Intra-industry Productivity Research Articles

What are the Effects of ICT on Intra-Industry Productivity in Sub-Saharan Africa?

Abstract The objective of this work is to assess the effects of ICT on intra-industry productivity in sub-Saharan Africa (SSA). Indeed, perceived through the new school of Knowledge Economy (KE), ICTs present today more opportunities and development prospects for SSA countries. As knowledge, ICTs are now an unlimited resource that SSA countries can draw on to boost productivity in each industry or sector (intra-industry productivity). This paper uses data from the World Bank’s Interprise Surveys from 2004 to 2019 and covers 28 SSA countries. We first estimate the intra-industry productivity in SSA using the Fabricant’s decomposition method, and then we investigate the effects of ICT on it using a generalized least squares regression. The main results show that the level of internet use and the level of telephony use positively and significantly affect intra-industry or basic productivity in SSA. However, the effects of telephony are more significant and larger than those of the internet. Furthermore, sensitivity analyses reveal that the effects of ICT differ according to the industries and export status of firms and the official language of countries. This study recommends that sub-Saharan economies reduce the cost of access to the internet in order to increase its proportion and network of users. It also calls for a better business climate and sufficient energy production.

The role of the separation of democratic powers on structural transformation in Sub-Saharan Africa

The objective of this paper is to assess the effects of the separation of democratic powers on structural transformation in sub-Saharan Africa (SSA). Indeed, reducing the dependence of the judiciary and the legislature on the executive branch is likely to promote labor reallocation, innovation, and human capital and thus improve structural change and intra-industry productivity, which are the two components of structural transformation. Data from the Varieties of Democracy (V-Dem) Project (Ziblatt and al., 2021) and Mensah and Szirmai (2018) allow us to illustrate our points using a vector auto regression (VAR) model on a panel of 18 SSA countries. Our results show that both legislative dependence and judicial dependence on the executive branch have a negative effect on structural change and intra-industry productivity in the short and long run; but the effect of the judiciary is more decisive than that of the legislature in the short and long run. On the other hand, judicial dependence causes legislative dependence, while public sector corruption and educational inequalities cause judicial and legislative dependence on the executive. Our results argue for the independence of these two branches from the executive, especially the judiciary.

All the bottles in one basket? Evaluating the effect of intra-industry diversification on risk

This paper develops a framework using Monte Carlo simulation to examine risk/return properties of intra-industry product portfolio composition and diversification. We use product-level data covering all Swedish sales of alcoholic beverages to describe the risk profiles of wholesalers and how they are affected by actual and hypothetical changes to product portfolios. Using a large number of counterfactual portfolios we quantify the diversification benefits of different product portfolio compositions. In this market the most important reductions in variability come from focusing on domestic products and from focusing on product categories that have low variability. The number of products also has a large effect in the simulations, moving from a portfolio of 10 products to one of 20 products cuts standard deviation of cash flows in relation to mean cash flows by more than half. The concentration of import origins plays a minor quantitative role on risk/return profiles in this market.

The Role of Host Country Factors and Institutional Framework for FDI Spillovers in Ethiopia: Evidence from Manufacturing Industry

This study is aimed at assessing the role of host country factors and institutions in mediating the intra-industry productivity spillovers in the manufacturing industry. In this study, we use firm-level survey data on large and medium scale manufacturing industries collected by the Central Statistics Authority (CSA) of Ethiopia. Panel data econometrics with fixed effects estimation technique is used as a method of analysis. After addressing all the estimation issues, we estimate the baseline model containing only the interaction terms as an explanatory variable and the extended model incorporating observable and unobservable control variables. The observable control variables, industry fixed effects and firm fixed effects are included in the model after checking their respective significance. We incorporate these variables in our estimation to be more confident in isolating the spillovers effect of FDI on productivity of domestic firms.The estimation result revealed that the intra-industry spillovers effect of FDI on productivity of domestic firms is positive except through the labor mobility channel which will not be reversed even in one year. In contrast, the estimation result suggests that the degree of openness, human capital stock and financial sector efficiency positively and significantly mediates the productivity effect from FDI. Concerning the control variables included in the model, capital intensity and age positively and significantly affects domestic firms’ productivity. Keywords: FDI Spillovers, Panel Data Econometrics, Fixed Effects Estimation DOI : 10.7176/JESD/10-17-06 Publication date :September 30 th 2019

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.

