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.

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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

We investigate the role of transportation infrastructure in explaining resource misallocation and income in India. We extend the endogenous variable markups model by Atkeson and Burstein (2008) into a multi-region setting in which asymmetric states trade with each other. High transportation costs that result from poor infrastructure quality generate misallocation of resources by increasing dispersion in market power across firms. Using a rich micro-level dataset constructed from manufacturing and geospatial data, we find preliminary evidence that is consistent with our theory. Using the construction of the Golden Quadrilateral as a natural experiment, we find that prices declined by 20% in districts crossed by this road. We calibrate the model and simulate an improvement in Indian road quality. We find the aggregate gains for improved road quality. We also decompose these gains into Ricardian and pro-competitive components.

Misallocation, Internal Trade, and the Role of Transportation Infrastructure

Spanish GDP grew at an average rate of 3.5% per year during the expansion of 1995-2007, 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. Cross-industry variation reveals that the increase in misallocation was more severe in sectors where government influence is more important for business success, which represents novel evidence on the potential macroeconomic costs of crony capitalism. In contrast, sectoral differences in financial dependence, skill intensity, innovative content, tradability, or capital structures intensity 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.

Growing like Spain: 1995-2007

We exploit the GEOSTAT 2011 population grid with a very high 1-km2 resolution to document that Spain presents the lowest density of settlements among European countries We uncover that this anomaly cannot be accounted for by adverse geographic and climatic conditions Using techniques from spatial econometrics, we identify the clusters that exhibit the lowest densities within Spain after controlling for geo-climatic factors: these areas mainly belong to Teruel, Zaragoza, Ciudad Real, Albacete, Sevilla and Asturias We also explore the attributes that characterize the municipalities located in these low-density areas: larger population losses during the 1950-1991 rural exodus, higher shares of local-born inhabitants, longer distances to the province capital, higher shares of population employed in agriculture, and larger increases in regionalist vote after the Great Recession

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The Spatial Distribution of Population in Spain: An Anomaly in European Perspective

We present a detailed description of cross-country differences in the size distribution of establishments as measured by Enterprise Surveys of the World Bank (2006-2010). We find that poorer countries tend to have smaller establishments, and hence a higher proportion of employment is allocated to such plants. We also find that, conditional on the level of per capita GDP, there is still a wide variation in the size distribution of establishments. We show that financial frictions and other costs imposed on the business environment can account for a sizeable part of such variation. Additionally, we exploit the richness of the data-set to document cross-sector differences in the size distribution of establishments. We show that establishments in manufacturing and construction tend to be larger on average than in retail and other services.

/pdf/dissecting-the-size-distribution-of-establishments-across-1iuq062h36.pdf

Dissecting the size distribution of establishments across countries

Motivación
 La última reforma de pensiones, aprobada en 2023, ha adoptado tres medidas de aumento de las cotizaciones sociales, al objeto de reforzar los ingresos del Sistema de la Seguridad Social. Este artículo analiza la incidencia y calcula el efecto ex ante de los cambios aprobados.
 Ideas principales
 •El crecimiento de la base máxima de cotización tendrá un impacto desigual entre trabajadores y empresas, ya que, entre otras características, los trabajadores en edades medianas y con mayor cualificación y las empresas grandes exhiben con más frecuencia bases de cotización topadas por el máximo legal.
 •Asimismo, el incremento de las cotizaciones sociales aprobado en 2023 tendrá un efecto desigual a lo largo de la distribución de los salarios. En particular, el aumento de los tipos efectivos de cotización será más elevado para los salarios altos.
 •El aumento de cotizaciones sociales adoptado recientemente podría incrementar ex ante los recursos de la Seguridad Social en un 0,9 % del PIB en 2050. No obstante, este aumento podría ser menor si los mayores costes labores afectan negativamente a la competitividad, los salarios o el empleo.

Roberto Ramos

Papers

Misallocation, Internal Trade, and the Role of Transportation Infrastructure

Growing like Spain: 1995-2007

The Spatial Distribution of Population in Spain: An Anomaly in European Perspective

Dissecting the size distribution of establishments across countries

Un análisis de la incidencia del incremento de las cotizaciones sociales aprobado en 2023