Productivity Catch-up Research Articles

Demographic Structure and Productivity Catch-Up: Theory and Evidence

A simple model is presented to show that productivity growth falls with firm age in a country with well-developed financial market (e.g., the U.S.), but increases with firm age in a country with poor financial development (e.g., India). However, although being poor in formal financial development, China’s prosperous folk financing helps small young firms break through the limitation of credit constraint, achieving higher productivity growth than the old ones. This paper suggests that governments should support start-ups through financial development, a complement rather than a complete replacement of folk financing, to encourage the creation of more productive new companies.

Why Income Gaps Persist: Productivity Gaps, (No-)Catch-up and Industrial Policies in Developing Countries

Driven by productivity gaps, absolute income gaps between developing and developed economies have remained persistent hindering catch-up. Export products mostly consisting of low value-added products; developing countries suffer even when they are part of global value chains. The so-called Fourth Industrial Revolution may further exacerbate their position. As a result, many developing countries have been in low- or middle-income traps for decades and this is likely to persist. So, why has the traditional productivity explanation not been able to explain the no-catch-up phenomenon? To explain lack of catch-up, we decompose productivity into price and technical efficiency components. Adopting a product differentiation strategy, the developed countries focus on price, while developing countries focus on technical efficiency; prices of products of advanced firms in developed countries are determined not in perfectly competitive markets but rather in monopolistically competitive markets granting them with pricing power through three tools: technology (R&D), design, and branding. By virtue of this pricing power, advanced firms generate non-zero economic profits and “pseudo-productivities” which drive the income gaps. We suggest key lines of industrial policy sets such as focusing on design, branding, and product differentiation strategies, fast cycle technologies, and development-based public procurement coupled with educational policies.

Catching Up and Falling Behind: Cross-country Evidence on the Impact of the EU ETS on Firm Productivity

This paper assesses the potential impact of the European Union Emissions Trading System (EU ETS) on firm productivity. We estimate a stylized version of the neo-Schumpeterian model, which incorporates innovation and productivity catch-up as two potential sources of firm’s productivity growth, while at the same time accounting for persistent productivity dispersion within industries. This dynamic model allows us to differentiate the potential effects of the EU ETS on total factor productivity (TFP) depending on the level of firms’ technological advancement. The identification approach is based on a difference-in-difference approach exploiting the incomplete participation requirements of the EU ETS and the rich panel structure of firm-level data for eight EU countries from 2002 to 2012. We find evidence that the policy effects on TFP are highly heterogeneous and depend on the distance to the technological frontier, measured as the highest TFP in each year-industry. Productivity effects are positive for firms that are close to the frontier, but they turn negative for firms operating far behind the frontier.

Uneven development and the balance of payments constrained model: Terms of trade, economic cycles, and productivity catching-up

This paper addresses (I) the transition dynamics incompatibility between the BPCM and the Prebisch-Singer hypothesis (PSH) (II) the causes of cyclical volatility in developing countries. In order to discuss these issues, we expand the Dutt (2002) model adding: (a) a productivity gap dynamics in which the south has a catching-up element; (b) a labor market dynamics, by including a wage curve in the relationship between employment rate and economic activity; and (c) a labor supply dynamics that considers the labor transfer issue between traditional and modern sectors. The result is a four dimensional dynamic model that represents a lagged developing economy constrained by its balance of payments. We find that our model converges and generates damped cycles. Fragile economies show an oscillatory decline in terms of trade, reinforcing an uneven development pattern between north and south. Industrialization and higher learning capabilities, however, can change the adjustment to a catching-up scenario.

Agricultural productivity convergence in China

This article investigates the progress and prospects of agricultural productivity catch-up in China since the rural reform. A model averaging method is employed to jointly consider four productivity estimates, which can better capture the province-specific and non-linear trend of productivity that was estimated with bias in previous literature. This article then utilizes three convergence tests to evaluate whether convergence has occurred and explores channels through which agricultural convergence can be achieved or accelerated. Using three panels at the province, county and commodity levels, this article concludes that agriculture is not on the right track to catch-up, since 23 out of 28 provinces and 19 out of 23 farm commodities fail to converge. However, the productivity gap may diminish in the future if the irrigation, education, public expenditure and structural transformation for lagging provinces can be improved.

