Productivity and Employment in APAC Economies: A Comparison With the EU Using Firm-Level Information
Hoang Minh Duy, Filippo di Mauro, Peter Morgan
ADBI Working Paper,
No. 1264,
2021
Abstract
We provide an overview of productivity development and other related indicators in Asia and Pacific (APAC) countries, with comparisons with the Europe region. We use the seventh vintage firm-level data from the Productivity Research Network in the APAC region and CompNet in Europe for our study. The overall results show that the productivity growth in developed APAC countries (Australia, New Zealand, and the Republic of Korea) is significantly ahead of the growth in developing APAC countries (India and the People’s Republic of China) and on par with the EU’s growth. There is an ongoing process of bottom firms catching up with top firms in the Republic of Korea and the richest EU countries. Regarding employment and labor skills, employment growth has generally been quite stagnant in all regions. Labor skills, for which we use the wage premium as a proxy, are quite similar across most regions, with the richest EU countries showing a higher premium than the rest. Our test of the productivity–employment link indicates that the size of employment tends to have a greater impact on productivity in APAC countries, while labor skills have greater emphasis in the EU.
Read article
Who Benefits from Mandatory CSR? Evidence from the Indian Companies Act 2013
Jitendra Aswani, N. K. Chidambaran, Iftekhar Hasan
Emerging Markets Review,
March
2021
Abstract
We examine the value impact of mandatory Corporate Social Responsibility (CSR) spending required by the Indian Companies Act of 2013 for large and profitable Indian firms. We find that the external mandate is value decreasing, even after controlling for prior voluntary CSR activity by firms affected by the mandate. We also find that there is systematic crosssectional variation across firms. Firms that are profitable and firms in the Fast Moving Consumer Goods sector that voluntarily engaged in CSR, benefit from CSR. Industrial firms and firms with high capital expenditures are negatively impacted by the mandate. We conclude that a one-size-fits-all approach to CSR is sub-optimal and value decreasing.
Read article
Benchmarking New Zealand's Frontier Firms
Guanyu Zheng, Hoang Minh Duy, Gail Pacheco
IWH-CompNet Discussion Papers,
No. 1,
2021
Abstract
New Zealand has experienced poor productivity performance over the last two decades. Factors often cited as reasons behind this are the small size of the domestic market and distance to international partners and markets. While the distance reason is one that is fairly insurmountable, there are a number of other small advanced economies that also face similar domestic market constraints. This study compares the relative performance of New Zealand’s firms to those economies using novel cross-country microdata from CompNet. We present stylised facts for New Zealand relative to the economies of Belgium, Denmark, Finland, Netherlands and Sweden based on average productivity levels, as well as benchmarking laggard, median and frontier firms. This research also employs an analytical framework of technology diffusion to evaluate the extent of productivity convergence, and the impact of the productivity frontier on non-frontier firm performance. Additionally, both labour and capital resource allocation are compared between New Zealand and the other small advanced economies. Results show that New Zealand’s firms have comparatively low productivity levels and that its frontier firms are not benefiting from the diffusion of best technologies outside the nation. Furthermore, there is evidence of labour misallocation in New Zealand based on less labour-productive firms having disproportionally larger employment shares than their more productive counterparts. Counter-factual analysis illustrates that improving both technology diffusion from abroad toward New Zealand’s frontier firms, and labour allocation across firms within New Zealand will see sizable productivity gains in New Zealand.
Read article
Lack of Selection and Limits to Delegation: Firm Dynamics in Developing Countries
Ufuk Akcigit, Harun Alp, Michael Peters
American Economic Review,
No. 1,
2021
Abstract
Delegating managerial tasks is essential for firm growth. Most firms in developing countries, however, do not hire outside managers but instead rely on family members. In this paper, we ask if this lack of managerial delegation can explain why firms in poor countries are small and whether it has important aggregate consequences. We construct a model of firm growth where entrepreneurs have a fixed time endowment to run their daily operations. As firms grow large, the need to hire outside managers increases. Firms’ willingness to expand therefore depends on the ease with which delegation can take place. We calibrate the model to plant-level data from the U.S. and India. We identify the key parameters of our theory by targeting the experimental evidence on the effect of managerial practices on firm performance from Bloom et al. (2013). We find that inefficiencies in the delegation environment account for 11% of the income per capita difference between the U.S. and India. They also contribute to the small size of Indian producers, but would cause substantially more harm for U.S. firms. The reason is that U.S. firms are larger on average and managerial delegation is especially valuable for large firms, thus making delegation efficiency and other factors affecting firm growth complements.
Read article
The Viral Effects of Foreign Trade and Supply Networks in the Euro Area
Virginia di Nino, Bruno Veltri
IWH-CompNet Discussion Papers,
No. 4,
2020
Abstract
Containment measures of COVID-19 have generated a chain of supply and demand shocks around the globe with heterogeneous fallout across industries and countries. We quantify their transmission via foreign trade with a focus on the euro area where deep firms integration within regional supply chains and strong demand linkages act as a magnification mechanism. We estimate that spillover effects in the euro area from suppression measures in one of the five main euro area countries range between 15-28% the size of the original shock; negative foreign demand shocks depress euro area aggregate activity by about a fifth the size of the external shock and a fourth of the total effect is due to indirect propagation through euro area supply chain. Last, reopening to regional tourism softened the contraction of aggregate activity due to travel and tourism bans by about a third in the euro area. Our findings suggest that enhanced coordination of recovery plans would magnify their beneficial effects.
