Productivity Spillovers Research Articles

Small Business Property Tax Reductions and Firm Productivity

We investigate the productivity spillovers from the UK government’s decision to use extensive property tax reductions as a key instrument to stimulate innovation in smaller businesses and drive local growth. To capture the complex interaction and clustering of hierarchical effects, we apply non-parametric Random Effects Expectation Maximisation algorithm that complements more standard econometric estimators, namely matching to control for endogeneity and control functions to estimate total factor productivity. These approaches enabled us to incorporate various contextual configurations in comparing the recipients of these reductions to non-recipients with regard to productivity, in which the UK has experienced a considerably worse performance than its peers since the great recession. Contrary to policy assumptions and business community expectations, we show that generic tax reductions, when significant, are mostly associated with lower productivity and thus have been unsuitably chosen as a policy mechanism to stimulate productivity growth. We further show how instruments that are not built for causality could be beneficial for policy evaluation.

How Do Productivity Benefits Spill Over Across Firms? Explorations in a Heterogeneous Firm Applied General Equilibrium Trade Model

Considerable diffusion of technology occurs via global trade and foreign direct investment (FDI) while firm heterogeneities cause considerable production heterogeneities. Hi-tech products and investment goods of differentiated varieties from emerging and developed economies are vehicles of superior technology. Given this stylized evidence, we analyse factors facilitating (or inhibiting) technological spillover to domestic firms in the host nations in a counterfactual scenario of a Trans-Pacific-Partnership (TPP) deal. By using a mixture interface of global computable general equi-librium (CGE) models of FDI (GTAP-FDI) and firm heterogeneity model of Global Trade Analysis Project, GTAP Heterogeneous (GTAP-HET), we calibrate impacts of trade and FDI spillovers on: (i) global production, (ii) trade patterns, (iii) welfare and (iv) regional productivity gains. Importance of regional trade agreements and policy for productivity spillovers is highlighted.

Economic impact of nature-based tourism.

Protected areas (PAs) can help address biodiversity loss by promoting conservation while fostering economic development through sustainable tourism. Nature-based tourism can generate economic benefits for communities in and around PAs; however, its impacts do not lend themselves to conventional impact evaluation tools. We utilize a Monte Carlo simulation approach with econometric estimations using microdata to estimate the full economic impact of nature-based tourism on the economies surrounding three terrestrial and two marine PAs. Simulations suggest that nature-based tourism creates significant economic benefits for communities around PAs, including the poorest households, and many of these benefits are indirect, via income and production spillovers. An additional tourist increases annual real income in communities near the PAs by US$169-$2,400, significantly more than the average tourist's expenditure. Conversely, lost tourism due to the COVID-19 pandemic and economic costs of human-wildlife conflict have disproportionately large negative impacts on local incomes.

FDI, spillover, and government subsidy: Micro-Econometric evidence from China

ABSTRACT By analysing comprehensive firm data from 1999 to 2013 categorized by zip code, we find that Foreign Direct Investment (FDI) companies consistently received more local government subsidies in China. When comparing FDI within the same county and year, it becomes evident that FDI creates positive growth and productivity spillovers for other businesses in the same zip code. Furthermore, there is additional evidence to support the amenities channel as a possible productivity spillover channel. This paper makes a significant contribution to the debate regarding FDI's spillover effects at a disaggregated level.

Engines of power: Electricity, AI, and general-purpose, military transformations

AbstractMajor theories of military innovation focus on relatively narrow technological developments, such as nuclear weapons or aircraft carriers. Arguably the most profound military implications of technological change, however, come from more fundamental advances arising from ‘general-purpose technologies’ (GPTs), such as the steam engine, electricity, and the computer. Building from scholarship on GPTs and economic growth, we argue that the effects of GPTs on military effectiveness are broad, delayed, and shaped by indirect productivity spillovers. We label this impact pathway a ‘general-purpose military transformation’ (GMT). Contrary to studies that predict GPTs will rapidly diffuse to militaries around the world and narrow gaps in capabilities, we show that GMTs can reinforce existing balances if leading militaries have stronger linkages to a robust industrial base in the GPT than challengers. Evidence from electricity's impact on military affairs, covering the late nineteenth and early twentieth centuries, supports our propositions about GMTs. To probe the explanatory value of our theory and account for alternative interpretations, we compare findings from the electricity case to the military impacts of submarine technology, a non-GPT that emerged in the same period. Finally, we apply our findings to contemporary debates about artificial intelligence, which could plausibly cause a profound GMT.

