Aggregate Industrial Production Research Articles

Reflections on technological progress in the agri‐food industry: Past, present, and future

AbstractTechnological advances—for example, from hand milking to robotic milking—are at the heart of economic transformation and have significantly shaped the agri‐food industry and economic growth throughout history. A look at the lead article of the first issue (and the first volume, 1952) of the Canadian Journal of Agricultural Economics (CJAE) 70 years ago reveals an ongoing inquiry within the discipline about how technological progress has shaped how we manage our farms with the implications on aggregate industry productivity and food prices. The topics discussed along these lines in the first issue of the CJAE are still relevant today—for example, challenges with measuring productivity and innovation, diffusion of innovation, technological unemployment, demand for skilled workers, financing innovations, climate change and food security. Science, technology, and innovation for the 21st century hold the potential to foster resilient and sustainable intensification of farm production and productivity growth for the agri‐food industry. In this address, I reflect on the past, present, and future impacts of technological innovations and productivity growth on the agri‐food industry and discuss the implications for future research, welfare, and policy.

Competition, reallocation, and growth: Theory and evidence from Africa

This paper investigates whether economic policy facilitates output growth by exploring the role of competition. We present a growth model with heterogeneous firms in which exposure to competition induces reallocation of market shares from less productive to more productive firms and forces the least productive firms to exit the industry. Confronted by a competition threat, incumbent firms choose either upgrading their products or bribing a policymaker in order to prevent entry by potential competitors. Product upgrading is less profitable than bribing for low-productivity firms but more profitable for high-productivity firms. Reallocation of market shares to more productive firms leads to higher aggregate industry productivity. Testing this prediction of the model using a generalized difference-in-differences approach and production data that cover 23 manufacturing industries and 34 African countries, we found that industries that upgrade more grow disproportionately faster in countries where competition policy is more intensive.

Decomposition of Output, Productivity and Market Structure Changes

Building on the recent development in the literature on production function identification and decomposition methods, in this paper we examine the sources of output and productivity growth in China’s manufacturing industries from 1998 to 2007 using firm-level data. We first decompose the industry output growth into contributions stemming from the growth of the surviving firms and market dynamics, and then further decompose the former into the input factor deepening and firm productivity growth. To accommodate heterogeneity across firms in terms of production technology and sources of growth, we consider a nonparametric production function and decompose firm output growth at both the mean and different quantiles of the output distribution. Nonparametric estimation techniques and recentered influence functions are used to facilitate our decomposition. In addition, we decompose the aggregate industry productivity growth into three sources, viz., survivors’ productivity growth, market dynamics, and reallocation of market shares. Given the market-oriented economic reforms undergoing in China during our sample period, contributions to aggregate productivity coming from dynamic ownership changes are also examined.

Региональная промышленная политика в арктических территориях: какая она есть и какой ей быть?