Productivity catches up game on: can public research universities catch private non-profit counterparts?

ABSTRACTPublic universities have increasingly lost their publicness and have been driven to manage more like their private non-profit university counterparts. The narrowing distinction is due to decades of public funding cuts and greater reliance on private financing sources. Matters worsened with the Great Recession and political demands to increase public university productivities. However, evidence related to inter-sector productivity differences is sparse, outdated, and somewhat mixed. This paper offers new evidence and methodological advances using 11 academic years through 2015 for US universities and captures pre and post-recession productivities and measures of productivity regress and catch up. Färe-Primont indexes and efficiency decompositions are employed as advances over previous studies. Results are not particularly encouraging in that managerial responses in the public sector have not successfully produced a productivity catch up and, on average, remain below 70% of private universities. In addition, while public universities have been generally more efficient than their private counterparts, the results indicate a deteriorating advantage. Efficiency issues in both sectors are attributed to economies of scope and suggest publics may need to increase levels of graduate education and research production relative to undergraduate education as a path to productivity catch-up and reversal of efficiency downturns.

DO CORPORATE TAXES HARM ECONOMIC PERFORMANCE? EXPLAINING DISTORTIONS IN R&D- AND EXPORT-INTENSIVE UK FIRMS

This paper analyzes the effects of corporate tax liability on firm-level total factor productivity (TFP) as the key driver of economic performance. This is a new dimension in the UK productivity puzzle that has not attracted attention so far. We use 6559 manufacturing firms over 2004–2011 to investigate whether higher levels of corporate tax affect the productivity catch-up process by reducing after-tax earnings that could alternatively be used for productivity-enhancing investment, particularly focusing on R&D- and export-intensive firms. Our key results are summarized as follows: first, higher levels of corporate taxation impact adversely on TFP and this finding is robust to different tax measures and insensitive to endogeneity bias; second, as R&D- and export-intensive firms tend to have relatively higher TFP growth, higher levels of tax liability as a share of earnings before interest and taxes decelerate TFP growth of these firms.

The Chinese are Here: Firm Level Analysis of Import Competition and Performance in Sub-Saharan Africa

This study uses firm level data on 19 Sub-Saharan Africa countries between 2004 and 2016 to provide a rigorous analysis on the impact of Chinese import competition on productivity, skills, and performance of firms., We measure import competition and ports accessibility at the city-industry level to identify the relevance of firms’ location in determining the impact of Chinese imports competition. To address endogeneity concerns, a time-varying instrument for Chinese imports based on the interaction between an exogenous geographic characteristic and a shock in transportation technology is developed. The results show that imports competition has a positive impact on firm performance, mainly in terms of productivity catch-up and skills upgrading. Of particular interest is the finding that the effects of import competition from China are stronger for more remote firms that have lower port accessibility, an indication that Chinese imports in remote areas improves productivity of laggard firms, employment, and intensity of skilled workers. Our findings indicate that African firms are improving their performance as a consequence of the higher Chinese import intensity, mainly through direct competition and the use of higher quality inputs of production sourced from China.

Productivity growth and catching up: a technology gap explanation

This paper seeks to explain why some countries have managed to catch up in terms of labor productivity over the period 1993–2007 in 76 countries. By integrating the technology gap research within the standard growth-accounting approach, we introduce a methodology which allows us to split total factor productivity (TFP) change into two components: conditional technical inefficiency and the magnitude of the technology gap. We find that labor productivity growth depends both on investment in fixed capital and TFP. Fast emerging economies exhibit patterns of growth based in particular on the reduction of the technology gap, confirming the role of investment in technological capabilities to spur productivity catch-up. Looking at change in the distribution of labor productivity, emerging countries managed to shift from low productivity toward a medium level of productivity thanks to technology accumulation. Less advanced countries cannot rely only on technology diffusion and learning by doing, policies for technological capabilities accumulation are necessary.