Institutional proximity and the size and geography of foreign direct investment spillovers: Do European firms generate more favourable productivity spillovers in the European Union neighbourhood?

The European Union (EU) association framework provides European businesses with an entry advantage into the associated countries by facilitating production links and encouraging institutional convergence. It is believed that this has multiple beneficial effects for the associated countries, including ones related to productivity spillovers accruing to domestic firms. However, no empirical evidence exists to show that the presence of European firms produces larger productivity spillovers in recipient economies compared to firms from other world regions. We examine this question using firm-level data covering 28 transition countries over the period 2002–2009. We estimate the intra-industry productivity effects of foreign ownership and examine how these differ across regional blocks (Central and Eastern Europe, South East Europe and European Neighbourhood Policy), by origin of investor (EU15 versus non-EU15), across geographical scales (national versus regional) and for different types of locations (capital-city regions versus the rest). Our results suggest that investments of EU origin play a distinctive role, helping raise domestic productivity in the associated countries unlike investments from outside the EU. However, this process operates in a spatially selective manner, potentially enhancing regional disparities and spatial imbalances. This assigns a particular responsibility for EU policy to devise interventions that will help redress these problems within its existing association framework.

The Role of Host Country Factors and Institutional Framework for FDI Spillovers in Ethiopia: The Case of Manufacturing Sector

The Role of Host Country Factors and Institutional Framework for FDI Spillovers in Ethiopia: The Case of Manufacturing Sector

The Role of Host Country Factors and Institutional Framework for FDI Spillovers in Ethiopia: The Case of Manufacturing Sector

The Role of Host Country Factors and Institutional Framework for FDI Spillovers in Ethiopia: The Case of Manufacturing Sector

Origin of FDI and Domestic Productivity Spillovers: Does European FDI Have a Productivity Advantagee in the ENP Countries?

The process of approximation between the EU and its ‘eastern neighbourhood’ has created conditions for deepening economic interactions and market integration, giving to the EU – and to EU businesses – an elevated role in the process of economic modernisation and transition in the neighbourhood countries. This raises the question as to whether European business activity in these countries produces indeed measureable economic advantages both in absolute and in relative terms (e.g., compared to business activity from other parts of the world). Similarly, a question arises as to whether European business activity reduces or amplifies spatial imbalances within the partner countries. This paper examines these issues for the case of capital flows (foreign ownership) and the related productivity spillovers, using firm-level data from the Business Environment and Enterprise Performance Survey (BEEPS) covering 28 transition countries over the period 2002-2009. We estimate the direct and intra-industry productivity effects of foreign ownership and examine how these differ across regional blocks (CEE, SEE and ENP), according to the origin of the foreign investor (EU versus non-EU), across geographical scales (pure industry versus regional spillovers) and for different types of locations (capital-city regions versus the rest). Our results suggest that FDI of EU origin plays a distinctive role in the countries concerned helping raise domestic productivity significantly more than investments from outside the EU. However, this process appears to operate in a spatially selective manner, thus enhancing regional disparities and spatial imbalances. This, then, assigns a particular responsibility for EU policy, as it continues to promote economic integration (and FDI flows) to its eastern neighbourhood, to devise interventions that will help redress these problems.