Evaluating spillovers and cost-effectiveness of complementary agricultural and social protection interventions: evidence from Lesotho

ABSTRACT We present findings from a study of the local-economy impacts of Lesotho’s Child Grants Programme and of a multi-faceted rural development intervention. We designed a micro-data parameterised general equilibrium model and used it to simulate the direct and indirect impacts of the two interventions, considering income and production spillovers. The Child Grants Programme, alone and in combination with the rural development programme, generates total discounted benefits that exceed discounted programme costs. Local-economy spillovers amplify the benefit-cost ratio of both cash transfers and productive interventions. By better integrating with outside markets, it is possible to attain substantial cost-effective income gains for local economies.

Do regional integration and trade linkages promote productivity spillovers? Evidence from the European Union

ABSTRACT This study examines the productivity and efficiency spillovers in the presence of trade linkages in 27 European Union countries from 1990 to 2019. The European Union is one of the largest trading blocs in the world and has implemented costly policies and reforms to improve productivity growth. Meanwhile, trade-induced productivity and efficiency spillovers have often been overlooked in the literature, and examining them could provide further clarity to the productivity puzzle. Using a spatial Durbin model and a bilateral trade matrix, this study estimates a spatial stochastic production frontier model using data from the Penn World Table and the World Integrated Trade Solution. We decompose production frontier estimates to obtain the spillover effects of total factor productivity growth and technical efficiency from a network of bilateral trading partners. Our results provide evidence of productivity and efficiency spillovers; however, the gains are uneven. Policy implications are discussed.

The impact of absorbing productivity spillover on export ability: evidence from an emerging market

The impact of absorbing productivity spillover on export ability: evidence from an emerging market

Contract manufacturing, market competition, and labor productivity in US manufacturing industries

How does contract manufacturing /outsourcing affect productivity? Existing studies have conflicting empirical findings regarding this issue. This paper aims to reconcile these conflicting findings in the literature by viewing the research question through the lens of the property rights theory. The authors develop a moderated moderation model to empirically examine how productivity is influenced by the interactions among contract manufacturing, competition, and suppliers’ productivity spillover. Our model shows that though conflicting findings have been reported in the literature, each finding holds true under certain conditions which are identified in our paper. In brief, contract manufacturing /outsourcing improves productivity when suppliers’ productivity growth is above average and focal industry’s competition is at medium level. On the other hand, if suppliers’ productivity growth is low, or focal industry’s competition is too high or too low, the impact of contract manufacturing /outsourcing could be negative or not significant.

Foreign firm characteristics, labour market restrictions and FDI spillovers: Evidence from Moldova

AbstractThis paper investigates how productivity spillovers from foreign to domestic firms are affected by foreign firm characteristics and labour market conditions in Moldova. We use firm‐level administrative panel data and annual survey region‐sector indicators of labour market conditions in 2005–2014. Baseline regressions show that domestic firms benefit from backward FDI spillovers, while we find no evidence of horizontal or forward spillovers. Spillover effects are heterogeneous and depend on the ownership structure and age of foreign firms. Domestic firms in upstream sectors benefit from both wholly foreign‐owned companies (WFOC) and joint ventures (JV). However, JVs need less time in the market for positive spillovers to materialise, while WFOCs only lead to larger spillover effects when they are older. In regions and sectors where firms experience fewer labour market restrictions, backward FDI spillovers are larger. Interacting foreign firm characteristics with labour market restrictions, we find that spillovers through the labour market channel materialise only for older FDI, regardless of ownership type. The results are in line with our expectation that WFOCs need more time than JVs to develop linkages with local suppliers and lead to spillovers through this channel. Moreover, in developing countries labour market restrictions reduce labour mobility and consequently, the size of FDI spillovers across industries.