Catching-up, structural transformation, and inequality: industry-level evidence from Asia

This article empirically investigates the effect of structural transformation on wage inequality in Asia, using industry-level data for three skill groups of workers. While structural transformation, associated with technological progress, productivity catching-up, and capital deepening, has contributed to Asia's sustained growth, its effect on income inequality remains uncertain. Our results show that the process of economic transformation has exacerbated inequality in the region by increasing the relative share of high-skilled workers in total compensation. This is mainly due to a shift toward more productive-and more intensive in the use of skilled labor-activities both within and between industries. However, we also find that policy responses, especially investments in education, mitigate the increase in inequality

Catching Up, Structural Transformation, and Inequality: Lessons from Asia

While structural transformation, driven by technological progress, productivity growth, and capital deepening, has contributed to Asia’s sustained rapid growth, its effect on income inequality is uncertain. The central objective of our paper is to empirically examine the effect of structural change on wage inequality in Asia, using industry-level data for three skill groups of workers. Our evidence indicates that structural change, pushed by productivity catch-up with advanced economies, capital deepness, and the shift of the economic structures to more skill-intensive industries, has exacerbated inequality in the region. However, we also find that policy responses, especially investment in education matching the higher demand for skills and competitive exchange rates, can mitigate the increase in inequality.

The world’s interconnected demographic/fiscal transition

Abstract Will incomes of low and high skilled workers continue to diverge? Yes, according to our paper’s dynamic, six-good, five-region – U.S., Europe, N.E. Asia (Japan, Korea, Taiwan, Hong Kong), China, and India, general equilibrium, life-cycle model. The model, which endogenizes specialization and features incomplete factor-price equalization, predicts a near doubling of the ratio of high- to low-skilled wages over the century. Increasing wage inequality arises from a traditional source – a rising worldwide relative supply of unskilled labor, reflecting Chinese and Indian productivity catchup. But growing wage inequality can be greatly mitigated if China and India dramatically improve the skill mix of successive cohorts via improved education.

A Methodology to Propose the X-Factor in the Regulated English and Welsh Water and Sewerage Companies

The purpose of this paper is to develop a methodology which can be used to set X-factor under price cap schemes, when the number of observations is limited. We firstly apply a panel index approach across Water and Sewerage companies (WaSCs) over time to decompose unit-specific index number based productivity growth as a function of the productivity growth achieved by benchmark firms, and the catch-up to the benchmark firm achieved by less productive firms. We then calculate the potential productivity catch-up of laggard firms and an estimate of how the top performing company improved its productivity over time (technical change). Both estimates are used to propose X-factor for the industry over a particular period. The results indicated that significant gains in productivity occurred after 2000, when Ofwat set tighter price cap reviews in order to pass previous productivity benefits to consumers. However, average WaSC still needs to improve its productivity towards the benchmark firm (reduce their costs in real terms) by 2.69%, while the most productive firm needs to continue to improve its productivity by 0.95% over a period of five years. This technique is of great interest to researchers who are interested in developing comparative performance measurement under regulation and setting appropriate regulated prices when sample sizes are extremely limited.

Corporate Taxation and Productivity Catch-Up: Evidence from European Firms

Firms that lie far behind the technological frontier have the most to gain from imitating the technology or management practices of others. That some firms converge relatively slowly to the productivity frontier suggests the existence of factors that cause them to underinvest in their productivity. In this paper we explore how far higher rates of corporate taxation affect firm productivity convergence by reducing the after tax returns to productivity enhancing investments for small firms. Using data for 11 European countries we find evidence for such an effect; productivity growth in small firms is slower the higher are corporate tax rates. Our results are robust to the use of instrumental variable and panel data techniques with quantitatively similar effects found from a natural experiment following the German tax reforms in 2001.

