Firm-level Productivity Growth Research Articles

Export Markets and Firm Productivity in Sub-Saharan Africa

ABSTRACT In this paper, we analyze the significance of export market destinations for productivity growth in Sub-Saharan Africa. We use matching and difference-in-differences techniques to evaluate these questions. We find that exports generate productivity growth among exporters, with the more productive firms exporting to multiple markets. We also find that changes in export markets are as a result of firm-level productivity growth suggesting that firms will sell products to additional markets if their productivity level increases hence the changes in export markets are correlated with productivity growth. Moreover, we find that exporting to multiple markets raises the firm’s productivity growth by 42.3%, higher than exporting to only one export market at a time. These findings hold at the country and industry level and are robust to other factors that may correlate with increased productivity like age, size and ownership. At the policy level, policies on export promotion should provide information on how prospective exporters can enter into African export markets. Firms that have started exporting should be helped with credit access to expand their sales to other additional export markets.

Productivity Drag from Small and Medium-Sized Enterprises in Japan

Productivity growth in Japan, as in most advanced economies, has moderated. This paper finds supportive evidence for the important role of small and medium-sized enterprises (SMEs) in explaining Japan’s modest productivity growth. Results show a substantial dispersion in firm-level productivity growth across sectors and even across firms within the same sector. SMEs, on average, exhibit lower productivity growth than non-SMEs in Japan, with smaller and older SMEs showing particularly low productivity growth. Estimates suggest that boosting productivity growth in all of the worst-performing SMEs could improve overall productivity growth by up to 1.8 percentage points. The SME credit guarantee system, SME financing constraints, demographic factors, and lack of intangible capital investment are discussed as contributors to the slow productivity growth of Japan’s small and old SMEs.

Export Markets and Firm Productivity in Sub-Saharan Africa

In this paper, we analyze the significance of export market destinations for productivity growth in Sub-Saharan Africa. We use matching and difference-in-differences techniques to evaluate these questions. We find that exports generate productivity growth among exporters, with the more productive firms exporting to multiple markets. We also find that changes in export markets are as a result of firm-level productivity growth suggesting that firms will sell products to additional markets if their productivity level increases hence the changes in export markets are correlated with productivity growth. Moreover, we find that exporting to multiple markets raises the firm’s productivity growth by 42.3%, higher than exporting to only one export market at a time. These findings hold at the country and industry level and are robust to other factors that may correlate with increased productivity like age, size and ownership. At the policy level, policies on export promotion should provide information on how prospective exporters can enter into African export markets. Firms that have started exporting should be helped with credit access to expand their sales to other additional export markets.

Decomposing firm-level productivity growth and assessing its determinants: evidence from the Americas

This paper provides novel empirical evidence on productivity growth in the manufacturing sector in Chile, Colombia, Mexico and Peru. Relying on plant-level data, we first decompose productivity and productivity growth into plant-level growth and market allocation forces. While the average productivity of the survivors is higher than the overall contribution of reallocation forces, during recessions the inverse is true and reallocation gives a positive, albeit small, contribution to aggregate productivity growth. Next we analyze how policy measures can determine allocative efficiency levels and growth, and find important scope for action on education, financial regulation, and structural reforms.

Domestic regulation, import penetration and firm-level productivity growth

This paper shows that the impact of import penetration on firms’ productivity growth depends on firms’ distance to the efficiency frontier and on product market regulation. Using firm-level data for a substantial number of OECD countries from the late 1990s to late 2000s, the analysis reveals nonlinear effects of both sectoral import penetration and de jure product market regulation measures, depending on firms’ positions along the global distribution of productivity. Close to the technology frontier, import penetration has a strongly positive effect on firm-level productivity growth, with less stringent domestic regulation enhancing this effect substantially. However, far from the frontier, the effect of import penetration on firm-level productivity growth is much smaller and often not significant. Its interaction with domestic regulation generally has no statistically significant effect either. The heterogeneous effects of import penetration and domestic product market regulation on firm-level productivity growth are consistent with a neo-Schumpeterian view of trade and regulation.

Bounded learning-by-doing and sources of firm level productivity growth in colombian food manufacturing industry

This paper models the bounded learning concept with the learning progress function characterized by the degree of efficiency and the specification of the learning progress as a logistic function capturing both the slow start-up and the limit in learning progress. We differentiate learning efficiency from the technical efficiency. The endogeneity corrected stochastic frontier model is then used to decompose the factor productivity growth into components associated with technological change, technical efficiency, scale, and learning. This productivity growth decomposition provides useful information and policy level insight in firm-level productivity analysis. Empirical results based on plant-level panel data on the Colombian food manufacturing industry for the period 1982–1998 suggest that productivity growth not only stems from technical progress, technical efficiency change, and scale but also from significant learning effect. The relative importance of the productivity growth components provides perspective for efficient resource allocation within the firm.