Read article
Marginal Returns to Talent for Material Risk Takers in Banking
Moritz Stieglitz, Konstantin Wagner
IWH Discussion Papers,
No. 20,
2020
Abstract
Economies of scale can explain compensation differentials over time, across firms of different size, different hierarchy-levels, and different industries. Consequently, the most talented individuals tend to match with the largest firms in industries where marginal returns to their talent are greatest. We explore a new dimension of this size-pay nexus by showing that marginal returns also differ across activities within firms and industries. Using hand-collected data on managers in European banks well below the level of executive directors, we find that the size-pay nexus is strongest for investment banking business units and for banks with a market-based business model. Thus, managerial compensation is most sensitive to size increases for activities that can easily be scaled up.
Read article
Transmitting Fiscal Covid-19 Counterstrikes Effectively: Mind the Banks!
Reint E. Gropp, Michael Koetter, William McShane
IWH Online,
No. 2,
2020
Abstract
The German government launched an unprecedented range of support programmes to mitigate the economic fallout from the Covid-19 pandemic for employees, self-employed, and firms. Fiscal transfers and guarantees amount to approximately €1.2 billion by now and are supplemented by similarly impressive measures taken at the European level. We argue in this note that the pandemic poses, however, also important challenges to financial stability in general and bank resilience in particular. A stable banking system is, in turn, crucial to ensure that support measures are transmitted to the real economy and that credit markets function seamlessly. Our analysis shows that banks are exposed rather differently to deteriorated business outlooks due to marked differences in their lending specialisation to different economic sectors. Moreover, a number of the banks that were hit hardest by bleak growth prospects of their borrowers were already relatively thinly capitalised at the outset of the pandemic. This coincidence can impair the ability and willingness of selected banks to continue lending to their mostly small and medium sized entrepreneurial customers. Therefore, ensuring financial stability is an important pre-requisite to also ensure the effectiveness of fiscal support measures. We estimate that contracting business prospects during the first quarter of 2020 could lead to an additional volume of non-performing loans (NPL) among the 40 most stressed banks ‒ mostly small, regional relationship lenders ‒ on the order of around €200 million. Given an initial stock of NPL of €650 million, this estimate thus suggests a potential level of NPL at year-end of €1.45 billion for this fairly small group of banks already. We further show that 17 regional banking markets are particularly exposed to an undesirable coincidence of starkly deteriorating borrower prospects and weakly capitalised local banks. Since these regions are home to around 6.8% of total employment in Germany, we argue that ensuring financial stability in the form of healthy bank balance sheets should be an important element of the policy strategy to contain the adverse real economic effects of the pandemic.
Read article
Asymmetric Investment Responses to Firm-specific Forecast Errors
Julian Berner, Manuel Buchholz, Lena Tonzer
Abstract
This paper analyses how firm-specific forecast errors derived from survey data of German manufacturing firms over 2007–2011 affect firms’ investment propensity. Understanding how forecast errors affect firm investment behaviour is key to mitigate economic downturns during and after crisis periods in which forecast errors tend to increase. Our findings reveal a negative impact of absolute forecast errors on investment. Strikingly, asymmetries arise depending on the size and direction of the forecast error. The investment propensity declines if the realised situation is worse than expected. However, firms do not adjust investment if the realised situation is better than expected suggesting that the uncertainty component of the forecast error counteracts positive effects of unexpectedly favorable business conditions. Given that the fraction of firms making positive forecast errors is higher after the peak of the recent financial crisis, this mechanism can be one explanation behind staggered economic growth and slow recovery following crises.
Read article
Business Dynamics Statistics of High Tech Industries
Nathan Goldschlag, Javier Miranda
Journal of Economics and Management Strategy,
No. 1,
2020
Abstract
Modern market economies are characterized by the reallocation of resources from less productive, less valuable activities to more productive, more valuable ones. Businesses in the High Tech sector play a particularly important role in this reallocation by introducing new products and services that impact the entire economy. In this paper we describe an extension to the Census Bureau’s Business Dynamics Statistics that tracks job creation, job destruction, startups, and exits by firm and establishment characteristics, including sector, firm age, and firm size in the High Tech sector. We preview the resulting statistics, showing the structural shifts in the High Tech sector over the past 30 years, including the surge of entry and young firm activity in the 1990s that reversed abruptly in the early‐2000s.
Read article
Trade, Misallocation, and Capital Market Integration
Laszlo Tetenyi
IWH-CompNet Discussion Papers,
No. 8,
2019
Abstract
I study how cross-country capital market integration affects the gains from trade in a model with financial frictions and heterogeneous, forward-looking firms. The model predicts that misallocation among exporters increases as trade barriers fall, even as misallocation decreases in the aggregate. The reason is that financially constrained productive exporters increase their production only marginally, while unproductive exporters survive for longer and increase their size. Allowing capital inflows magnifies misallocation, because unproductive firms expand even more, leading to a decline in aggregate productivity. Nevertheless, under integrated capital markets, access to cheaper capital dominates the adverse effect on productivity, leading to higher output, consumption and welfare than under closed capital markets. Applied to the period of European integration between 1992 and 2008, I find that underdeveloped sectors experiencing higher export exposure had more misallocation of capital and a higher share of unproductive firms, thus the data is consistent with the model’s predictions. A key implication of the model is that TFP is a poor proxy for consumption growth after trade liberalisation.
Read article