The moment of truth for regional industrial policy in the Arctic has arrived. At the federal level, the need for an active state policy in the Arctic has been recognized — in recent years, state and private corporations have been implementing a dozen new projects. But there is no clarity in the priorities, directions, versions of the regional industrial policy in the Arctic. Based on the analysis of regional strategies for the socio-economic development of the Arctic territories, seven directions for an active industrial policy are outlined: energy, food and transport security, industry of local building materials, environmental industry, production localization of corporate projects and restructuring of production in old industrial cities and regions. The analysis of regional industrial policy laws confirmed that their context and advancedness depend on the size and internal structure of the regional industrial sector. Despite the huge role that corporate structures play in the aggregate industrial production, the issues of interaction with them and the formation of a general agenda for industrial policy, are indicated in most of the provisions absolutely insufficient. In general, in the Russian Arctic, the district industry forms about three quarters of the total industrial product. The dichotomy of urban and district industry within the industrial sector of the Arctic regions means the need to significantly differentiate the instruments and institutions of local industrial policy within the Arctic zone. The assessment of industrial production volumes, carried out at the level of Arctic municipalities, made it possible to determine the sequence of regions: Yamal- Nenets Autonomous Okrug, Arctic Krasnoyarsk Territory (Norilsk Industrial Region, Taimyr and Evenkia, Turukhansk District), Murmansk Region, Nenets Autonomous Okrug, Arctic territories of the Komi Republic, Chukotka Autonomous Okrug, the Arctic part of the Arkhangelsk Region, the Republic of Karelia and the Republic of Sakha (Yakutia). Based on the developed corporateness index of the local industrial sector, six groups of municipalities (supercorporate, high corporate, dynamic, medium corporate, low dynamic and unincorporated) were identified, for each of which its own package of measures of local industrial policy is advisable. Four different situations of interaction between the main actors of regional industrial policy, represented by regional authorities and companies, can be distinguished: the first is the absence of a corporate structure, when industrial policy is solely carried out by local authorities; the second is the isolated existence of power and corporate business, dangerous by the Dutch disease and the fading of local initiatives in the field of new production projects; the third is a collision of interests between the authorities and business that is destructive for the region and for the dynamics of development; and the fourth is the active interaction of regional authorities and companies with the receipt of synergy effects in regional industrial policy. Popular instruments of modern industrial policy in the form of clusters, parks and zones should not be isolated “cathedrals in the desert”, but effective platforms for integrating the efforts of the authorities, corporations, local business, scientific and educational structures of the region in the implementation of projects and measures of industrial policy. The most important factor in the success of the regional industrial policy in the Arctic is the implementation of the strategy of the owner-region.

Organizational Form and Trade Liberalization: Plant-Level Evidence

This paper studies how firms’ internal organization shapes the impact of international trade. Using establishment-level data from the U.S. Census and a difference-in-difference specification, I find that, relative to standalone firms, conglomerates are more likely to restructure after trade liberalization episodes, focusing on their core competency and improving firm productivity and product market performance. Adjustments through the extensive margin account for the majority of the productivity growth differential between conglomerates and standalones experiencing trade shocks. Aggregate industry productivity remains relatively unchanged in industries dominated by conglomerates’ core business but decreases significantly in others. My findings suggest that firms’ internal organization has important consequences on the effects of trade policies. This paper was accepted by Gustavo Manso, finance.

The relationship between labor productivity and number of operating firms

This paper constructs a theoretical model matching empirically observed relationships between average labor productivity and the number of operating firms. The models in the related literature which utilize CES utility function find no relationship between average labor productivity and the number of operating firms in the economy (Melitz, Marc J. [2003. “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.” Econometrica 71 (6): 1695–1725] and many versions of this model). Moreover, the models which utilize non-homothetic preferences with a numeraire good find a positive relationship between average labor productivity and the number of operating firms (Melitz, Marc, and Gianmarco I. P. Ottaviano [2008. “Market Size, Trade, and Productivity.” Review of Economic Studies 75: 295–316] and many versions of this model). However, the model developed in this paper provides a single theoretical framework that depending on the source, a rise in the average labor productivity may lead to an increase or a decrease in the number of operating firms. In line with our results, we provide empirical evidence from ten European countries for the 2008–2016 period, which shows that the correlation between these two variables is positive for some of the countries, while negative for the others.

Extreme Weather and the Macroeconomy

We investigate the macroeconomic impacts of extreme weather shocks on the United States economy over the past sixty years. To identify changes in extreme weather patterns, we use the Actuaries Climate Index, which tracks changes in extreme temperatures, heavy rainfall, drought, high wind, and sea level. We find strong evidence of time-varying effects: While the impacts of extreme weather shocks are negligible at the beginning of the sample, they become significant at the end, where an increase in the index persistently reduces aggregate industrial production growth while raising aggregate unemployment and inflation.

Does firm innovation improve aggregate industry productivity? Evidence from Chinese manufacturing firms

This paper investigated to what extent firm innovation improves the aggregate productivity of the Chinese manufacturing industry in the presence of market distortions. By deriving a measure of firm-level distortions, we examined the role of market distortions in determining resource reallocations and aggregate productivity. The results indicate that firms become more productive and attract more resources through innovation, while market distortions also have large impacts on across-firm resource reallocations. Based on a productivity decomposition approach, we found that resource reallocation negatively contributes to aggregate productivity growth (APG) and that the contribution of firm innovation to APG is small. Our results suggest that firm innovation has not yet become the dominant factor in determining resource allocations and APG in China. In addition to boosting innovation, our study highlights the importance of improving the efficiency of resource allocation to improve aggregate industry productivity.

