Following the introduction of the euro in 1999, countries in the South experienced large capital inflows and low productivity We use data for manufacturing firms in Spain to document a significant increase in the dispersion of the return to capital across firms, a stable dispersion of the return to labor across firms, and a significant increase in productivity losses from misallocation over time We develop a model of heterogeneous firms facing financial frictions and investment adjustment costs The model generates cross-sectional and time-series patterns in size, productivity, capital returns, investment, and debt consistent with those observed in production and balance sheet data We illustrate how the decline in the real interest rate, often attributed to the euro convergence process, leads to a decline in sectoral total factor productivity as capital inflows are misallocated toward firms that have higher net worth but are not necessarily more productive We conclude by showing that similar trends in dispersion and productivity losses are observed in Italy and Portugal but not in Germany, France, and Norway

Capital Allocation and Productivity in South Europe

Starting in the early 1990s, countries in southern Europe experienced low productivity growth alongside declining real interest rates. We use data for manufacturing firms in Spain between 1999 and 2012 to document a significant increase in the dispersion of the return to capital across firms, a stable dispersion of the return to labor, and a significant increase in productivity losses from capital misallocation over time. We develop a model with size-dependent financial frictions that is consistent with important aspects of firms’ behavior in production and balance sheet data. We illustrate how the decline in the real interest rate, often attributed to the euro convergence process, leads to a significant decline in sectoral total factor productivity as capital inflows are misallocated toward firms that have higher net worth but are not necessarily more productive. We show that similar trends in dispersion and productivity losses are observed in Italy and Portugal but not in Germany, France, and Norway.

/pdf/capital-allocation-and-productivity-in-south-europe-1egq59e0ny.pdf

This paper introduces time-varying grouped patterns of heterogeneity in linear panel data models. A distinctive feature of our approach is that group membership is left unspecified. We estimate the parameters of the model using a “grouped fixed-effects” estimator that minimizes a least-squares criterion with respect to all possible groupings of the cross-sectional units. We rely on recent advances in the clustering literature for fast and efficient computation. Our estimator is higher-order unbiased as both dimensions of the panel tend to infinity, under conditions that we characterize. As a result, statistical inference is not affected by the fact that group membership is estimated. We apply our approach to study the link between income and democracy across countries, while allowing for grouped patterns of unobserved heterogeneity. The results shed new light on the evolution of political and economic outcomes of countries.

/pdf/grouped-patterns-of-heterogeneity-in-panel-data-45chpksxjc.pdf

Grouped Patterns of Heterogeneity in Panel Data

This paper explores the extent to which “zombie” firms – defined as old firms that have persistent problems meeting their interest payments – are stifling labour productivity performance. The results show that the prevalence of and resources sunk in zombie firms have risen since the mid-2000s and that the increasing survival of these low productivity firms at the margins of exit congests markets and constrains the growth of more productive firms. Controlling for cyclical effects, cross-country analysis shows that within-industries over the period 2003-2013, a higher share of industry capital sunk in zombie firms is associated with lower investment and employment growth of the typical non-zombie firm and less productivity-enhancing capital reallocation. Besides limiting the expansion possibilities of healthy incumbent firms, market congestion generated by zombie firms can also create barriers to entry and constrain the post-entry growth of young firms. Finally, we link the rise of zombie firms to the decline in OECD potential output growth through two key channels: business investment and multi-factor productivity growth

The Walking Dead?: Zombie Firms and Productivity Performance in OECD Countries

International trade patterns at the product level are surprisingly dynamic. The majority of trade relationships exist for just a few, often only two to four, years. In this paper, I examine empirically the duration in German import trade at the 8-digit product level from 1995 to 2005. I find that survival probabilities are affected by product type, exporter characteristics and market structure. Specifically, I show that the duration of exporting a product to Germany is longer for differentiated products, for products with a low elasticity of substitution, for products obtained from a large exporter that is geographically close to the German market, and for products in markets with increasing import demand.

