Abstract
One of the remaining challenges in explaining differences in total factor productivity is heterogeneity between sectors and within a specific sector in terms of labor and capital. This paper employs the generalized method of moments (GMM) to identify factors that affect total factor productivity across 21 manufacturing sectors and to clarify the heterogeneous determinants of total factor productivity within manufacturing sectors for the period 2010–2015. Our estimations show that large firms have significantly greater total factor productivity levels than small firms in some fragmentations of firms in terms of both labor and total capital and in some manufacturing sectors. It is suggested that firm characteristics should be considered by the government in establishing relevant policies for enhancing firm productivity.
Highlights
Given the crucial role of total factor productivity (TFP) in economic growth and development, its determinants have been examined intensively in the relevant literature using a vast number of approaches
Several challenges remain for researchers to understand differences in total factor productivity, namely: (1) empirical difficulties in the measurement of TFP levels; (2) model uncertainty on key determinants; and (3) heterogeneity between manufacturing sectors and heterogeneity within manufacturing sectors in terms of labor and capital that have been increasing reconsidered recently
To be more specific: First, regarding labor heterogeneity, our estimations show that large firms in terms of labor have significantly greater TFP levels than small firms in some fragmentations of a firm’s labor size and in some manufacturing sectors, as indicated in previous studies
Summary
Given the crucial role of total factor productivity (TFP) in economic growth and development, its determinants have been examined intensively in the relevant literature using a vast number of approaches. These include, for example, the “vintage effect” (Kendrick 1961; Hulten 1992; Hulten and Wykoff 1980; Harper 2007), the learning-by-doing effect (Jovanovic 1982; Pakes and Ericson 1998), resource-based theories (Penrose 1959; Wernerfelt 1984; Barney 2000, 2001), and a “neo-Schumpeterian”. The literature on TFP determinants faces the problems of the “open-endedness” of alternative theories that can be applied and provides controversial results in empirical research (Brock and Durlauf 2001) This is because firms within and among sectors are not homogenous in terms of their size.
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