We describe the theory and practice of real GDP comparisons across countries and over time. Effective with version 8, the Penn World Table (PWT) will be taken over by the University of California, Davis and the University of Groningen, with continued input from Alan Heston at the University of Pennsylvania. Version 8 will expand on previous versions of PWT in three respects. First, it will distinguish real GDP on the expenditure side from real GDP on the output side, which differ by the terms of trade faced by countries. Second, it will distinguish growth rates of GDP based on national accounts data from growth rates that are benchmarked in multiple years to cross-country price data. Third, data on capital stocks will be reintroduced. Some illustrative results from PWT version 8 are discussed, including new results that show how the Penn effect is not emergent but a stable relationship over time.

/pdf/online-appendix-to-the-next-generation-of-the-penn-world-4tu31v8v90.pdf

Online Appendix to: The Next Generation of the Penn World Table*

The East Asian miracle: Economic growth and public policy: By the World Bank. (New York: Oxford University Press for the World Bank, 1993. 389 pp. $19.95, paper.)

Economists have shown that large and persistent differences in productivity levels across businesses are ubiquitous. This finding has shaped research agendas in a number of fields, including (but not limited to) macroeconomics, industrial organization, labor, and trade. This paper surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels. The causes are manifold, and differ depending on the particular setting. They include elements sourced in production practices -- and therefore over which producers have some direct control, at least in theory -- as well as from producers' external operating environments. After evaluating the current state of knowledge, I lay out what I see are the major questions that research in the area should address going forward. (JEL D24, G31, L11, M10, O30, O47)

/pdf/what-determines-productivity-2hh0dpac5x.pdf

What Determines Productivity

https://www.nber.org/system/files/working_papers/w19255/w19255.pdf

The Next Generation of the Penn World Table

Three potential consequences of trade liberalisation are often argued to take place: (1) an increase in aggregate productivity, (2) an expansion of the most productive rms and (3) an exit of the least productive rms. In recent years much research within trade has taken place on this phenomenon, mainly due to Melitz (2003). He designed a model in which intraindustry reallocation of production achieves these three results. This paper utilises a natural experiment to test this model as well as alternative models. The experiment in question is the construction of a bridge connecting Malmo in Sweden with Copenhagen in Denmark across the Oresund Strait (previously only connected through a ferry link). The paper nds evidence for an increase in aggregate productivity, an expansion of the most productive rms and an increased likelihood for the most productive rms to become exporters due to the increase in trade that took place after the bridge was opened. It fails to show evidence for an exit of the least productive rms as well as for alternative theories in the literature. Thanks to seminar participants at the International Monetary Fund and to helpful comments by Rikard Forslid, Elhanan Helpman, Doireann Fitzgerald and Nicola Fuchs Schundeln.

/pdf/the-impact-of-trade-on-intra-industry-reallocations-and-316g1xrxmx.pdf

The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity: An Empirical Investigation

https://www.econstor.eu/bitstream/10419/74870/1/dp151.pdf

Do exports generate higher productivity? Evidence from Slovenia

Estimating markups has a long tradition in industrial organization and international trade. Economists and policy makers are interested in measuring the effect of various competition and trade policies on market power, typically measured by markups. The empirical methods that were developed in empirical industrial organization often rely on the availability of very detailed market-level data with information on prices, quantities sold, characteristics of products and more recently supplemented with consumer-level attributes. Often, both researchers and government agencies cannot rely on such detailed data, but still need an assessment of whether changes in the operating environment of firms had an impact on markups and therefore on consumer surplus. In this paper, we derive an estimating equation to estimate markups using standard production plant-level data based on the insight of Hall (1986) and the control function approach of Olley and Pakes (1996). Our methodology allows for various underlying price setting models, dynamic inputs, and does not require measuring the user cost of capital or assuming constant returns to scale. We rely on our method to explore the relationship between markups and export behavior using plant-level data. We find that i) markups are estimated significantly higher when controlling for unobserved productivity, ii) exporters charge on average higher markups and iii) firms markups increase (decrease) upon export entry (exit). We see these findings as a first step in opening up the productivity-export black box, and provide a potential explanation for the big measured productivity premia for firms entering export markets.

/pdf/markups-and-firm-level-export-status-2937ypj0he.pdf

Markups and Firm-Level Export Status

In this paper, we develop a method to estimate markups using plantlevel production data. Our approach relies on cost-minimizing producers and the existence of at least one variable input of production. The suggested empirical framework relies on the estimation of a production function and provides estimates of plant-level markups without specifying how firms compete in the product market. We rely on our method to explore the relationship between markups and export behavior. We find that markups are estimated significantly higher when controlling for unobserved productivity; that exporters charge, on average, higher markups and that markups increase upon export entry. (JEL D22, D24, F14, L11, L60)

/pdf/markups-and-firm-level-export-status-4q4acie44t.pdf

Markups and firm-level export status

This paper studies whether removing barriers to trade induces efficiency gains for producers. Like almost all empirical work which relies on a production function to recover productivity measures, I do not observe physical output at the firm level. Therefore, it is imperative to control for unobserved prices and demand shocks. I develop an empirical model that combines a demand system with a production function to generate estimates of productivity. I rely on my framework to identify the productivity effects from reduced trade protection in the Belgian textile market. This trade liberalization provides me with observed demand shifters that are used to separate out the associated price, scale, and productivity effects. Using a matched plant-product level data set and detailed quota data, I find that correcting for unobserved prices leads to substantially lower productivity gains. More specifically, abolishing all quota protections increases firm-level productivity by only 2 percent as opposed to 8 percent when relying on standard measures of productivity. My results beg for a serious reevaluation of a long list of empirical studies that document productivity responses to major industry shocks and, in particular, to opening up to trade. My findings imply the need to study the impact of changes in the operating environment on productivity together with market power and prices in one integrated framework. The suggested method and identification strategy are quite general and can be applied whenever it is important to distinguish between revenue productivity and physical productivity.

/pdf/product-differentiation-multi-product-firms-and-estimating-314a57gzpt.pdf

Product Differentiation, Multi-product Firms and Estimating the Impact of Trade Liberalization on Productivity

This paper examines how prices, markups and marginal costs respond to trade liberalizaƟon. We develop a framework to esƟmate markups from producƟon data with mulƟ-product firms. This approach does not require assumpƟons on the market structure or demand curves faced by firms, nor assumpƟons on how firms allocate their inputs across products. We exploit quanƟty and price informaƟon to disentangle markups from quanƟty-based producƟvity, and then compute marginal costs by dividing observed prices by the esƟmated markups. We use India’s trade liberalizaƟon episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalizaƟon lowers factory-gate prices and that output tariff declines have the expected pro-compeƟƟve effects. However, the price declines are small relaƟve to the declines in marginal costs, which fall predominantly because of the input tariff liberalizaƟon. The reason is that firms offset their reducƟons in marginal costs by raising markups. Our results demonstrate substanƟal heterogeneity and variability in markups across firms and Ɵme and suggest that producers benefited relaƟve to consumers, at least immediately aŌer the reforms. Long-term gains to consumers may be higher to the extent that higher firm profits lead to new product introducƟons and growth. Indeed, firms with larger increases in markups had a higher propensity to introduce new products during this period.

/pdf/prices-markups-and-trade-reform-1vlg7yxzzr.pdf

Jan De Loecker

Papers

Do exports generate higher productivity? Evidence from Slovenia

Markups and Firm-Level Export Status

Markups and firm-level export status

Product Differentiation, Multi-product Firms and Estimating the Impact of Trade Liberalization on Productivity

Prices, Markups and Trade Reform