Korean Economic Integration: Prospects and Pitfalls

Using a growth model of productivity catch-up estimated from the 1990 German reunification, we study the economic impacts of a hypothetical economic integration between South Korea and North Korea on macro aggregates. By considering a range of scenarios, we analyze the impacts of labor migration and capital transfer policies.

Forces Shaping Hours Worked in the OECD, 1960–2004

The goal of this paper is to examine the role of taxes and productivity growth as forces influencing market hours. To achieve this goal, the paper considers a calibrated growth model extended to include home production and subsistence consumption, both of which are found to be key features influencing market hours. The model is simulated for 15 OECD countries. The primary force driving changes in market hours is found to be changing labor income tax rates. Productivity catch-up relative to the United States is found to be an important secondary force. (JEL E24, H24, H31, J22, J24)

The Role of the Structural Transformation in Aggregate Productivity*

We investigate the role of sectoral differences in labor productivity in explaining the process of structural transformation - the secular reallocation of labor across sectors - and the time path of aggregate productivity across countries. Using a simple model of the structural transformation that is calibrated to the growth experience of the United States, we measure sectoral labor productivity differences across countries. Productivity differences between rich and poor countries are large in agriculture and services and smaller in manufacturing. Moreover, over time, productivity gaps have been substantially reduced in agriculture and industry but not nearly as much in services. In the model, these sectoral productivity patterns generate implications that are broadly consistent with the cross-country evidence on the structural transformation, aggregate productivity paths, and relative prices. We show that productivity catch-up in industry explains about 50 percent of the gains in aggregate productivity across countries, while low relative productivity in services and the lack of catch-up explains all the experiences of slowdown, stagnation, and decline observed across countries.

Sectoral systems of innovation and productivity catch-up: determinants of the productivity gap between Korean and Japanese firms

This article attempts to identify the determinants of total factor productivity (TFP) catch-up by Korean firms compared with that of Japanese firms. The degree of catch-up is measured in terms of the TFP gap between each Korean firm and the industry average of the Japanese firms in each sector. Regressions are then employed to establish the determinants of the TFP gap or catch-up. These determinants are classified into two groups: sectoral- and firm-level variables. Sectoral-level variables, drawn from the sectoral innovation system literature, test the hypothesis that catch-up is more likely to occur in certain sectors than in others. It is found that TFP catch-up by Korean firms is more likely to occur in sectors where technologies are more explicit and easily embodied in imported equipment. This discovery helps explain why the TFP of Korean firms is now close to, or even higher than those of Japanese firms in the electronics sector, and why TFP gaps still remain after some catch-up in the automobile sectors associated with more tacit knowledge regimes. Second, the degree of the sectors' top firm dominance is positively related to the TFP catch-up, implying that catch-up is more likely to occur in sectors with more monopolistic market structures. It is also shown that firms in a monopolistic market structure should be subjected to the world market discipline to attain better performance in the productivity catch-up. Third, sector-level variables only affect international TFP catch-up, whereas firm-level variables determine intranational catch-up. Important results remain consistent in some robustness tests using different proxies for sectoral variables and catch-up as measured in labor productivity, as well as in the results obtained from using period average variables rather than yearly variables. Copyright 2010 The Author 2010. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

The Evolution of Regional Labour Productivities in Japanese Manufacturing, 1968–2004