Do Local Firms Benefit from Foreign Direct Investment? An Analysis of Spillover Effects in Developing Countries

Developing countries are increasingly recipients of foreign direct investment (FDI). In this regard, governments are attempting to attract FDI due to the expected spillover effects, which relate to benefits in terms of increased productivity of local firms and technology diffusion from multinational enterprises (MNEs) to the domestic economy. However, it is generally not clear whether there are positive or negative spillover effects from FDI to local firms in developing economies. The purpose of this paper is to provide a review of the literature on spillover effects and linkages that arise from FDI in developing countries. Our review suggests that there tends to be negative intra-industry productivity spillover effects (i.e., spillovers between MNEs and local firms in the same industry). This may be explained by the fact that MNEs crowd out local competitors that are not able to compete against MNEs, and by the concept of “absorptive capacity” which implies that local firms may not be able to assimilate and absorb knowledge of MNEs. However, we find evidence for positive inter-industry spillovers through linkages between MNE affiliates and suppliers in different industry sectors which may be attributed to the benefits for MNEs in transferring knowledge and technology to their local suppliers. The study offers suggestions for future research.

Intra-Industry Momentum and Product Market Competition Around the World

Intra-Industry Momentum and Product Market Competition Around the World

Knowledge spillovers, absorptive capacity and total factor productivity in China’s manufacturing firms

Applying the stochastic frontier framework, this study explores the diffusion and absorption of technological knowledge in China’s manufacturing firms, based on a panel of more than 10,000 local and foreign-invested firms over the period 1998–2001. Our empirical approach allows us to distinguish between technological progress (TP) and technical efficiency (TE) in analysing whether R&D, exports and the presence of foreign direct investment simultaneously enhance TP through knowledge spillovers in a single framework and whether different types of domestic absorptive capacity moderate external knowledge spillovers in relation to TE. The results show that there are positive inter-industry productivity spillovers from R&D and foreign presence, whereas evidence of intra-industry productivity spillovers from FDI to Chinese firms is less robust. We find evidence that absorptive capacity is one of the key determinants to quantitatively explain intra-industry differences in productivity of local Chinese firms. The findings have important policy implications.

Achieving Demand-Side Synergy from Strategic Diversification: How Combining Mundane Assets Can Leverage Consumer Utilities

We explore the overlooked issue of how certain strategic-level, interindustry diversification options might increase consumer utility. Discussions of inter-industry diversification typically focus on producer synergies obtainable from economies of scope or from skill transfer across business units. Discussions of intra-industry product diversification—generally, the province of marketing—typically focus on synergies obtainable from product bundling, which lowers producer costs or provides convenience for consumers. We take a different tack by linking interindustry diversification and consumer utility. We first separately examine two possible consumer benefits of interindustry diversification: (1) facilitating consumers' accomplishment of two tasks simultaneously or (2) attracting diverse consumer groups to a common platform when intergroup externalities exist. We then assess a simple empirical context that shows potential for simultaneous consumer utilities and two-sided market utility together. We analyze this context and concurrently develop a mathematical model showing how these demand-side synergies can create unique business value. We next introduce asymmetric preferences among consumer subgroups, and we refine our arguments by comparing their conclusions with the empirical data. We learn that combinations of otherwise mundane (i.e., commonplace) assets can create consumer value—“superior” assets are not necessary. Moreover, common ownership is necessary for the pricing flexibility required to deliver (and capture) maximum value through interindustry diversification, especially when consumer groups' preferences may change; the negotiations and settling up required for cooperation through alliances will, without common ownership, increase costs and reduce responsiveness. We discuss the sustainability of demand-side advantages and the implications of these ideas for future research and practice.

Economic Growth, Structural Change and Quality Upgrading in New Member States

The purpose of this research is to present the recent developments concerning structural change and productivity growth in New Member States and the role played in such process by country specific factors. We focus on ten countries (NMS-10) which joined the EU in 2004 and analyze productivity dynamics of their labor structures between the years 1995 and 2005 in a comparative setting versus EU-15 economies. NMS-10 have gone through a rapid process of economic restructuring and its speed has been positively related to the economic development. However, shift-share analysis of productivity growth indicates that changes in value added per hour worked were due mainly to positive developments (rising productivity) within single sectors and only to a lower extent to the shift towards higher productivity sectors. The process of a structural change and productivity growth has been characterized by beta convergence type mechanism, with public spending (especially on education, social protection, public order and safety) and trade (in particular with more advanced EU-15 countries) promoting overall and intra-industry productivity upgrading.

