Firm TFP Research Articles

동태적 관점에서 본 환경정책과 생산성의 관계: 제조업을 중심으로

This study analyzed the effect of increasing environmental policy stringency on a firm's TFP from a dynamic perspective. For the analysis, the TFP of Korean manufacturing firms was estimated from 2006 to 2018, and the OECD's environmental policy stringency index was used. The baseline model was set to represent that one-year lag of environmental policy stringency affects TFP. And environmental policy stringency was considered by dividing it into Korea's environmental policy stringency and relative environmental policy stringency. The analysis model took a dynamic perspective by considering the persistence of TFP shock and the persistence of environmental policy stringency. Dynamic panel analysis was conducted to consider the persistence of TFP shocks, and the Porter hypothesis was tested by changing the time lags of environmental policy stringency. As results, it was found that the increase in one-year lag of environmental policy stringency decreased firm's TFP. This was shown in Korea's environmental policy stringency as well as in the relative environmental policy stringency. However, the increases in two-year and three-year lags of environmental policy stringency were shown to lead to productivity improvement, showing that the Porter hypothesis was supported after two periods. This result supports the Porter hypothesis as a more long-term phenomenon.

Political Hierarchy and Long-Term Effects on TFP: Evidence from a Provincial Elevation in China

This paper examines the effects of political hierarchy on firms’ long-term total factor productivity using evidence from the elevation of Chongqing to provincial-level government in China. Using the elevation as an exogenous shock and the Sichuan-Chongqing border as a dividing line, we utilized the spatial regression discontinuity approach to identify the causal link. We found that before Chongqing’s elevation to a provincial-level municipality, the TFP of Chongqing firms was not significantly different from that of Sichuan firms, but after the elevation, the TFP of Chongqing firms near the border was significantly lower than that of Sichuan firms. The mechanism analysis shows that the land transaction price in Chongqing is significantly lower than that in Sichuan Province, which leads to an abundance of low-productivity firms and the “crowding out” of high-productivity firms. We also found that government intervention in Chongqing exacerbates the degree of resource misallocation at the firm level, which together lead to a decline in firm TFP.

The Effect of Institutions on Productivity Spillovers from FDI to Domestic Firms: Evidence in Vietnam

Purpose: The purpose of this study is to investigate the impact of formal institutions and their components on productivity spillovers from FDI enterprises to domestic firms’ TFP in developing countries like Vietnam. Design/methodology/approach: The study, conducted in two steps to explore the relationship, is to estimate the firm's TFP in accordance with the semi-parametric method of Levisohn and Petrin (2003). Regression is in accordance with the equation with panel data and adjusted by Driscoll and Kraay standard errors. An unbalanced panel data, related to more than 61,600 Vietnamese manufacturing firms from 2012 to 2017, is combined with the Provincial Institutional Quality Survey (PAPI index) and IO table. Findings: The local institutions have a positive impact on promoting learning ability and increasing productivity of domestic firms, especially small and medium enterprises (SMEs) that take better advantage of this effect. Vertical linkages with FDI enterprises assist local firms to increase productivity while horizontal linkages bring in negative effects. Domestic enterprises with high productivity (in the top 25%) receive positive spillover effects from horizontal linkages and vertical linkages and gain positive impacts of the institution on productivity whereas the group of low-productivity enterprises records negative impacts. This research highlights those enterprises operating in the region where institutions have transparency, accountability, participation in comments and effective corruption control can absorb spillovers and improve their productivity as well as the transparency and corruption control are recognized as having a positive impact through horizontal linkages. Research limitations/implications: With the limitation of research data being conducted only on manufacturing enterprises, there is a lack of data on the impact of service enterprises. The study only stops at understanding the impact of formal institutional effects on productivity spillovers whereas informal institutional effects will be studied in the future. Furthermore, the productivity spillovers of FDI enterprises are explored in general besides other FDI forms that will have different productivity spillovers like offshore. From the results of this study, the governments of developing countries should improve their institutions to encourage local enterprises to take the advantage of spillover effects from FDI enterprises as well as pay more attention to regional factors by supplementing development priority policies based on the capacity of each region. Institutional quality at provincial level has a positive impact on productivity spillovers; consequently, it is essential to have policies for further institutional improvement. Originality/value: This is the first research paper on the impact of the institutional factor at provincial level on firm’s productivity in developing countries like Vietnam. Theoretically, the impact of formal institutions on spillover effects from FDI enterprises is also clarified. In addition, our findings have implications for local economic development policies: vertical linkages promote domestic firms to increase their productivity while horizontal linkages of FDI enterprises in the same industry generate adverse impacts. This paper suggests some feasible solutions for SMEs in developing countries towards their productivity improvement.

