Changes In Aggregate Productivity Research Articles

Sources of Trade Balance Dynamics in Korea

Purpose – This study quantifies sources of trade balance dynamics over the business cycle in Korea. Specifically, we quantify the relative importance of domestic and foreign factors on trade balance dynamics using a small open economy real business cycle (SOE-RBC) model and provide policy implications for stabilization policies. Aggregate productivity and interest rate spreads are considered domestic factors affecting the trade balance. A world interest rate (the U.S. interest rate) is considered a foreign factor. Design/methodology – Following Neumeyer and Perri (2005), we build the SOE-RBC model with three types of shocks: aggregate productivity, interest rate spread, and world interest shocks. The model is estimated by the generalized method of moments (GMM) using relevant business cycle statistics. The estimated model is used for quantifying the relative importance of domestic and foreign factors on trade balance dynamics in Korea. Findings – Our main findings can be summarized as follows: 85.64% of the trade balance fluctuations in Korea are explained by domestic factors, the remaining 14.35% by foreign factors. Particularly, trade balance dynamics are mostly accounted for by the change in aggregate productivity shocks (85.58%). World interest rate shocks considerably explain trade balance (14.35%), whereas the role of interest rate spread shocks that represent domestic risks is limited (0.08%). Although aggregate productivity is key in explaining trade balance dynamics in Korea, interest rates still have an essential role. This is because aggregate productivity changes induce interest rate spread variations and, thus, the trade balance significantly. The results suggest that government policies mitigating fluctuations in aggregate productivity would be effective for stabilization policies in Korea by reducing the trade balance volatility. Originality/value – Existing studies on the emerging market business cycle examine mostly Latin American countries, and the main object of the studies is the volatility of consumption rather than trade balance dynamics. Conversely, our study examines Korea rather than Latin American countries. Additionally, we examine sources of trade balance dynamics, which are relatively more important in Korea, rather than those of the volatility of consumption. Hence, we estimate the model to explicitly match moments related to trade balance in the data.

Productivity Growth and Workers’ Job Transitions: Evidence from Censal Microdata

A large body of work has highlighted the importance of employment reallocation as a driver of aggregate productivity growth, but there is little direct evidence on the extent and nature of this process at the worker-firm level. We use an administrative matched employer-employee census for Chile to provide novel insights into the relationship between job transitions and productivity variation across firms. As many theories would predict, worker flows from lower- to higher-productivity firms are larger than those of the opposite sign. Empirically, however, this is only marginally so. Almost half of all transitions occur “down the firm productivity ladder.” This process is also highly heterogeneous along several dimensions. Up-the-ladder flows are more likely for direct job-to-job transitions than those that pass through nonemployment. They are also much more likely for young, high-skilled workers, whose job transitions comprise in an accounting sense the lion’s share of aggregate productivity change. Interestingly, workers with the highest job turnover rates contribute proportionally the least to aggregate productivity changes. Put together, this evidence implies that the productivity mechanics of job reallocation yields a net benefit, but this hides massive and heterogeneous gross flows underneath. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

International Trade and Productivity after Apartheid

Abstract International trade fell in South Africa from the 1970s to the mid-1990s, and climbed fast thereafter, coinciding with the imposition and later removal of apartheid sanctions. Productivity followed suit. This paper explores the extent to which the increase in trade can account for the increase in productivity after apartheid. I use a model of international trade with innovation and calibrate it to match key macroeconomic variables. Non-tariff barriers, mostly related to apartheid sanctions, account for over half the changes in aggregate productivity. Tariffs play a very minor role, in line with existing studies.