The Incentive Effects of Tournaments and Peer Effects in Team Production: Evidence from Esports

This paper examines the incentive effects of increased prize differentials and productivity spillovers from substitute coworkers within the context of esports. A direct behavioral measure called “actions per minute (APM)” is utilized to gauge Dota 2 players’ on-field exertion of effort dedicated to winning the game. The results based on empirical analysis support the incentive effects of the convex prize structure of esports tournaments on eliciting effort. Further investigation indicates that the incentive effects of high-stakes esports tournaments are more a result of the size of total prize than the relative prize distribution. It is also found that players who serve subordinate roles are more likely to engage in shirking behavior in the presence of teammates with similar roles.

Mission and the Bottom Line: Performance Incentives in a Multigoal Organization

Abstract We assess the role of monetary incentives in a mission-oriented organization by randomly assigning workers to one of two bonus schemes, incentivizing either the performance of a microcredit program (bottom line) or the empowerment of clients (mission). We find that the credit bonus improved credit-related outcomes but undermined the social mission, while the social bonus did not harm the bottom line. These results are consistent with a multitasking model with production spillovers or with prosocial behavior. We show that when mission-related rewards are not feasible, organizations that care about both the mission and the bottom line prefer flat wages to incentives.

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.

GVC spillovers on total factor productivity of local firms: evidence from the Russian Federation

Global value chains (GVCs) generate significant effects on participating firms. But can GVCs affect other companies in the host economies? We propose a conceptual framework for GVC spillovers and test it using data for Russian manufacturing firms in 2009–2015. Using a panel estimation technique with random and fixed effects, we find that firms in industries that are intensively integrated into GVCs, on average, have higher total factor productivity (TFP), controlling for firm heterogeneity, industry and region fixed effects. TFP gains in GVCs are unequally distributed and depend on (i) the industry’s position in the GVC, (ii) the industry’s technological intensity and (iii) the firm’s TFP level. We relate the findings to the evidence of the “optimal” technological gap that maximizes productivity spillovers for national companies. The results are highly relevant for policymakers as they prove that trade policy and foreign direct investment attraction policy should not go hand in hand but should be incorporated into GVC-oriented policy to encourage the full range of TFP improvements in local (non-GVC-included) firms. To fully benefit from GVC-oriented policy, State policy should encourage the development of inter-firm links. In addition, our results support the importance of evolutionary structural changes in economic upgrading in GVCs and the strength of the role of policies oriented towards medium-technology industries as drivers of technological development.

Productivity spillovers and the productivity–compensation gap

ABSTRACT Historically, compensation and productivity steadily trended synchronously with one another. However, since the mid-1970s, these two measures have diverged as productivity increases have outpaced compensation. This divergence is indicative of evidence of wage stagnation and rising income inequality. We provide arguments on the productivity–compensation gap and illuminate possible explanations about whether and why the gap exists in different industries incorporating spatial and trade networks. We confirm that the gap narrows once we account for productivity spillovers between bordering and trading states using spatially lagged X (SLX) models. The results vary across industries and provide insights for policymakers and firms about productivity and compensation patterns.

Technological Spillovers and Determinants of Firm Productivity : Evidence from Vietnam’s Manufacturing Industry

The paper aimed to study the determinants and spatial spillovers of enterprise productivity in the manufacturing industry in Vietnam during the period from 2010 – 2019. The spatial regression model was used to estimate the spatial dependence of enterprise-level TFP. The results showed that technology spillover occurred positively among firms in the region, and this effect decreased rapidly with spatial distance. Furthermore, the results also showed that firm productivity depended on firm characteristics and local market conditions. Further analysis showed that spillover effects’ strength was affected by many other factors: area, presence of FDI, administrative policies, border effect, infrastructure, weak financial factors, utility services, and human resources. These factors created favorable conditions for the smooth connection between major economic centers, creating strong inter-regional spillover effects. From the findings, the study proposed important policy implications.