Chaebols and Firm Dynamics in Korea

We study firm dynamics in Korea before and after the 1997-98 Asian crisis and pro-competitive reforms that reduced the dominance of chaebols. We find that in industries that were dominated by chaebols before the crisis, labor productivity and TFP of non-chaebol firms increased markedly after the reforms (relative to other industries). Furthermore, entry of non-chaebol firms increased significantly in all industries after the reform. Finally, after the crisis, the non-chaebol firms also significantly increased their patenting activity (relative to non-chaebol firms). These results are in line with a neo-Schumpeterian view of transition from a growth model based on investment in existing technologies to an innovation-based model.

Financial Frictions, Equity Constraints, and Average Firm Size Across Countries

We document new evidence that low equity in financially under-developed economies is associated with lower productivity investment, a smaller employment share of large firms, and smaller average firm size within sectors. We present a tractable model with heterogeneous entrepreneurs that face equity constraints that limit investment at entry. The model can be solved analytically, making clear predictions for the impact of equity constraints on outcomes of interest consistent with the evidence we document. The model can account for one-fifth to one-third of the variance in observed average firm size and TFP across countries, all substantial relative to the literature.

Openness and factor shares: Is globalization always bad for labor?

This paper studies the response of factor shares to the liberalization episode in India during the 1990's, which is characterized by large and unexpected changes in trade and foreign investment policies. We find that access to foreign capital caused an increase in the labor-to-capital relative factor share. As lower tariffs on capital goods and FDI liberalization reduce the cost of foreign capital, firms increase their use of foreign capital relative to domestic capital. This shift in the composition of the capital stock improves capital's productivity per unit of expenditure, which in turn raises wages and the relative labor share. Consistent with this mechanism, firm TFP and the share of firms that import capital both increase in industries with the largest capital cost reductions, while the relatively larger rise of labor payments is observed predominantly for new capital importers. We identify domestic deregulation policies and reallocation to capital-intensive firms as potential determinants of the observed decline in the aggregate labor share. Finally, in a model where domestic and foreign capital are imperfect substitutes, we quantify the effect of a reduction in capital tariffs, and find that it explains a large part of the estimated increase in the labor share found in the reduced form analysis.

What Is so Special about Robots and Trade?

We estimate the effect of the introduction of robots on the intensive and extensive margins of exports using a sample of Spanish manufacturing firms over the period 1994-2014. The empirical strategy used to identify the causal impact of robot adoption on the firm level export performance consists on combining propensity score matching (PSM) and difference in differences (DID) techniques. The results show that firms that start to use robots experience a sharp increase in their export probability, export sales and share of exports in total output and this result is robust to a wide array of checks. Robot adoption not only helps firms to start exporting and moves their specialisation towards intermediate products, but also favours export survival and export sales of exporting firms. The main results are driven by firms active in non-comparative advantage industries facing higher export sunk costs and market penetration costs and by those specialised in the production of intermediates, which can explain the increasing participation of Spain in global value chains. Inspection of the transmission channels suggests that the positive impact of robot adoption on exports could be driven by its positive effect on firm TFP and import probability.

Railway speedup and firms’ total factor productivity

In the last decade, China’s HSR construction has caused railway network speedup and we provide evidence that China’s railway speedup increases firm TFP. In railway network, cities’ connectedness with nearest metropolis is positively related to local firms’ TFP. We find that this positive relationship holds in both provincial capital cities subsample and ordinary prefecture-level cities subsample. Our result also suggests that railway speedup can impact on cities that are in medium distance from metropolises, which is consistent with our travelling experience.

Agglomeration Economies and the Firm TFP: Different Effects Across Industries

This paper analyzes the effect of agglomeration economies on firms’ total factor productivity. We propose the use of a control function approach to overcome the econometric issue inherent to the two-stage approach commonly used in the literature. Estimations are conducted separately for four industry groups, defined by technological intensity, to allow for non-uniform effects of agglomeration economies on firms given their technological level. In addition, R&D is included to account for the firms’ own efforts to foster productivity through creating and absorbing knowledge. Finally, radii as well as administrative boundaries are used for defining regions. The results confirm differences in the strength and even in the direction of agglomeration economies: While urban economies have the largest effect on TFP for firms in high-tech industries, they have no effect on TFP in low-tech industries. For firms in the latter industries, however, the variety of the local economic structure has an impact, while this is irrelevant for the TFP of firms in high-tech industries. Only localization economies have a positive and significant effect on TFP throughout, but the effect increases with technological intensity of industries. Throughout, R&D is also found to have a positive effect that increases with technological intensity.

