Productivity Spillovers Research Articles

Spatial Dependence Structure of Total Factor Productivity in Polish Local Administrative Districts

The interaction between space (location) and the processes of accumulation (growth) is one of the most interesting and at the same time the most difficult areas of modern economic theory. The up till now empirical research on determinants of regional productivity in the case of Poland is however relatively scarce. Most studies focus on explaining the variation in regional income per capita mostly at NUTS–2 and NUTS–3 levels, and only a few take into account a highly spatially disaggregated NUTS–4 level. We aim to fill this important gap. The present article has several objectives. We try to explain the spatial patterns of productivity, to identify the spatial range of productivity spillovers empirically and to identify the determinants of the Total Factor Productivity (TFP) growth in Poland with the use of spatial econometric modeling and the extended version of the Nelson‑Phelps (1966) model. The study adopts an NUTS-4 level of local administrative districts (powiats) which we find superior on both theoretical (market closing) and empirical grounds (spatial modeling). TFP in Poland assumes the highest values in the metropolitan centers and spreads out on their nearest surroundings with the maximum value for Warsaw. The secondary local hills in TFP are located in cities or towns with county rights. TFP, in general, shows a downward trend as one moves from the west to the east with the lowest values observed in the south‑eastern part of Poland. The range of TFP spillover is found to be of roughly 175–200 km and is nonlinearly decreasing from the local productivity hills. Furthermore, the rate of growth of TFP shows spatial autocorrelation and is found to depend positively on the rate of increase in human capital endowment and on the gap from the leader under certain assumptions. We find no evidence of the channel through imports. However, the FDI channel is found to be robust and strong.

Technological spillovers in space and firm productivity: Evidence from China’s electric apparatus industry

Using a spatial econometric model this article studies the determinants and spatial spillovers of firm productivity in China’s electric apparatus industry over the period of 1999–2007. We apply Kelejian’s FE-2SLS procedure to a higher-order spatial autoregressive model and estimate the spatial dependence of firm-level TFP within and across regional borders. The model demonstrates positive and significant intra-regional technological spillovers among firms. It also provides direct evidence that technological spillovers attenuate rapidly in spatial distance. We find that firm productivity benefits from own R&D and export activities, employment density, market competition and public expenditure. Further analyses show that the strength of spillover effects is affected by a broad range of factors, including the surface area of the region, administration type, border effect, transport and ICT infrastructure, FDI intensity, the financial sector, the utility service sector, and human capital. Factors that facilitate long-distance economic connections in general make inter-regional spillovers stronger but intra-regional spillovers weaker.

Dutch Disease or Agglomeration? The Local Economic Effects of Natural Resource Booms in Modern America

Do natural resources benefit producer economies, or is there a “Natural Resource Curse”, perhaps as the crowd-out of manufacturing productivity spillovers reduces long-term growth? We combine new data on oil and gas endowments with Census of Manufactures microdata to estimate how oil and gas booms affect local economies in the U.S. Local wages rise during oil and gas booms, but manufacturing is not crowded out—in fact, the sector grows overall, driven by upstream and locally-traded subsectors. Tradable manufacturing subsectors do contract during resource booms, but their productivity is unaffected, so there is no evidence of foregone local learning-by-doing effects. Over the full 1969–2014 sample, a county with one standard deviation additional oil and gas endowment averaged about 1% higher real wages. Overall, the results provide evidence against a Natural Resource Curse within the U.S.

Productivity and Trade Spillovers: Horizontal Crowding-Out versus Vertical Synergies in Europe as a Response to Foreign Direct Investment

We analyze the impact of multinational enterprises (MNEs), via their foreign direct investment (FDI), on domestic firms in 30 European host economies, from 2001 to 2013. We incorporate international industrial and trade linkages into a standard theoretical framework and test them empirically on a unique dataset compiled from the Amadeus, Eurostat, UN Comtrade and BACI data sources. While controlling for horizontal, vertical, and export channels at the upstream and downstream levels, we show that the presence of MNEs significantly affects domestic firms, in terms of both changing the market structure and improving productivity. The impact is not always positive, as domestic firms are often crowded-out. However, those firms that withstand such double competition receive additional benefits stemming from trade (export) spillovers. In our complex model, we did not find significant (positive) interactions of domestic firms with horizontal MNEs which would suggest desirable productivity spillovers.