Overview of Outward FDI Flows of China

China is integrated rapidly with the world economy by increasing its foreign investment linkage with other countries. In 2005 China was the 4th largest investor among emerging markets, up from 14th in 2004 with 72.4% of all economies in the world receiving Chinese FDI. Through outward FDI into any sectors, industries or regions, there should be intra-industry productivity spillovers from foreign firms to domestic firms within the same industry, mainly through reduction of production costs, technology transfer and international R& D spillovers. Diffusion channels of technology know-hows and managerial practices induced by higher FDI penetration abroad make the purpose of the increased transparency and access of core technology practical. This article addresses this question through the lens of economics as to three collaborated sets of FDI determinants, the features of FDI outflows as the overall FDI scale, the target sectors, the geographic distribution and the concrete ways of outward FDI of China. The author concludes that there should be a caveat to the non-guided outward FDI but strategically tailored to suit the requirements of multiplying the investment efficiency and climbing up the value ladder of global economy.

The role of foreign direct investment in the host-country firm selection process: firm-level evidence from Slovenian manufacturing

This paper examines the role of inward foreign direct investment (FDI) in firm selection processes in the Slovenian manufacturing sector in the 1994–2003 period. It adopts the firm dynamics framework that allows testing of selection effects directly by assessing the impact of foreign firms’ activity on the probability of exiting of local firms (crowding out). The results show that intra-industry productivity spillover effects offset only a minor part of the competition pressure which results from foreign firm entry, hence incumbent firms experience a drop in their survival probability upon a foreign firm’s entry within a particular industry. This result is driven by foreign firm entry of the greenfield type, as entry through the acquisition of existing firms has no significant effect. The strength of the crowding-out effect decreases with the incumbent firm’s export propensity. There is no significant evidence that inward FDI would stimulate the selection process through backward linkages in the upstream supplying industries, whereas foreign firms’ activity reduces the exit probability of downstream local customers (through forward linkages).

Meta-Analysis of Intra-Industry FDI Spillovers: Updated Evidence

The present paper conducts a meta-analysis of literature on intra-industry productivity spillovers from foreign direct investment. Apart from the traditional approach, robust meta-regression, random effects model, and probit meta-regression are employed. Results of combined significance analysis are mixed but it is apparent that papers published in leading academic journals tend to report rather insignificant results. Our findings suggest that cross-sectional and industry-level studies are likely to find relatively strong spillover effects, and that the choice of proxy for foreign presence is important. The pattern, however, seems to weaken over time. Contrary to previous studies, evidence for publication bias was not detected.

Foreign direct investment and technology spillovers: Evidence from panel data analysis of manufacturing firms in Zambia

The most pronounced reason for providing fiscal incentives to attract foreign direct investment (FDI) is that FDI is an effective conduit for technology transfer through technology spillovers to domestically owned firms in the host country. This study analyzes the nature and significance of productivity externalities of FDI to local firms, both in terms of intra-industry and inter-industry spillovers, using firm-level data from Zambia. The results show little evidence in support of intra-industry productivity spillovers from FDI on one hand, and significant inter-industry knowledge spillovers occurring through linkages. The net impact of FDI depends on the interaction between intra-industry and inter-industry productivity effects.

Productivity Spillovers From Foreign Direct Investment: Evidence From UK Industry Level Panel Data

This paper examines intra-industry productivity spillovers from foreign direct investment (FDI) in the UK manufacturing sector. The empirical analysis uses panel data for 48 UK industries over the period 1991–1995. A major contribution is empirical evidence on spillover effects in situations where the host country is developed. The results indicate that the very presence of FDI has a positive spillover impact on the productivity of UK-owned firms. The analysis also shows that the extent to which local firms benefit from the introduction of advanced technology depends largely on their own technological capabilities.