Lessons for Tax Reform from an Equilibrium Model of Innovation

We formulate and estimate a general equilibrium model of innovation-led growth and use it to evaluate the quantitative implications of individual income tax reforms for innovation and aggregate productivity growth. In the model, innovation comes from entrants creating new products and incumbents improving own existing products. We estimate the model parameters by matching key moments of U.S. data. The model generates an aggregate labor supply elasticity and a per capita GDP growth response to marginal tax rate changes that are consistent with available empirical estimates. We find that the model accounts reasonably well for the observed movements in TFP, labor productivity, hours worked and number of firms per capita during the “Reagan tax cuts” of the eighties. The model predicts that a temporary, deficit-financed, 3 percentage points cut in the average marginal individual income tax rate, set to expire in 2025, produces a temporary TFP growth acceleration leading to a 6 percent increase in real per capita GDP by year 2040.

Chaebols and Firm Dynamics in Korea

English Abstract: We study firm dynamics in Korea before and after the 1997-98 Asian crisis and pro-competitive reforms that reduced the dominance of chaebols. We find that in industries that were dominated by chaebols before the crisis, labour productivity and TFP of non-chaebol firms increased markedly after the reforms (relative to other industries). Furthermore, entry of non-chaebol firms increased significantly in all industries after the reform. After the crisis, the non-chaebol firms also dramatically increased their patenting activity. Finally, markups of chaebol firms declined substantially, especially with industries dominated by chaebols before the crisis. These results are in line with a neo-Schumpeterian view of transition from a growth model based on investment in existing technologies to an innovation-based model.

Local Content Policy and Total Factor Productivity: Evidence from Automobile Component Manufacturing

Is industrial policy effective? This issue has been a hot topic in academic circle. This paper focuses on local content policy in Chinese automobile industry in 2005 and combines tax holiday in the same period to empirically analyze their impacts on firm TFP and answer the question above by using micro data of component manufacturing and vehicle manufacturing in Chinese automobile industry from 2002 to 2007. It comes to the following conclusions:firstly, the main mechanism of the TFP improvement of automobile component manufacturers lies in vertical technology spillover effect of vehicle manufacturers on automobile component manufacturers, but the rise in market size and short-term market monopoly degree also leads to the inertia of these component manufacturers in terms of productivity improvement; secondly, there is heterogeneity among the impact of local content policy on firm TFP with different ownership structure; domestic and nonstate-owned firms take more advantages of technology spillover from vehicle manufacturers, and foreign-invested firms benefit more from the rise in market size, while productivity of state-owned firms is not significantly influenced by local content policy; thirdly, the relationship between local content policy and tax holiday shows two sides; under local content policy, FDI that enjoys tax holiday offers more technology spillover to domestic component manufacturers; however, firms that enjoy tax holiday lack the motive for self-improvement on their efficiency. These conclusions above bring some implication to a new round reform in Chinese industry:local content policy is effective to a certain extent, especially for China's strategic emerging industries like high-end equipment manufacturing industry, and the policy orientation is conductive to laying the foundation of the construction of new industries; however, industry policy should not be overused, and its policy-making should place more emphasis on organic combination and complementation of different policy instruments, which can help different policies work together to ensure the efficiency improvement of firms.

Markups, Productivity and the Financial Capability of Firms

We extend a framework of monopolistically competitive firms heterogeneous in productivity and with endogenous markups (as in Melitz and Ottaviano, 2008) to incorporate the presence of financial frictions. Before producing, firms need to obtain a loan necessary to cover part of production costs, for which they have to pledge collateral in the form of tangible assets. In addition to productivity, firms are also heterogeneous in their financial capability: some firms have access to collateral at lower costs. As a result, financial capability and collateral requirements enter together with productivity in the expression of the equilibrium firm-level markup. At the aggregate level, the model shows that tighter credit constraints in the form of higher collateral requirements mitigate the pro-competitive effect of trade. We validate our theoretical results capitalizing on a representative sample of manufacturing firms surveyed across a subset of European countries during the financial crisis. Guided by theory, we estimate for each firm financial capability, TFP and markups. We then employ those estimates to structurally retrieve from the model a firm-specific measure of collateral requirements (a proxy of credit constraint), and test our main propositions.

Environmental Decentralization and Firm TFP: Evidence from the Data of Chinese Manufacturing Enterprises

Under the background of current reform of environmental decentralization, it is particularly important to find out a reasonable environment regulation way to alleviate the non-harmonious relationship between environment regulation and firm TFP growth. This paper introduces environmental decentralization into the model of firm productivity growth decisions, and analyzes the effect of environmental decentralization on local firm productivity growth decisions in the monopolistic competition environment. It makes an empirical analysis and concludes that there is an inverse U-shape relationship between environmental decentralization and local firm TFP. It also makes a robustness test through the methods of sub-sample, alternative variables and empirical test and the conclusions are still very robust. Therefore, it argues that governments should increase the spending and duty scope in the central environmental affairs, and firms should improve TFP through technology innovation and avoid the effect of environment factors on firm development.