Market Accessibility and Economic Growth: Insights from a New Dimension of Inequality

Summary We modify an AK growth model to allow for households’ differential access to markets. Such local production spillovers highlight a new dimension of inequality arising through geographic remoteness and predicts divergent growth patterns among countries with poorly market-integrated households. The model is tested using an instrumental variables approach that takes advantage of the relationship between market accessibility and exogenous geographic features of the landscape as well as spatial data derived from a unique global dataset characterizing country-level market accessibility distributions. Our findings are consistent with production spillovers diminishing concavely across space before tapering off convexly in remote areas. This result suggests that the marginal household exhibiting production spillovers is located approximately five hours from the nearest market center. The policy implications are that governments could adopt pro-growth inequality-reducing policies using targeted infrastructural investments, relocation subsidies, or income redistribution mechanisms. Based on our spillover threshold estimates, these policies would be access-equality enhancing for 5.1 billion people globally and access-equality reducing for 825 million people globally. We also present findings that growth divergence occurs among countries with geographically less pervasive markets. This outcome may explain why wealthier nations exhibit divergent growth paths relative to poorer nations.

Peer Effects Across Firms: Evidence from Security Analysts

We assess the magnitude and mechanisms of workers’ productivity spillovers by estimating the peer effects among those working in the same occupation across firms using the setting of security analysts. The empirical design exploits one feature of social networks: the existence of partially overlapping peer groups. This refers to analysts who cover similar industries but not exactly the same group of industries, which generates peers of peers (excluded peers). This allows the identification of both peer characteristics and peer outcome effects. In addition, to deal with common group shocks, the exogenous characteristics of excluded peers are used as instruments. We find strong evidence of spillovers in terms of peer outcomes and characteristics. In particular, peer accuracy is positively related to analyst accuracy, while the number of industries followed by analysts' peers negatively impacts accuracy. In terms of the potential mechanisms that account for the spillover effects, we find that the effects are stronger when analysts see their peers performing well and that besides imitation, knowledge spillovers also help explain the results.

Foreign Direct Investment in State Owned Enterprises

We analyze determinants of foreign direct investment (FDI) in non-competitive industries. We develop a micro-level FDI determination model that allows for nonzero mark-up, and estimate it using the administrative FDI recipient records and annual financial statement data for Korean state owned enterprises (SOE). Using SOEs as our research objects can rule out the endogeneities of mark-up, firm ownership structure and the associated vertical or horizontal incentive FDI. This yields a consistent estimation of the effect of mark-up and other productivity-related factors on FDI. From the empirical analysis, we find that FDI is more likely to flow into firms with large-scale physical capital and output, and a positive mark-up, and the effect is the inverse of the number of workers in the firms, which implies that FDI might not cause productivity spillover effect in non-competitive industries.

The contribution of research and innovation to productivity

This paper examines the impact of investment in research and innovation on Australian market sector productivity. While previous studies have largely focused on a narrow class of private sector intangible assets as a source of productivity gains, this paper shows that there is a broad range of other business sector intangible assets that can significantly affect productivity. Moreover, the paper pays special attention to the role played by public funding for research and innovation. The empirical results suggest that there are significant spillovers to productivity from public sector R&D spending on research agencies and higher education. No evidence is found for productivity spillovers from indirect public funding for the business enterprise sector, civil sector or defence R&D. These findings have implications for government innovation policy as they provide insights into possible productivity gains from government funding reallocations.

ACCOUNTING FOR COMPLEMENTARY SKILL SETS: EVALUATING INDIVIDUAL MARGINAL VALUE TO A TEAM IN THE NATIONAL BASKETBALL ASSOCIATION

Identifying an individual worker's contribution to firm production can be difficult in a team setting where spillovers in labor productivity exist among team members. This paper studies a model of labor productivity where workers have heterogeneous abilities, and can differently affect the productivity of their fellow teammates. Applying the model to the setting of the National Basketball Association (NBA), I can identify the marginal value that a basketball player brings to a particular team lineup, both through his own individual contributions and his complementary contribution to teammates' productivity. Estimates from the model imply that teammates have a significant impact on individual player productivity, and that taking into account spillovers across teammates is important to assessing both overall team productivity and an individual player's contribution to team productivity. I then evaluate whether player complementarities are valued in the NBA labor market in terms of higher salaries, and find that they are undervalued, and that players are instead paid mainly for their individual offensive production. This creates an asymmetry between player incentives and the team objective. To assess the size of this inefficiency, the top trading cycle algorithm of Shapley and Scarf (1974) is used to identify a Pareto optimal matching between players and teams, that accounts for the complementarities between heterogeneous players' skill sets. (JEL J30, L25, L83, M51)