Essletzbichler J. and Kadokawa K. The evolution of regional labour productivities in Japanese manufacturing, 1968–2004. Regional Studies. The success of the Japanese economy in the post-war period was predicated on the rapid productivity catch-up of its manufacturing sector to Western economies, although productivity varied widely among Japanese regions. This paper examines the evolution of labour productivity in Japanese prefectures over the period 1968–2004. Employing Markov chain analysis, variance shift–share analysis, and analysis of variance, the paper demonstrates that during the period of fast productivity growth, the Japanese economy was characterized by an increasing polarization of productivity levels, while the period of slow growth since the early 1990s produced convergence in regional productivity levels. Essletzbichler J. et Kadokawa K. L’évolution de la productivité régionale du travail dans l'industrie japonaise de 1968 à 2004. Regional Studies. La réussite de l’économie japonaise pendant la période d'après-guerre repose sur le regain rapide de la productivité de son secteur industriel par rapport à celle des économies occidentales, bien que la productivité ait varié sensiblement au Japon à l’échelle interrégionale. Cet article cherche à examiner l’évolution de la productivité du travail dans les préfectures japonaises entre 1968 et 2004. A partir d'une analyse par chaîne de Markov, d'une analyse répartition-redistribution de variance et d'une analyse de la variance, cet article montre que l’économie japonaise se caractérise par une divergence accrue des niveaux de productivité pendant la période de croissance forte de la productivité, tandis que la période de croissance faible depuis le début des années 1990 fait preuve d'une convergence des niveaux de productivité régionaux. Japon Industrie Productivité Convergence régionale Analyse par chaîne de Markov Analyse répartition-redistribution de variance Essletzbichler J. und Kadokawa K. Die Entwicklung der regionalen Produktivität von Arbeitskräften im japanischen Produktionswesen, 1968–2004. Regional Studies. Der Erfolg der japanischen Wirtschaft in der Nachkriegszeit gründete darauf, dass das Land hinsichtlich der Produktivität seines produzierenden Sektors gegenüber den westlichen Wirtschaften rasch aufholte. Allerdings fiel die Produktivität in den verschiedenen japanischen Regionen stark unterschiedlich aus. In diesem Beitrag untersuchen wir die Entwicklung der Produktivität von Arbeitskräften in den japanischen Präfekturen im Zeitraum von 1968 bis 2004. Anhand einer Markow-Ketten-Analyse, Varianz-Shift–Share-Analyse und Varianz-Analyse weisen wir nach, dass sich die japanische Wirtschaft in der Periode des raschen Produktivitätswachstums durch eine zunehmende Polarisierung der Produktivitätsniveaus auszeichnete, während die Periode des langsamen Wachstums seit Beginn der neunziger Jahre zu einer Konvergenz der regionalen Produktivitätsniveaus führte. Japan Produktion Produktivität Regionale Konvergenz Markow-Ketten-Analyse Varianz-Shift–Share-Analyse Essletzbichler J. y Kadokawa K. La evolución de las productividades laborales a nivel regional en el sector manufacturero de Japón, 1968–2004. Regional Studies. El éxito de la economía japonesa en el periodo de posguerra se basó en el rápido aumento de productividad de su sector de manufactura hacia los niveles de las economías occidentales, aunque la productividad variaba mucho entre las diferentes regiones japonesas. En este artículo examinamos la evolución de la productividad laboral en las prefecturas japonesas durante el periodo 1968–2004. Con ayuda de una análisis de cadenas de Markov, análisis de varianza shift–share y análisis de varianza, en este ensayo demostramos que durante el periodo de rápido crecimiento de la productividad, la economía japonesa se caracterizó por un aumento de la polarización de los niveles de productividad, mientras que el periodo de crecimiento lento desde principios de los noventa produjo una convergencia en los niveles de productividad regionales. Japón Industria manufacturera Productividad Convergencia regional Análisis de cadenas de Markov Análisis de varianza shift–share

An international comparison of the TFP levels and the productivity convergence of Japanese, Korean, Taiwanese and Chinese listed firms

Focusing on Japanese, Korean, Taiwanese, and Chinese firms in the manufacturing sector, this paper examines productivity catch-up at the firm level using the distance from the technology frontier as a direct measure of the potential for catch-up. We also examine the role of absorptive capacity for technological catch-up by including variables such as R&D expenditure and foreign ownership in our empirical estimation. We find that the national frontier has a stronger pull on domestic firms than the regional frontier, which is in line with findings by Bartelsman, Haskel, and Martin (2008). This result indicates that policies to raise the technology level of national frontier firms are beneficial for all firms in that country.