VALUE CREATION OF PORTFOLIO COMPANIES BY VENTURE CAPITAL FUNDS ON THE POLISH MARKET

Data on VC and PE efficiency shows that the overall efficiency of VC- backed firms is higher than that of non-VC-backed firms at every point in time. This efficiency advantage of VC-backed firms arises from both screening and monitoring. The efficiency of VC-backed firms prior to receiving financing is higher than that of non-VC- backed firms, and further, the growth in efficiency subsequent to VC financing is greater for such firms. The above increases in efficiency of VC-backed firms are spread over the first two rounds of VC financing after which the TFP of such firms remains constant until exit. Overall efficiency gains generated by VC backing arise primarily from improvements in sales, the efficiency gains of high-reputation VC-backed firms arise also from lower increases in production costs. Finally, we show that VC backing and the associated efficiency gains positively affect the probability of a successful exit.

Labor's Share, the Firm's Market Power and TFP

In this paper we investigate the relationship between labor’s share, the market power of firms and the elasticity of output with respect to labor input using an approach based on an unobserved components model. The approach yields time-varying estimates of the market power and the elasticity. Evidence on the evolution of the market power of firms contributes to a deeper understanding of movements in labor’s share and of the firm’s contribution to the labor wedge. The generated values of the elasticity also yield revised estimates of US TFP growth which is informative about the (non-trivial) bias inherent in traditional estimates of TFP growth which use the wage share as a proxy for the elasticity.

Services reform and downstream economy-wide performance: The case of Bulgaria

This paper provides new evidence on the impact of services sector reforms on domestic firm productivity. It extends the previous literature on this topic by using firm-level data from Bulgaria, by developing an up-to-date TFP measure, and by taking stock of the downstream performance of the entire economy, covering goods as well as services firms. The results show that indeed services reform are an important driver for the wider downstream economy, particularly reforms in electricity, insurance and telecom. More importantly, a novel issue is that the results also show that sheer competition in services markets also forms a significant determinant for downstream firm TFP.

The Distribution of Firm Sizes from Occupational Choice: Theory and Empirical Implications

This paper models the distribution of firm sizes as the market equilibrium from occupational choices made by rational individuals with different entrepreneurial skills. The model is calibrated to match Spanish data on the size of occupational groups (employees, employers, solo self-employed) and firms. Our results show how the distribution of skills, the production technology, and the internal organization of firms jointly determine the distribution of firm sizes and the operating efficiency of the whole economy. The analysis predicts a link between the truncated upper tail of the distribution of entrepreneurial skills in the population, and the observed skewed distribution of firm sizes, and explains the “missing middle” as a direct consequence of how firms’ class sizes are usually defined. Finally, the paper provides an explanation of the observed heterogeneity in the TFP of firms, arising from the heterogeneity of the skills of their respective entrepreneurs.

Firm heterogeneity in TFP, sectoral innovation and location. Evidence from Italy

Sectoral and territorial specificities affect a firm’s capabilities of being productive. While there is a wide consensus on this, a quantitative measure of these effects has been lacking. To this end, we combine a data-set of Italian firms with some meso regional and sectoral variables and apply a cross-classified model that allows for a clear distinction between firm, region-specific and sector-specific effects. After observing a marked TFP heterogeneity across firms, the paper addresses the issue of understanding how much differences in firms’ productivity depend on regional localisation and sector specificities. Results refer to 2004–2006 and have three aspects. First, they confirm that the main source of firm variety is mostly due to differences revealed at individual level. Secondly, we find that the sector is more important than location in explaining firms’ TFP. Lastly, the results show that firm TFP increases when it belongs to more innovative sectors. Similarly, companies get benefits from belonging to sectors where there is a high proportion of firms using R&D public support and a high propensity to collaborate in innovative projects.

The productivity effect of permanent and temporary labor contracts in the Italian manufacturing sector

This paper studies the effect of permanent and temporary labor contracts on both labor-augmenting and TFP-augmenting technological factors using a panel dataset of Italian manufacturing firms. The empirical analysis applies a structural approach in which firm TFP follows a controlled Markov process that is affected by the relative use of labor contracts, and labor services are perfect substitutes but with different labor-augmenting factors. The empirical results show that when including labor-contract composition in the TFP process: i) the difference between permanent and temporary contracts in the labor-augmenting productivity factor is not significant and ii) the incidence of permanent contracts in total contracts has a positive effect on TFP dynamics.