The productivity spillover between SMEs and large firms in Korea

This article investigates the inter-firm spillover effect of productivities among two different-sized firms in Korea—large enterprises and small and medium enterprises (SMEs)—considering industrial relationships. After estimating total factor productivity in Korea by industry and firm size, we set and estimate two models using the cointegrating relationship of the Panel Error Correction Model—Model 1 for inter-industrial spillover effect and Model 2 for spillover effect between large firms and SMEs. Our study provides three major findings. First, a productivity gap exists between large enterprises and SMEs in Korea. Second, this productivity gap between large firms and SMEs has been expanding. Third, the R&D efficiency in large enterprises is greater than that in SMEs. Finally, the spillover effects in both firm groups in Korea are asymmetric. That is, even if the productivity spillover effect is significant in enterprises of both sizes, a large enterprise is more likely than an SME to benefit from the spillover effects.

WHY IS THERE A LACK OF EVIDENCE ON KNOWLEDGE SPILLOVERS FROM FOREIGN DIRECT INVESTMENT?

AbstractEmpirical analyses of knowledge spillovers from foreign direct investment (FDI) offer mixed results; they find positive, neutral and negative FDI spillover effects. This lack of evidence mainly comes from the results of firm‐level panel data analysis. This is important since this approach seems to be the most appropriate for estimating FDI spillovers. The paper takes a look at recent substantive and methodological developments in FDI spillover analysis, which have brought some more optimistic results with regard to FDI spillovers, and can help in further development in this field. The main substantive development relates to the introduction of a broad variety of sources of firm heterogeneity (foreign affiliates as well as local firms) in the analysis. Others include differentiation between vertical (inter‐industry) and horizontal (intra‐industry) spillovers, and host country absorptive capacity for knowledge spillovers. Methodological developments relate to distinguishing between technological/knowledge and productivity spillovers, improvement of modelling and estimation methods, and an increased amount and quality of data.

Mutual Productivity Spillovers in Slovakia: Absorptive Capacity, the Technology Gap, and Nonlinear Effects

This article analyzes traditional productivity spillovers from foreign to local firms and reverse productivity spillovers from local to foreign firms. It argues that the extent of mutual productivity spillovers depends on absorptive capacity and the technology gap. The authors’ hypotheses were tested with panel data on Slovak firms for the period 2003–12. Traditional productivity spillovers through output were found to be positive, but the spillover effects through capital were mostly negative. The effect of the technology gap on productivity spillovers was conducive. Nonlinear effects were found in services and high-tech industries. Reverse productivity spillovers through capital were positive in the manufacturing industries.

Productivity spillovers through labor mobility in search equilibrium

This paper proposes an explicit model of spillovers through labor flows in a framework with search frictions. Firms can choose to innovate or to imitate by hiring a worker from a firm that has already innovated. We show that if innovating firms can commit to long-term wage contracts with their workers, productivity spillovers are fully internalized. If firms cannot commit to long-term wage contracts, there is too little innovation and too much imitation in equilibrium. Our model is tractable and allows us to analyze welfare effects of various policies in the limited commitment case. We find that subsidizing innovation and taxing imitation improves welfare. Moreover, allowing innovating firms to charge different forms of fees or rent out workers to imitating firms may also improve welfare. By contrast, non-pecuniary measures that reduce the efficiency of the search process, always reduce welfare.

Foreign direct investment and the performance of indigenous firms in China’s textile industry

This paper contributes to the debate on the effect of foreign direct investment (FDI) on indigenous firms in host economies. Using a Melitz-type theoretical model involving firm heterogeneity, we first show that FDI affects the revenue of indigenous firms, in both domestic and export markets, through a direct as well as indirect channel. In the presence of positive FDI-related productivity spillovers, the direct effect is positive but the indirect effect is negative. As the overall effect cannot be unambiguously determined, in stage two, we further investigate this issue by using firm level data from China’s textile industry over the period 2005–07. We find that FDI in China’s textile industry decreases (increases) the revenue of indigenous firms in the domestic (export) market. The empirical results are also robust across (i) alternative measures and (ii) sources of FDI.

Identifying Productivity Spillovers Using the Structure of Production Networks

Despite the importance of agglomeration externalities in theoretical work, evidence for their nature, scale, and scope remains elusive, particularly in developing countries. Identification of productivity spillovers between firms is a challenging task, and estimation typically requires, at a minimum, panel data, which are often not available in developing country contexts. In this paper, we develop a novel identification strategy that uses information on the network structure of producer relationships to provide estimates of the size of productivity spillovers. Our strategy builds on that proposed by Bramoulle et al. (2009) for estimating peer effects, and is one of the first applications of this idea to the estimation of productivity spillovers. We improve upon the network structure identification strategy by using panel data and validate it with exchange-rate induced trade shocks that provide additional identifying variation. We apply this strategy to a long panel dataset of manufacturers in Indonesia to provide new estimates of the scale and size of productivity spillovers. Our results suggest positive productivity spillovers between manufacturers in Indonesia, but estimates of TFP spillovers are considerably smaller than similar estimates based on firm-level data from the U.S. and Europe, and they are only observed in a few industries.