Die Another Day: Duration in German Import Trade

Spanish GDP grew at an average rate of 3.5% per year during the 1995-2007 expansion, well above the EU average of 2.2%. However, this growth was based on factor accumulation rather than productivity gains as TFP fell at an annual rate of 0.7%. Using firm-level administrative data for all sectors we show that deterioration in the allocative efficiency of productive factors across firms was at the root of the low TFP growth in Spain, while misallocation across sectors played only a minor role. We show that within-industry misallocation of production factors increased substantially over the period in all industries. Absent such deterioration, average TFP growth would have been around 0.8% per year, in line with the growth of the technological frontier. Cross-industry variation reveals that the increase in misallocation was more severe in sectors where the incidence of regulations is greater. In contrast, sectoral differences in financial dependence, skill intensity, innovative content, tradability and the intensity of capital structures appear to be unrelated to changes in allocative efficiency. All in all, the observed high output growth together with increasing firm-level misallocation in all sectors is consistent with an expansion driven by a demand boom rather than by structural reforms.

https://papers.ssrn.com/sol3/Delivery.cfm/DP11144.pdf?abstractid=2766435&mirid=5

Growing Like Spain: 1995-2007

Cada ano se invierte una significativa cantidad de recursos en mejorar las infraestructuras de transporte de los paises en desarrollo. En este articulo investigamos los efectos de un gran proyecto de este tipo: el Golden Quadrilateral de la India. Para ello, utilizamos un modelo de comercio interno con margenes variables. En contraste con la literatura previa, el modelo incorpora diversos canales a traves de los cuales la infraestructura de transporte afecta al bienestar. En particular, el modelo tiene en cuenta las ganancias provenientes de la eficiencia en la asignacion de recursos en la economia. Calibramos el modelo para 
el sector manufacturero de la India y encontramos que las ganancias reales del producto ascienden al 2,7 %. Ademas, la mejora en la asignacion explica el 7,4 % de dichas ganancias. La importancia de este canal varia en gran medida por Estados, pudiendo explicar hasta el 18 % de las ganancias en algunos de ellos. El resto de la mejora en el bienestar se explica por cambios en los ingresos laborales, la eficiencia productiva y los margenes medios, que afectan a los terminos de intercambio de los Estados.

/pdf/competition-and-the-welfare-gains-from-transportation-2exdeyjhip.pdf

Competition and the Welfare Gains from Transportation Infrastructure: Evidence from the Golden Quadrilateral of India

In this paper, we use administrative data on tax returns to characterize the distributions of before- and after-tax income, tax liabilities and tax credits in Spain for individuals and households. We use the most recent available data, 2015 for individuals and 2013 for households, but also discuss how the income distribution and taxes have changed since 2002. We also estimate effective tax functions that capture the underlying heterogeneity of the data in a parsimonious way. These parametric functions can be used to calculate after-tax incomes in surveys where this information is not directly available, and can also be used in quantitative work in macroeconomics and public finance.

/pdf/the-spanish-personal-income-tax-facts-and-parametric-3sul4c29ts.pdf

The Spanish personal income tax: facts and parametric estimates

espanolEste documento presenta los modelos de microsimulacion desarrollados por el Banco de Espana para el estudio de reformas fiscales. Por un lado, describe la herramienta de microsimulacion que evalua cambios en el impuesto sobre la renta de las personas fisicas (IRPF). Por otro lado, explica la herramienta del impuesto sobre el valor anadido (IVA) y los impuestos especiales. Para cada una de estas dos herramientas, el documento detalla como se estructura, los datos usados y los resultados que genera. Tambien se muestran las capacidades de estas herramientas mediante ejemplos sencillos de reformas fiscales hipoteticas, presentadas exclusivamente para ilustrar el uso de estos simuladores. EnglishThis paper presents the microsimulation models developed at the Banco de Espana for the study of fiscal reforms, describing the tool used to evaluate changes in the Spanish personal income tax and also the one for the value added tax and excise duties. In both cases the structure, data and output of the model are detailed and its capabilities are illustrated using simple examples of hypothetical tax reforms, presented only to illustrate the use of these simulation tools.

Microsimulation tools for the evaluation of fiscal policy reforms at the Banco de España

We use a unique administrative dataset of Spanish exporters to document the existence of exporters’ geographical agglomeration by export destination. We reveal that firms selling to countries with worse business regulations, a dissimilar language and a different currency tend to cluster significantly more. We then assess the implications of exporters’ geographical agglomeration for firms’ behavior and for the estimated welfare gains from trade. On the one hand, we find that exporters engage in more stable trade relationships with those countries that are the export destinations of nearby firms. On the other, we introduce agglomeration in a model of international trade a la Melitz (2003). Using our Spanish firm-level data, we find that, relative to a model without agglomeration, taking this phenomenon into account increases the elasticity of welfare with respect to fixed trade costs by 44%

/pdf/agglomeration-matters-for-trade-38enb5tk18.pdf

Roberto Ramos

Papers

Growing Like Spain: 1995-2007

Competition and the Welfare Gains from Transportation Infrastructure: Evidence from the Golden Quadrilateral of India

The Spanish personal income tax: facts and parametric estimates

Microsimulation tools for the evaluation of fiscal policy reforms at the Banco de España

Agglomeration Matters for Trade