 AM

Marriott Philadelphia Downtown, Grand Ballroom Salon D
Hosted By: Association for Comparative Economic Studies
  • Chair: Joep Konings, KU Leuven

Climbing the Rungs of the Quality Ladder: FDI and Domestic Exporters in Romania

Matej Bajgar
,
OECD
Beata Javorcik
,
University of Oxford

Abstract

This study examines the link between the presence of multinational enterprises (MNEs)
and export sophistication of domestic firms in an emerging economy. The analysis is based on
matched firm and customs panel data from Romania covering the period 2005-11. The results
show a positive relationship between the unit values of goods exported by Romanian firms and
the MNE presence in downstream (input-sourcing) industries. The effect on export unit values
is present primarily in industries producing intermediate goods and industries with greater scope
for quality improvements. The results are consistent with foreign direct investment stimulating
upgrading of the indigenous manufacturing sector in host economies.

Productivity Dispersion: Misallocation or Adjustment Frictions?

John S. Earle
,
George Mason University
J. David Brown
,
U.S. Census Bureau
Emin Dinlersoz
,
U.S. Census Bureau

Abstract

Recent research maintains that the observed variation in productivity within industries reflects resource misallocation and concludes that large GDP gains may be obtained from market-liberalizing polices. Our theoretical analysis examines the impact on productivity dispersion of reallocation frictions in the form of costs of entry, operation, and restructuring, and shows that reforms reducing these frictions may raise dispersion of productivity across firms. The model does not imply a negative relationship between aggregate productivity and productivity dispersion. Our empirical analysis focuses on episodes of liberalizing policy reforms in the U.S. and six East European transition economies. Deregulation of U.S. telecommunications equipment manufacturing is associated with increased, not reduced, productivity dispersion, and every transition economy in our sample shows a sharp rise in dispersion after liberalization. Productivity dispersion under central planning is similar to that in the U.S., and it rises faster in countries adopting faster paces of liberalization. Lagged productivity dispersion predicts higher future productivity growth. The analysis suggests there is no simple relationship between the policy environment and productivity dispersion.

Comparative Analysis of Resource Misallocation

Yuriy Gorodnichenko
,
University of California-Berkeley
Debora Revoltella
,
European Investment Bank
Jan Svejnar
,
Columbia University
Christoph Weiss
,
European Investment Bank

Abstract

Although numerous studies document the ability of various frictions to generate significant misallocation effects, the nature of these frictions is poorly understood. These frictions could be differences in access to external finance, access to infrastructure, various regulatory constraints, rigidities in the labor market, etc. In fact, observed dispersion of the marginal products of capital (or labor), which proxies for misallocation of resources, may be due to measurement errors and, as a result, the current framework of measuring misallocation can overstate gains from reforming institutions. This paper uses newly available cross-country micro-level data to assess quantitative significance of various frictions and measurement issues.

Effect of “Negative Clusters” on Productivity: The Case of Ukrainian Manufacturing Firms

Volodymyr Vakhitov
,
Kyiv School of Economics

Abstract

Presence of moderate agglomeration economies for manufacturing firms is supported in numerous studies, including those from Ukrainian manufacturing. My paper expands the literature using a notion of “urban capital decay”, defined as the share of obsolete capital in the total capital stock of the city. It is shown to have a negative impact on firms productivity and thus to reduce the agglomeration effect of a city. Firms established in cities where capital is relatively more depreciated seem to have lower productivity gains from agglomeration forces. New firms choosing to locate in such cities may experience an effect of a “negative cluster”, where total productivity effect turns to be even negative. At the same time, urbanization economies measured as presence of firms in other sectors than the firm’s own (services in particular) appear to have positive effect on productivity of manufacturing firms. This poses an interesting policy issue: to increase productivity, city policymakers can choose either attracting new investment to replace obsolete capital stock, or expanding the services component in the urban production structure. Findings from our previous paper (Shepotylo and Vakhitov, 2010) confirm a positive effect of services restructuring on manufacturing, which makes it a viable recipe for urban development.
Discussant(s)
Joep Konings
,
KU Leuven
John Bonin
,
Wesleyan University
Josef Brada
,
Arizona State University
John Giles
,
World Bank
JEL Classifications
  • D2 - Production and Organizations
  • O4 - Economic Growth and Aggregate Productivity