Misallocation and reallocation of resources in Vietnamese manufacturing firms

PurposeThis research identifies the level of misallocation in Vietnamese manufacturing sector for the period 2000–2015. Meltiz and Polanec dynamic productivity decomposition is used to compare the relative productivity contributions from surviving, entering and exiting firms to aggregate productivity change by the type of ownership. Heckman's two-step model is used to examine the effect of misallocation and industry- and firm-level factors on entry or exit decision and market share of firms in Vietnamese manufacturing sector.Design/methodology/approachThe level of misallocation and efficiency gains in total factor productivity (TFP) are assessed using Hsieh and Klenow (2009) productivity decomposition framework for the period 2000–2015. The dynamic productivity decomposition of Meltiz and Polanec (2015) is used to compare the relative contributions from surviving, entering and exiting firms to aggregate productivity change. The effects of misallocation and other factors on entry or exit decisions and market share of firms are determined by using Heckman choice model.FindingsThe results indicate three main points. Firstly, resource misallocation is found to be highest among state-owned enterprise (SOEs) and low technology industries. TFP is found to 81.2% greater if there is no resource misallocation among firms. Secondly, the aggregate productivity change for the entering, exiting and surviving firms is 35% due to productivity reallocation among three groups. Finally, the decision of entry or exit as well as the market share of firms are influenced by misallocation and industry- and firm-level factors such as Vietnam's WTO entry, tax policy, financial frictions, industrial concentration, technology gap, capital intensity, human capital, scale of firm, time entry and FDI spillovers. The result finds the higher misallocation level is, the lower the probability and market share for a new firm to enter in the industry is.Research limitations/implicationsThe main limitation of the study is that the market is assumed perfectly competitive and the method has only decomposed misallocation of resources to those arising from output and capital distortions. The results of Heckman choice model only clarify on the sub-sample of state-owned enterprises and low technology firms.Originality/valueThe focus of many previous research papers on resource misallocation was generally to look at the level of misallocation in developed countries. However, knowledge about the effect of misallocation and other factors on entry or exit decisions and market share of firms is limited, particularly in the context of developing countries. This paper clarifies the level of misallocation in Vietnamese manufacturing sector and the effect of misallocation and other factors on entry or exit decisions and market share of firms.

Structural and productivity changes of Central and Eastern Europe

The purpose of this paper is to analyse the structural and productivity changes of Central and Eastern European (CEE) countries. The research period covers the years following accession into the European Union, from 2004 until 2018. This study aims to answer the following question: What effects have resulted from the integration with the European Union in terms of the sphere of productivity? The analysis covers two main categories of labour productivity growth: pure labour productivity growth and structural labour productivity growth. Moreover, factors that may affect both pure and structural productivity changes are examined. The main research techniques are shift-share analysis and panel data methods. The analysis shows that all the CEE countries in the studied period improved in terms of both pure and structural productivity. The impact of pure labour productivity, however, was much smaller than that of structural labour productivity; this means that the main change in productivity level was more attributable to changes in employment between sectors than to the modernisation of technological processes. Productivity increased in all sectors, but the most significant growth occurred in service sectors, specifically in financial and insurance activities and real estate activities. Simultaneously, employment decreased in less productive sectors, such as agriculture, forestry, and fishing. Furthermore, the results of the panel data analysis confirm a significant impact of the evaluated factors on pure and structural productivity growth. Thus, aggregate productivity change in the CEE area can have a positive impact on both forms of productivity growth. Both structural and pure productivity growth are stimulated by research and development expenditures, information and communication technology (ICT) goods imports, and trade openness. Moreover, this research confirms the positive impacts of business enterprise research and development expenditure growth and an increase in the number of researchers to the workforce ratio on sector productivity, although there are substantial differences between sectors. This research can be used by government agencies in establishing industrial development policies.

A Short Note on Aggregating Productivity

This paper discusses two simple decompositions for aggregate productivity analysis in the presence of distortions and in general equilibrium. The first is a generalization of Baqaee and Farhi (2017) and the second is due to Petrin and Levinsohn (2012). In the process, we propose a new “distorted” Solow residual which, contrary to the traditional Solow residual, accurately measures changes in aggregate productivity in disaggregated economies with distortions. These formulas apply to any collection of producers ranging from one isolated producer to an industry or to an entire economy. They can be useful for empiricists and theorists alike. Potential applications of these formulas include: (1) decomposing aggregate productivity into its microeconomic sources, separating technical and allocative efficiency; (2) aggregating microeconomic estimates (for example, from natural experiments) to assess macroeconomic effects; (3) constructing and interpreting aggregate counterfactuals. Despite their simplicity, the formulas are general, allowing for production networks, multi-product firms, and non-constant returns. They are also entirely nonparametric. They only assume market clearing and cost minimization.

Modeling of FDI in business services: Additional effects in case of Ukraine's European integration

ABSTRACTTo analyze Ukraine's deep and comprehensive integration with the EU, we develop a multi-regional general-equilibrium simulation model incorporating heterogeneous firms and Foreign Direct Investment (FDI) in business services. This allows for consideration of (a) trade growth in new varieties; (b) aggregate productivity changes attributed to reallocation of resources across and within an industry; and (c) productivity growth in manufacturing due to increased access to business services. The results indicate relatively small gains for the EU, whereas Ukraine benefits with a welfare increase of over 8%. The deindustrialization impact, previously found by Olekseyuk and Balistreri (2014) in a comparison of different modeling structures, is supported by our findings. Ukraine's welfare gains are higher under an Armington structure compared to monopolistic competition. This is due to a movement of resources into Ukraine's traditional export sectors producing under constant returns. Implementation of the FDI modeling approach and liberalization of barriers to FDI, however, mitigates the deindustrialization impact as multinational firms enter the Ukrainian market. This increases the number of available varieties and, consequently, induces productivity growth of manufacturing sectors due to improved access to business services as critical inputs.