Market Size and Spatial Growth—Evidence From Germany's Post‐War Population Expulsions

Virtually all theories of economic growth predict a positive relationship between population size and productivity. In this paper, I study a particular historical episode to provide direct evidence for the empirical relevance of such scale effects. In the aftermath of the Second World War, 8 million ethnic Germans were expelled from their domiciles in Eastern Europe and transferred to West Germany. This inflow increased the German population by almost 20%. Using variation across counties, I show that the settlement of refugees had large and persistent effects on the size of the local population, manufacturing employment, and income per capita. These findings are quantitatively consistent with an idea‐based model of spatial growth if population mobility is subject to frictions and productivity spillovers occur locally. The estimated model implies that the refugee settlement increased aggregate income per capita by about 12% after 25 years and triggered a process of industrialization in rural areas.

Spatial Productivity Spillovers, Entrepreneurship Capital and Regional Productivity: A Spatial Autoregressive Dynamic Panel Model

Spatial Productivity Spillovers, Entrepreneurship Capital and Regional Productivity: A Spatial Autoregressive Dynamic Panel Model

Intelligent technologies and productivity spillovers: Evidence from the Fourth Industrial Revolution

The take-off of a Fourth Industrial Revolution (4IR) is at the core of a vibrant academic debate with an increasingly larger number of studies investigating the effects of the latest generation of new technologies, namely artificial intelligence (AI), flexible automation, additive manufacturing, big data, etc., — hereinafter defined as intelligent technologies. A great deal of attention has been paid to the effects associated with the adoption of such transformative technologies, whilst the impact associated with their production, and in particular with the development of related technological knowledge, has remained almost unexplored. Using patent data at country level for a sample of industrialized economies between 1990 and 2014, this paper seeks to quantify the productivity spillovers associated with intelligent technologies. We show that the elasticity of aggregate productivity to the stock of knowledge related to intelligent technologies is statistically significant and economically important, ranging between 0.01 and 0.06. Since these innovations have increased by a factor of 3 from the early 1990s, based on our most conservative estimates, knowledge related to intelligent technologies would account for a range between 3 and 8% of observed productivity change. We also document that the time pattern of productivity spillovers associated with intelligent technology patents may conform to a productivity J-curve, corroborating the view that such innovations could behave as General Purpose Technologies (GPTs).

Are family firms good neighbours? A spatial analysis of Italian technology-intensive firms

PurposeA burgeoning body of evidence points out the importance of spatial proximity in influencing firm efficiency besides internal characteristics. Nevertheless, the family status of the firm has been traditionally overlooked in that debate. Therefore, this study aims to investigate productivity spillovers stemming from the geographical closeness to innovators and family firms.Design/methodology/approachUsing secondary data on Italian technology-intensive manufacturing firms, the paper exploits spatial econometric models to estimate productivity spillovers across firms.FindingsAs regards the presence of spatial dependence, this study reveals that a firm's level of efficiency and productivity is influenced by that of nearby firms. Specifically, three main results emerge. First, spatial proximity to innovators is beneficial for the productivity of neighbouring firms. Second, closeness to family firms is a source of negative externalities for spatially proximate firms. However, and this is the third result, the adverse effect vanishes when the nearby family firms are also innovators.Research limitations/implicationsAs the study relies on cross-sectional data, future research should explore productivity spillovers in a longitudinal setting. Additionally, the channels through which productivity spillovers occur should be measured.Practical implicationsThe study highlights the importance of co-location for public policy initiatives to strengthen the competitiveness of firms and, indirectly, that of localities and regions. Moreover, the findings show the crucial role of innovation in mitigating the productivity gap between family and non-family firms.Social implicationsNotwithstanding the advent of the digital era, spatial proximity and localized social relationships are still a relevant factor affecting firms' performance.Originality/valueBy exploring the role of family firms in influencing the advantages of geographical proximity, this study contributes to the growing efforts to explore family enterprises across spatial settings.