Firm TFP Research Articles

Does export and productivity growth linkage exist? Evidence from the Indian manufacturing industry

This paper examines the interrelation between exporting and productivity performance by using a representative sample of Indian manufacturing firms over the period 1994–2006. Specifically, we attempt to test the empirical validity of the learning‐by‐exporting and the self‐selection hypotheses for our sample firms. In order to investigate the linkage, in the first step, we test for causality between TFP and export intensity of firms. Although overall results are rather mixed and provide some support for both hypotheses, still the empirical results are more favorable for the self‐selection behavior of firms. In the next stage, we attempt to provide evidence on export and productivity linkage that occurs during various phases of transition in the export market. Our results suggest that entering in the export market does not improve productivity performance. However, the decision to exit from the export market does have an adverse effect on the productivity. In addition, our results indicate the presence of a high sunk cost of exporting coupled with perhaps lesser information about foreign markets. Finally, our results also lend some support to the significant role of in‐house research activities and economies of scale in firms' productivity performance.

Firm heterogeneity, foreign market entry mode and ownership choice

We study the relationship between firm productivity, foreign market entry mode and affiliate ownership choice using Kolmogorov–Smirnov stochastic dominance tests on Japanese firm-level productivity and horizontal FDI data into 20 OECD countries during the period 1985–2001. We devote particular attention to different types of joint ventures to find that affiliate ownership increases with the parent firm's TFP.

How Does Venture Capital Financing Improve Efficiency in Private Firms? A Look Beneath the Surface

We use the Longitudinal Research Database (LRD) of the U.S. Census Bureau, which covers the entire universe of private and public U.S. manufacturing firms, to study several related questions regarding the efficiency gains generated by venture capital (VC) investment in private firms. First, do VCs indeed improve the efficiency (total factor productivity, TFP) of private firms, and if so, are certain kinds of VCs (high reputation vs. low reputation) better at generating such efficiency gains than others? Second, do VCs invest in more efficient firms to begin with (screening), or do they improve efficiency after investment (monitoring)? Third, do efficiency improvements due to VC backing arise from increases in sales or reductions in costs? Fourth, does VC backing and the associated efficiency gains affect the probability of a successful exit (IPO or acquisition)? Our analysis 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. Additionally, we show that while the TFP of firms prior to receiving financing is lower for high-reputation VC-backed firms, the increase in TFP subsequent to financing is significantly greater for these firms, consistent with high-reputation VCs having greater monitoring ability. We disentangle the screening and monitoring effects of VC backing using three different methodologies: switching regression with endogenous switching, regression discontinuity analysis, and propensity score matching. We show that while 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.

Do External Knowledge Spillovers Induce Firms' Innovations? Evidence from Slovenia

The paper analyses whether, and to what extent, firm's ability to innovate is induced by firm's own R&D activity and to what extent by factors external to firm. It first estimates the impact of firms' internal R&D capital and external R&D spillovers on firms' innovation activity within an integrated dynamic model. In the second step, we then estimate the impact of firms'innovations on firms?productivity growth. Using the firm level data on innovation activity combined with firms' financial data for a large sample of Slovenian firms in the period 1996-2002, the paper produces three main findings. First, firm's own R&D expenditures as well as external knowledge spillovers, such as national and international public R&D subsidies, foreign ownership and intra-sector innovation spillovers do enhance firm's ability to innovate. Second, innovations as a result of firm's R&D do contribute substantially to firm's total factor productivity growth. And third, foreign ownership has a double impact on firm's TFP growth - it first enhances firm's ability to innovate and then it additionally contributes to firm's TFP growth via superior organization techniques and other channels of knowledge diffusion.

Technology gaps, absorptive capacity and the impact of inward investments on productivity of European firms *

Using a balanced panel of firm-level data on the manufacturing industry in France, Italy and Spain over the 1993-1997 period, this paper examines the impact of foreign presence on the productivity of domestic enterprises. We find positive and significant externalities on Italian firms and negative or non-significant effects on Spanish and French firms. A generalisation of the results obtained for individual countries is attempted by introducing two key variables in the analysis of the impact of inward investments on domestic performances: productivity gaps between foreign and domestic firms, and absorptive capacity of domestic firms. It is shown that high gaps tend to favour positive effects of FDI; while on the contrary absorptive capacity, as measured by local firms’ productivity levels, appears to inhibit externalities from FDI. This would confirm the “catching up” hypothesis, which identifies a positive relation between the size of technological gaps and growth opportunities induced by foreign investments; and would contradict the “technological accumulation” hypothesis, which stresses the role of domestic absorptive capacity and of coherence between foreign and domestic technology as determinants of virtuous effects of inward investments. Nevertheless, we show that this result hides some sectoral specificities. In fact, this pattern is reversed in science based industries, where FDI contribute more to domestic firms’ productivity the higher is their absorptive capacity and the lower is their gap from the average TFP of foreign firms in the sector.