Dynamic Olley‐Pakes productivity decomposition with entry and exit

We propose an extension of the Olley and Pakes () productivity decomposition that accounts for the contributions of surviving, entering, and exiting firms to aggregate productivity changes. We argue that the other decompositions that break down aggregate productivity changes into similar components introduce some biases in the measurement of the contributions of entry and exit. We apply our proposed decomposition to Slovenian manufacturing data and contrast our results with those of other decompositions. We find that, over a five‐year period, the measurement bias associated with entry and exit is substantial, accounting for up to 10 percentage points of aggregate productivity growth.

Dissecting aggregate output and labour productivity change: a postscript on the role of relative prices

This paper, a postscript to Balk (J Product Anal 42:35–43, 2014), highlights the role of relative price change in the relation between aggregate and unit-specific labour productivity change.

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Built to last: population aging and long run development in metropolitan Europe

The paper examines the role of demography on the growth perspectives of European metropolitan areas. Our findings are in support of the key role played by the demographic structure of the population in determining the economic prospects of European cities. Regions and cities with higher levels of dependency ratios are found to show lower growth rates, in the long run. This evidence supports earlier findings on the relevance of population age on both aggregate productivity changes and the human capital stock of the local labour force.

Measuring and relating aggregate and subaggregate total factor productivity change without neoclassical assumptions

This article considers the relation between total factor productivity measures for individual production units and those for aggregates such as industries, sectors or economies. This topic has been treated in a number of influential publications, such as Hulten (1978), Gollop (1979) and Jorgenson et al. (1987). What distinguishes this article from other publications in this area is that I deliberately avoid the making of all kinds of (neoclassical) structural and behavioural assumptions, such as the existence of production frontiers with certain properties, or optimizing behaviour of the production units. In addition, I also treat dynamic ensembles of production units, characterized by entry and exit. Thus, a greater level of generality is achieved from which the earlier results follow as special cases.

Examining Bargaining Power in the Northeast Multispecies Days‐at‐Sea Market

AbstractThe Northeast U.S. groundfish fishery is economically large and culturally important. Between 2004 and 2009, the primary management control used in this fishery was a tradable input allowance system known as Days at Sea (DAS); however, many regulatory institutions limited trading. These barriers included a set of “conservation equivalency” restrictions based on length and horsepower that were explicitly designed to restrain increases in the fishing power of the fleet. Despite these limitations, trade in the DAS market was fairly robust; by 2008, over 40% of all used DAS were traded. This research uses ordinary least squares and quantile regression to examine the effects of these institutional limitations on the bargaining power of traders in this market. The conservation equivalency restrictions adversely impacted the bargaining power of both small sellers and large buyers of DAS. Despite these bargaining power effects, prices were responsive to changes in aggregate supply and productivity in economically reasonable ways. Finally, the downward intrayear trend in price is consistent with decay in the time value component of financial options.Received June 21, 2011; accepted June 21, 2012

Scale efficiency in Danish agriculture: an input distance-function approach

This paper presents the results of an analysis that predicts the scale efficiency of individual farms and analyses the differences in scale efficiency over time and between farms. Representative farm account data for 1985--2006 are used, and the study applies stochastic frontier analysis using an input distance--function approach. The results show that pig farms have improved their input scale efficiency significantly over time, as have dairy farms during the last few years after a period of constant scale efficiency. Crop farms have the lowest scale efficiency, and there is a considerable potential for improving productivity in the cash crop sector by increasing the size of the farms. It is shown that a change in scale efficiency and technological change are the major components of aggregate productivity changes for all farm types. Oxford University Press and Foundation for the European Review of Agricultural Economics 2010; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.

Firm turnover, restructuring and labour productivity in transition: the case of Poland

This article explores the impact of turnover and restructuring on labour productivity in the Polish economy over the period 1988 to 1993. Changes in aggregate productivity are decomposed into elements corresponding to productivity growth among survivors, market share growth by survivors and the contributions of entering and exiting firms. The traditional entry and exit effects begin to work as transition to a market economy progresses. However, initial productivity improvements are due to changes in market shares of the existing firms following the break-up of large enterprises. Regression analysis shows that changes in the firm-level productivity are affected by restructuring and a more competitive economic environment.