Environmental policies and productivity growth: Evidence across industries and firms

This paper investigates the impact of changes in environmental policy stringency on industry- and firm-level productivity growth in a panel of OECD countries. To test the strong version of the Porter Hypothesis (PH), we extend a neo-Schumpeterian productivity model to allow for effects of environmental policies. We use a new environmental policy stringency (EPS) index and let the effect of countries׳ environmental policies vary with the pollution intensity of the industry and with the countries’ and firms’ technological advancement. A tightening of environmental policy is associated with a short-term increase in industry-level productivity growth in the most technologically-advanced countries. This effect diminishes with the distance to the global productivity frontier, eventually becoming insignificant. For the average firm, no evidence of PH is found. However, the most productive firms see a temporary boost in productivity growth, while the less productive ones experience a productivity slowdown.

Trade Policy Reform and Firm-Level Productivity Growth: Does the Choice of Production Function Matter?

This paper considers whether a fairly well-established empirical relationship between liberalized trade and firm productivity growth is sensitive to the choice of an identification strategy for production function estimation. We estimate the productivity of Colombian manufacturing plants using the methods of Levinsohn and Petrin (2003), Ackerberg, Caves, and Frazer (2006), and Gandhi, Navarro, and Rivers (2012), and at times come to surprisingly different conclusions about the country's experience with trade policy reform during the 1980s. Results from a quantile regression model and a productivity growth decomposition exercise tend to vary as we experiment with different specifications of the production function. Research that is concerned with the short and medium-term impact of trade liberalization on domestic manufacturing industries should therefore pay close attention to issues of robustness to alternative strategies for estimating the productivity of firms.

Productivity, Price- and Wage-Markups: An Empirical Analysis of the Dutch Manufacturing Industry

This paper examines the interaction between productivity growth, firms’ monopolistic market power, and workers’ wage bargaining power. Our study contributes to several strands of literatures. First, we examine a monopolistic framework which accounts for wage bargaining. In addition to the other studies, along with the parameters characterizing a production function and the price-cost margins, we derive a measure of wage markup without relying on trade union participation data, and we study the correlation of the estimated parameters and markups with the firm-level productivity growth. Second, the paper contributes to literature on the structural identification of production functions in two ways. As a first step, it reviews the different estimation techniques that have been tackling the endogeneity issues concerning the simultaneity, the omitted output price, and the collinearity among input factors of production. Additionally, we propose an identification strategy that relies on the presence of imperfect competition in the flexible input market, namely, the labor market.

Financing sources and firm level productivity growth: evidence from Indian manufacturing

A large literature provides empirical evidence that financial development enhances welfare by stimulating economic efficiency and offering more profitable growth opportunities, although the issues of identifying the exact mechanisms through which finance enhances welfare and dealing with the simultaneity between financial development and growth still remain contentious. This paper takes a firm-level approach to study the link between financing sources and firm growth in India. We start by observing that (domestic) financial underdevelopment should not necessarily constrain all firms’ growth opportunities equally, given they can also access other non-bank finance sources such as retained earnings, foreign finance and government borrowings. Similarly, it is unrealistic to assume that similar financial structure will generate homogenous effects across firms. These considerations motivate our research questions of whether financing sources matter for firms’ productivity growth and whether this depends on firm characteristics such as ownership and size. We answer these questions using a rich micro panel data set and employing econometric techniques that deal with the potential reverse causality from financial structure to productivity growth. We find that relative to retained earnings, bank and nonbank finances positively affect firm level productivity growth with bank loans having the largest and government borrowings the least effect on growth. Size is found to play a mediating role in the finance-growth nexus: access to bank loans (nonbank finance) disproportionately benefits smaller (bigger) firms. Further analysis around ownership structure suggests that all else equal, it would appear that financial structure matters only for the growth of domestic private firms.

When Does Leverage Hurt Performance? - A Firm-Level Analysis

In the wake of the global financial crisis, several macroeconomic contributions have highlighted the risks of excessive credit expansion. In particular, too much finance can have a negative impact on growth. We examine the microeconomic foundations of this argument, positing a non-monotonic relationship between leverage and firm-level productivity growth in the spirit of the trade-off theory of capital structure. A threshold regression model estimated on a sample of Central and Eastern European countries confirms that TFP growth increases with leverage until the latter reaches a critical threshold beyond which leverage lowers TFP growth. This estimate can provide guidance to firms and policy makers on identifying “excessive” leverage. We find a similar non-monotonic relationship between leverage and proxies for firm value. Our results are a first step in bridging the gap between the literature on optimal capital structure and the wider macro literature on the finance-growth nexus.

When does leverage hurt productivity growth? A firm-level analysis

In the wake of the global financial crisis, several macroeconomic contributions have highlighted the risks of excessive credit expansion. In particular, too much finance can have a negative impact on growth. We examine the microeconomic foundations of this argument, positing a non-monotonic relationship between leverage and firm-level productivity growth in the spirit of the trade-off theory of capital structure. A threshold regression model estimated on a sample of Central and Eastern European countries confirms that TFP growth increases with leverage until the latter reaches a critical threshold beyond which leverage lowers TFP growth. This estimate can provide guidance to firms and policy makers on identifying “excessive” leverage. We find similar non-monotonic relationships between leverage and proxies for firm value. Our results are a first step in bridging the gap between the literature on optimal capital structure and the wider macro literature on the finance-growth nexus.

Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing

We present the first comprehensive set of firm-level total factor productivity (TFP) estimates for China's manufacturing sector that spans China's entry into the WTO. For our preferred estimate, which adjusts for a number of potential sources of measurement error and bias, the weighted average annual productivity growth for incumbents is 2.85% for a gross output production function and 7.96% for a value added production function over the period 1998–2007. This is among the highest compared to other countries. Productivity growth at the industry level is even higher, reflecting the dynamic force of creative destruction. Over the entire period, net entry accounts for over two thirds of total TFP growth. In contrast to earlier studies looking at total non-agriculture including services, we find that TFP growth dominates input accumulation as a source of output growth.

Technological regimes, Schumpeterian patterns of innovation and firm-level productivity growth

The paper investigates the relationships between technological regimes and firm-level productivity performance, and it explores how such a relationship differs in different Schumpeterian patterns of innovation. The analysis makes use of a rich dataset containing data on innovation and other economic characteristics of a large representative sample of Norwegian firms in manufacturing and service industries for the period 1998-2004. First, we decompose TFP growth into technical progress and efficiency changes by means of data envelopment analysis. We then estimate an empirical model that relates these two productivity components to the characteristics of technological regimes and a set of other firm-specific factors. The results indicate that: (1) TFP growth has mainly been achieved through technical progress, while technical efficiency has on average decreased; (2) the characteristics of technological regimes are important determinants of firm-level productivity growth, but their impacts on technical progress are different from the effects on efficiency change; (3) the estimated model works differently in the two Schumpeterian regimes. Technical progress has been more dynamic in Schumpeter Mark II industries, while efficiency change has been more important in Schumpeter Mark I markets.

Productivity Convergence at the Firm Level : Effects of Exit on Firm-level Productivity Growth in Japan

Productivity Convergence at the Firm Level : Effects of Exit on Firm-level Productivity Growth in Japan

Competitive Selection and Technological Capabilities in Ethiopian Manufacturing

This paper examines the entry, survival and exit patterns of Ethiopian manufacturing firms using census-based panel data for the period 1996 to 2002. The evidence reveals an underlying market selection mechanism that reallocates resources towards more efficient producers and forces inefficient firms to close down. This process also contributes to aggregate productivity growth although the manufacturing sector continued to lose productivity due to intra-firm productivity decline. The paper then explores the accumulation of technological capabilities and their role in firm-level productivity growth. Data from a sample survey show a very sparse incidence of innovative activities in Ethiopian manufacturing. Nonetheless, firms that engage in building technical capabilities exhibit higher levels of productivity after controlling for other firm characteristics. The paper concludes that while markets contribute to aggregate productivity growth by exerting competitive selection, long-term industrial competitiveness in developing countries could be stifled because of inadequate technological learning.

Competition and Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange

In this paper we analyze the impact of product market competition and ownership structure on corporate performance. We focus on the firms listed on the Warsaw Stock Exchange, which are either privatised or newly created firms. First, we study the separate effects of competition and ownership concentration on firm level productivity growth. Next, we investigate their interaction: are they substitutes or complements? We take care of the crucial problem of potential endogeneity of explanatory variables by using GMM estimators proposed by Arellano and Bond (1991). We also control for several types of selection bias that could affect the productivity levels. Moreover, we control for industry fixed effects affecting the rate of growth of productivity. Our results show that product market competition has a positive and significant impact on performance. Concerning the effect of ownership concentration, we find a U-shaped relationship with performance. Firms with relatively dispersed ownership (no shareholder with more than 20 per cent of voting shares) and firms, in which one shareholder has more than 50 per cent of voting shares, have higher productivity growth than firms with an intermediate level of ownership concentration. This correlation between concentration of ownership and productivity growth is not explained by the type of the controlling shareholder. Finally, product market competition and governance tend to reinforce each other rather than to be substitutes. Competition has no significant effect on performance for the firms with poor governance; on the contrary, it has significant positive effect in the case of firms with good corporate governance.

The Sensitivity of Productivity Growth Measures to Alternative Structural and Behavioral Assumptions: An Application to Electric Utilities 1951–1984

This article examines the sensitivity of three alternative multifactor productivity growth estimates for the electric-utility industry during the 1951–1984 period. The results indicate that multifactor productivity growth estimates are quite sensitive to the relaxation of various structural and behavioral assumptions. First, a benchmark measure is constructed along the lines suggested by Solow (1957). This “residual” approach produces estimates that suggest a substantial decline in firm-level productivity growth after the mid-1960s. Prior to obtaining the second and third estimates, empirical tests of the structural and behavioral assumptions underlying a firm's operation are conducted. First, the structural assumption of constant returns to scale is rejected, and the resulting long-run scale-adjusted multifactor productivity growth estimates are found to be consistently less than the residual estimates. Second, the behavioral assumption of long-run equilibrium is rejected. Comparing the long-run scale-ad...