Understanding the Stickiness of Commodity Supply Chains Is Key to Improving Their Sustainability

Summary Commodity trade is central to the global economy but is also associated with socio-environmental impacts, for example, deforestation, especially in producer countries. It is crucial to understand how geographic sourcing patterns of commodities and commercial relationships between places and actors influence land-use dynamics, socio-economic development, and environmental degradation. Here, we propose a concept and methodological approach to analyze the geographic stickiness of commodity supply chains, which is the maintenance of supply network configurations over time and across perturbations. We showcase policy-relevant metrics for all Brazilian soy exports between 2003 and 2017, using high-resolution supply chain data from www.trase.earth . We find that the Brazilian soy traders with the largest market share exhibit stickier geographic sourcing patterns, and that the supply network configurations between production places and traders become increasingly sticky in subsequent years. Understanding trade stickiness is crucial for supply chain accountability, because it directly affects the effectiveness of zero-deforestation commitments.

Firm heterogeneity and exports in the Netherlands: Identifying export potential beyond firm productivity

ABSTRACTAccording to the Melitz [2003. ‘The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.’ Econometrica 71: 1695–1725] model, potential exporters have to be sufficiently productive to overcome the entry costs of foreign markets. Once firms pass this productivity threshold, they all export. However, empirical evidence indicates that a substantial share of highly productive top-performing firms does not export. In this paper, we focus specifically on this group of high-performing non-exporters and identify the factors that prevent them from successfully exporting. We employ a large Dutch administrative dataset containing both small and large firms in services and manufacturing for the period 2010–2016. Our main findings are two-fold. First, controlling for high productivity identifies other factors that need to be fulfilled for exporting firms. Firm size, import status, and foreign ownership are important determinants of a firm’s future export activity. Second, firm location is crucial. A location in more peripheral areas increases the probability that high-productive firms do not export, whereas a location close to the border increases export probabilities.

A novel decomposition of aggregate total factor productivity change

An industry is an ensemble of individual firms (decision making units) which may or may not interact with each other. Similarly, an economy is an ensemble of industries. In National Accounts terms this is symbolized by the fact that the nominal value added produced by an industry or an economy is the simple sum of firm-, or industry-specific nominal value added. From this viewpoint it is natural to expect that there is a relation between (aggregate) industry or economy productivity and the (disaggregate) firm- or industry-specific productivities. In an earlier paper (Statistica Neerlandica 2015) three time-symmetric decompositions of aggregate value-added-based total factor productivity change were developed. In the present paper a fourth decomposition will be developed. A notable difference with the earlier paper is that the development is cast in terms of levels rather than indices. Various aspects of this new decomposition will be discussed and links with decompositions found in the literature unveiled. It turns out that one can dispense with the usual neo-classical assumptions.

The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity

ABSTRACTWe provide evidence that the deregulation of U.S. state banking markets leads to a significant increase in the relative employment and capital growth of local firms with higher productivity, and that this effect is concentrated among young firms. Using financial data for a broad range of firms, our analysis suggests that this effect is driven by a shift in the composition of local bank credit supply toward more productive firms. We estimate that this effect translates into economically important gains in aggregate industry productivity and that changes in the allocation of labor play a central role in driving these gains.

Collateral, Reallocation, and Aggregate Productivity: Evidence from the U.S. Housing Boom

I establish that US public firms holding real estate have persistently lower levels of productivity than non-holders. Rising real estate values, which relax companies' collateral constraints and allow them to expand production, hence reallocate capital and labor towards inefficient firms. The reallocation has negative consequences for aggregate industry productivity. Industries with a stronger relative increase in real estate values see a significant decline in total factor productivity, and the within-industry covariance between firm size and productivity declines. My results suggest a novel channel through which real estate booms affect productivity and have implications for monetary policy.