The Impact of Supply Chains on Firm-Level Productivity

Firms in a vertical relationship are likely to affect each other’s productivity. Exactly how does productivity spill over across this type of relationship (i.e., through which mechanisms)? Additionally, how does the relative importance of these mechanisms depend on the structure of the supply chain? To answer these questions, we decompose the channels of upstream productivity spillovers—from customers to suppliers—by developing a structural econometric model on a sample of approximately 22,500 supply chain dyads. We find that the “endogenous channel” (i.e., the effect of the customer’s own productivity on the supplier’s productivity) is by far the most important source of spillovers. This is especially true if (i) the supplier has a concentrated customer base, (ii) the supplier and the customer have similar operational characteristics, and (iii) the relationship has medium maturity. In the converse scenarios, we find, it is more important to have a partner with a portfolio of favorable “contextual” characteristics (high inventory turnover, financial liquidity, and asset turnover) than to have a productive partner.The online appendix is available at https://doi.org/10.1287/mnsc.2016.2632 .This paper was accepted by Serguei Netessine, operations management.

Benefit or damage? The productivity effects of FDI in the Chinese food industry

We investigate the impact of foreign direct investment (FDI) on the total factor productivity of Chinese food firms using firm-level census data between 1998 and 2007 (174,940 sample food firms). We test for within-firm, within-industry, and vertical effects. We find that the effect of FDI on the productivity of Chinese food firms depends significantly on the type of FDI and its countries of origin. FDI from non-HMT (Hong Kong, Macaw and Taiwan) regions can improve the productivity of the invested firm, and also increases the productivity of domestic food firms through vertical industry linkages. However, domestic food firms may be crowded out by non-HMT investment in the same industry. HMT investment can generate positive within-industry productivity spillovers, but negative vertical spillovers. Our findings have immediate implications for policymakers in China, as well as for governments of less developed countries that are formulating foreign investment policies.

Production spillovers: Are they valued?

Workers can contribute to total firm production directly through their own output or indirectly through their influence on the output of co-workers. Workers with positive productivity spillover effects cause individuals around them to perform better and increase overall team production. In contrast to the “peer effects” literature, workers with positive productivity spillovers may not be the workers with the highest levels of personal output. Such productivity spillovers are important for team success even though they play only a minor role in determining worker pay.

Productivity Spillovers in Team Production: Evidence from Professional Basketball

We estimate a model where workers are heterogeneous both in their own productivity and in their ability to facilitate the productivity of others. We use data from professional basketball to measure the importance of peers in productivity because we have clear measures of output and members of a worker’s group change on a regular basis. Our empirical results highlight that productivity spillovers play an important role in team production. Despite this, we find that worker compensation is largely determined by own productivity with little weight given to productivity spillovers.

Empirical Assessment of Trade Engagements: Africa, China and the Maritime Belt and Road Initiative

Recent development economic literatures theorize that South-South trade and foreign investment may have a larger impact on economic growth in developing economies than North-South trade and investment, since investors from the South are more familiar with local developing markets and business practices, which increases their productivity spillovers (Aykut and Goldstein 2007). Amighini and Sanfilippo (2014) provided evidence that South-South trade and investments stimulate product diversification in light manufacturing industries such as agro processing, plastic, textile and leather production. The Belt and Road Initiative (BRI) launched in 2013, aims to create economic opportunities as well as improve and establish new trading routes between China and connected regions. This paper attempts to evaluate the degree of trade relations between China and selected African countries along the Maritime Silk Route (MSR) and further appraise the trade potentials and gains inherent for African economies through the initiative. To achieve our objective, we apply quantitative techniques in trade evaluation to enable us explore and estimate the degree and intensity of trade engagements amongst selected Sino-African silk route countries, identify the trade opportunities and potentials, which are critical for increased trade engagements between both parties along the route and to explore some of the channels through which the maritime route can impact on investment, trade and economic growth in Africa. Findings from the analysis indicate that while the degree of trade integration is unbalanced and favourable to China relative to Africa, the trade pattern and structure are observed to be more complementary than competitive, and this provides Africa with ample opportunity to engage in product upgrading and diversification, critical for structural transformation.