An Improved Productivity Decomposition Approach to Understand Firm Dynamics and Aggregate Growth

We propose a new decomposition method for analysing aggregate productivity changes. The main improvement in our proposed method is that we are clearly able to separate out pure productivity changes of a hypothetical average firm from changes in the share of output or value added between firms. Our measure solves an aggregation problem which arises in summing up firm-level contributions to aggregate productivity growth. It also allows for straightforward interpretation of the productivity contribution of entering and exiting firms.

Human capital and economic growth: Sweden 1870–2000

This paper presents newly constructed series on human capital in Sweden 1870–2000. The estimates are based on enrolment in different forms of education, stretching as far back as 1812, and the size and age distribution of the population within age range 15–65 years. The secular accumulation of human capital has closely matched the long-term trend in aggregate productivity and both grew at a rate of 2.4% annually. Our estimates differ significantly from the data attributed to Sweden in the international short-cut estimates of human capital for the period since 1960. The basic question addressed is about causality: whether human capital causes economic growth or if causality goes in the other direction. We address this problem with modified Granger-causality tests. According to our results, changes in the stock of human capital have in a systematic way preceded changes in aggregate productivity up to the structural crisis in the 1970s. This allows us to conclude that human capital has been a causal factor in Swedish economic growth since the industrialisation. However, after 1975, the growth of human capital has not been able to match the demands of the third industrial revolution.

Productivity, convergence and policy: a study of OECD countries and industries

This paper analyses trends in labour productivity and its underlying determinants in a panel of OECD countries from 1979 to 2002. Data Envelopment Analysis (DEA) is used to estimate a Malmquist measure of multifactor productivity (MFP) change. We decompose the growth in labour productivity into (i) net technological change (ii) input biased technical change (IBTC) (iii) efficiency change and (iv) capital accumulation. We analyse the effect of each of these factors in the transition towards the equilibrium growth paths of both labour productivity and per capita GDP for the OECD countries, controlling for the effects of different policies and institutions. The results indicate that on average gaps in productivity or income levels are narrowing down although there is no evidence to suggest that the entire OECD area comprises a single convergence “club”. Using kernel estimation methods we find that that labour productivity and per capita GDP are settling toward a twin peak (bimodal) distribution. Panel unit root tests over an extended (1960–2001) period provide general support for the convergence hypothesis. Analysis of the contributions of productivity growth within industries and sectoral composition changes show that aggregate productivity change is predominantly driven by ‘net’ within sector effects with very little contribution emerging from sectoral shifts (the ‘in-between’ static or dynamic effects resulting from higher or above average productivity industries gaining employment shares or low productivity industries losing shares).

JOB FLOWS AND PRODUCTIVITY DYNAMICS: EVIDENCE FROM U.S. MANUFACTURING

Through their influence on the cross-sectional distribution of productivity across firms and workers, job creation and destruction likely have an impact on the rate at which aggregate productivity changes over time. However, the nature of this effect is not, a priori, clear. Although a broad consensus has emerged suggesting that job destruction enhances productivity by eliminating inefficient production units, theories disagree with regard to the effect of job creation. If job flows represent the reallocation of labor from low- to high-productivity positions, job creation would boost productivity growth. If, instead, they represent changes in employment along a primarily low-skill dimension, the effect would be negative. This paper estimates the influence of job creation and destruction on total factor productivity (TFP) growth using annual data on four-digit U.S. manufacturing. As expected, the results reveal a positive association between job destruction and changes in TFP. Yet, they also indicate that job creation tends to have a negative effect on productivity growth.

Job Flows and Productivity Dynamics: Evidence from U.S. Manufacturing

Through their influence on the cross-sectional distribution of productivity across firms and workers, job creation and destruction likely have an impact on the rate at which aggregate productivity changes over time. However, the nature of this effect is not, a priori, clear. While a broad consensus has emerged suggesting that job destruction enhances productivity by eliminating inefficient production units, theories disagree with regard to the effect of job creation. In particular, 'vintage-capital' theories of creative destruction suggest a positive influence since job flows are conjectured to represent the reallocation of labor from low- to high-productivity positions. Others suggest that job creation may, instead, represent the expansion of employment primarily along a lowskill (or low 'match-quality') dimension. In such a case, job creation would serve to lower aggregate productivity. This paper estimates the influence of job creation and destruction on total factor productivity (TFP) growth using annual data on 389 4-digit U.S. manufacturing industries over the period 1974-1993. As expected, the results reveal a positive association between job destruction and changes in TFP. Yet, they also indicate that, contrary to the creative-destruction view, job creation tends to have a negative effect on productivity growth.