Showing papers by "James Tybout published in 2003"

Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference

Abstract: Applied economists often wish to measure the effects of managerial decisions or policy changes on plant-level productivity patterns. But plant-level data on physical quantities of output, capital, and intermediate inputs are usually unavailable. Therefore, when constructing productivity measures, most analysts proxy these variables with real sales revenues, depreciated capital spending, and real input expenditures. The first part of this paper argues that the resultant productivity indices have little to do with technical efficiency, product quality, or contributions to social welfare. Nonetheless, they are likely to be correlated with policy shocks and managerial decisions in misleading ways. The second part of the paper develops an alternative approach to inference. Using Steven Berry's (1994, RAND Journal) representation of equilibrium in a differentiated product market, we show how to impute each plant's unobserved marginal costs and product quality from its observed revenues and costs, and how to use this mapping to calculate plant-specific welfare-based performance measures. (Bayesian estimation techniques are required because the vector of unknown parameters is under-identified.) The final part of the paper demonstrates our methodology using panel data on Colombian pulp and paper plants.

Trade Policy and Industrial Sector Responses: Using Evolutionary Models to Interpret the Evidence

Abstract: Firm- and plant-level empirical studies typically find that trade liberalization squeezes price-cost margins among import-competing firms, that this heightened competitive pressure induces productivity gains among these same firms, and that further efficiency gains come from market share reallocations. Using a computable industrial evolution model to simulate the dynamic effects of import competition, we demonstrate what types of managerial behavior, long-term transition paths and welfare effects are consistent with this set of stylized facts.

Trade Policy and Industrial Sector Responses: Using Evolutionary Models to Interpret the Evidence

Abstract: Firm- and plant-level empirical studies typically find that trade liberalization squeezes price-cost margins among import-competing firms, that this heightened competitive pressure induces productivity gains among these same firms, and that further efficiency gains come from market share reallocations. Using a computable industrial evolution model to simulate the dynamic effects of import competition, we demonstrate what types of managerial behavior, long-term transition paths and welfare effects are consistent with this set of stylized facts.

Trade Policy and Industrial Sector Responses in the Developing World: Interpreting the Evidence

Abstract: Most students of economic development believe that liberal trade regimes are a good thing and costs of protection can be substantial. In significant part this belief is based on the notion that foreign competition disciplines domestic firms, forcing the firms to eliminate waste, accelerate innovation rates, or shut down. In turn this import discipline notion traces to numerous empirical studies of firmand plant-level liberalization episodes.1 These studies conclude that developing countries’ manufacturing sectors have become more efficient after trade liberalization episodes. This has been accomplished partly through producer turnover, with heightened competitive pressure from imports as the motivating force. Although the empirical literature that supports the import discipline hypothesis offers some robust findings, many basic issues remain unresolved. One source of ambiguity is that the literature is based on flawed measures of firm performance. But more fundamentally, this literature fails to identify empirically the mechanisms that link import competition to efficiency, it only describes the short-run effects of trade liberalization, and does not translate firms’ performances into welfare measures. As such, it is of limited use for policy analysis. Hence we develop a coherent dynamic model that is consistent with the findings of firmand plant-level empirical

Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference

Abstract: Applied economists often wish to measure the effects of managerial decisions or policy changes on plant-level productivity patterns. But plant-level data on physical quantities of output, capital, and intermediate inputs are usually unavailable. Therefore, when constructing productivity measures, most analysts proxy these variables with real sales revenues, depreciated capital spending, and real input expenditures. The first part of this paper argues that the resultant productivity indices have little to do with technical efficiency, product quality, or contributions to social welfare. Nonetheless, they are likely to be correlated with policy shocks and managerial decisions in misleading ways. The second part of the paper develops an alternative approach to inference. Using Steven Berry's (1994, RAND Journal) representation of equilibrium in a differentiated product market, we show how to impute each plant's unobserved marginal costs and product quality from its observed revenues and costs, and how to use this mapping to calculate plant-specific welfare-based performance measures. (Bayesian estimation techniques are required because the vector of unknown parameters is under-identified.) The final part of the paper demonstrates our methodology using panel data on Colombian pulp and paper plants.