FREE TRADE AGREEMENTS AND BRIDGEHEAD EFFECT: EVIDENCE FROM KOREA–CHILE FTA

Recent literature on the dynamics of export destinations has argued that firms export their products to new markets that are geographically close and culturally related to their previous export destinations. A modified version of [Melitz, M (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.] model suggests that a preferential trade agreement may provide inefficient firms with opportunities to export their products to third destination countries. This paper finds that new Korean products have been exported to the Chile market because of reductions in Chilean tariffs and the experience gained from exporting to the Chilean market has increased the likelihood of subsequent export to other countries in South America. The paper provides direct evidence that a free trade agreement (FTA) can serve as a stepping stone to other markets.

The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity

Using a difference-in-difference methodology, we find that the state-level deregulation of local U.S. banking markets leads to significant increases in the reallocation of labor within local industries towards small firms with higher marginal products of labor. Using plant-level data, we propose and examine an approach that quantifies the industry productivity gains from labor reallocation and find that these gains are economically important. Our analysis suggests that labor reallocation is a significant channel through which local banking markets affect the aggregate productivity and performance of local industries.

СТАБІЛІЗАЦІЙНА ПОЛІТИКА: МАКРОЕКОНОМІЧНІ ВИМІРИ

The article studies models and conceptions of stabilization policy that aims to reduce the severity of economic fluctuations in the short term. According to the economic science, production and employment fluctuate around their natural levels in the long run. The paper reveals, that stabilization policies are designed to defuse the business cycle phases, bringing production and employment to its natural level. It uncovers, that the main function of stabilization policy is to limit short-term deviations in the system of long-term market equilibrium. This is done in the form of aggregate supply – aggregate demand by establishing relationships between potential output and prices of production, on the one hand, and the relationship between aggregate demand and industrial production prices – on the other. The government’s instruments are fiscal and monetary policy, which maintains high and stable levels of economic activity. The article outlines, that the best option for stabilization policy is to stimulate aggregate supply and use only certain aspects of aggregate demand in the absence of real prerequisites for its improvement under current economic conditions. Therefore, neoclassical paradigm and monetary concept should be taken for the basis of stabilization.

THE IMPACT OF TRADE LIBERALIZATION ON INDUSTRIAL PRODUCTIVITY

An empirical finding by Trefler (2004, “The Long and Short of the Canada-U.S. Free Trade Agreement”, American Economic Review, 94(4), 870-895) and others that industrial productivity increases more strongly in liberalized industries than in nonliberalized industries has been widely accepted as evidence for the Melitz (2003, “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity”, Econometrica, 71, 1695-1725) model. We show that under fairly standard assumptions a multi-industry version of the Melitz model does not predict this relationship. Instead, it predicts the opposite relationship that industrial productivity increases more strongly in nonliberalized industries than in liberalized industries.

Credit Markets, Resource Allocation, and Aggregate Industry Productivity

Using a difference-in-difference methodology, we find that the state-level deregulation of local U.S. banking markets leads to significant increases in the reallocation of labor within local industries towards small firms with higher marginal products of labor. Using plant-level data, we propose and examine an approach that quantifies the industry productivity gains from labor reallocation and find that these gains are economically important. Our analysis suggests that labor reallocation is a significant channel through which local banking markets affect the aggregate productivity and performance of local industries.

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Multiple finances, margins of foreign direct investment and aggregate industry productivity

Based on a heterogeneous firm set-up, we model firms’ access to the internal capital market, bank finance as well as bond finance and investigate how firms’ adjustment among multiple sources of finance affects their performance in foreign direct investment and aggregate industry productivity. We find that when facing a bank credit shock (e.g. tighter bank lending), firms with different productivities react differently. Less productive firms exit from the foreign market due to a lack of funds while the more productive resort to bond finance to sustain their multinational status. The increased demand for bond finance as compensation for decreased bank finance by the surviving multinationals exacerbates the competition in the bond market and bids up the bond return rate, which triggers a Melitz-type selection effect through the bond market and brings aggregate industry gains. However, the divestment of those failing FDI firms and the consequently reduced bond financing demand mitigate this effect.