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ReportDOI

The Dynamics of Productivity in the Telecommunications Equipment Industry

01 Nov 1996-Econometrica (ECONOMETRICA)-Vol. 64, Iss: 6, pp 1263-1297
TL;DR: In this paper, an empirical focus is on estimating the parameters of a production function for the equipment industry, and then using those estimates to analyze the evolution of plant-level productivity.
Abstract: Technological change and deregulation have caused a major restructuring of the telecommunications equipment industry over the last two decades. Our empirical focus is on estimating the parameters of a production function for the equipment industry, and then using those estimates to analyze the evolution of plant-level productivity. The restructuring involved significant entry and exit and large changes in the sizes of incumbents. Firms' choices on whether to liquidate, and on input quantities should they continue, depended on their productivity. This generates a selection and a simultaneity problem when estimating production functions. Our theoretical focus is on providing an estimation algorithm which takes explicit account of these issues. We find that our algorithm produces markedly different and more plausible estimates of production function coefficients than do traditional estimation procedures. Using our estimates we find increases in the rate of aggregate productivity growth after deregulation. Since we have plant-level data we can introduce indices which delve deeper into how this productivity growth occurred. These indices indicate that productivity increases were primarily a result of a reallocation of capital towards more productive establishments.

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Citations
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Journal ArticleDOI
TL;DR: Olley and Pakes as discussed by the authors show that when intermediate inputs (i.e., those inputs which are typically subtracted out in a value-added production function) can also solve this simultaneity problem, and discuss some potential benefits of expanding the choice set of proxies to include these inputs.
Abstract: Economists began relating output to inputs in the early 1800's. A large literature on estimating production functions has followed, in part because much of economic theory yields testable implications that are related to the technology and optimizing behaviour.1 Since at least as early as Marschak and Andrews (1944), applied researchers have worried about the potential correlation between input levels and the unobserved firm-specific productivity shocks in the estimation of production function parameters. The economics underlying this concern are intuitive. Firms that have a large positive productivity shock may respond by using more inputs. To the extent that this is true, ordinary least squares (OLS) estimates of production functions will yield biased parameter estimates, and, by implication, biased estimates of productivity. Many alternatives to OLS have been proposed, and we add to this set by extending Olley and Pakes (1996). They show the conditions under which an investment proxy controls for correlation between input levels and the unobserved productivity shock. Their approach has the advantage that, for many questions, it is no more difficult to implement than OLS. We show when intermediate inputs (those inputs which are typically subtracted out in a value-added production function) can also solve this simultaneity problem. We discuss some potential benefits of expanding the choice set of proxies to include these inputs.

3,901 citations

Posted Content
TL;DR: In this paper, the authors studied the impact of trade and foreign direct investment on the productivity of domestic firms in the manufacturing sector in the country of Lithuania and found that a 10 percent increase in the foreign presence in downstream sectors is associated with a 0.38 percent rise in output of each domestic firm in the supplying industry.
Abstract: Many countries compete against one another in attracting foreign investors by offering ever more generous incentive packages and justifying their actions with the productivity gains that are expected to accrue to domestic producers from knowledge externalities generated by foreign affiliates. Despite this being hugely important to public policy choices, there is little conclusive evidence indicating that domestic firms benefit from foreign presence in their sector. It is possible, though, that researchers have been looking for foreign direct investment (FDI) spillovers in the wrong place. Multinationals have an incentive to prevent information leakage that would enhance the performance of their local competitors in the same industry but at the same time may want to transfer knowledge to their local suppliers in other sectors. Spillovers from FDI may be, therefore, more likely to take place through backward linkages - that is, contacts between domestic suppliers of intermediate inputs and their multinational clients - and thus would not have been captured by the earlier literature. This paper focuses on the understudied issue of FDI spillovers through backward linkages and goes beyond existing studies by shedding some light on factors driving this phenomenon. It also improves over existing literature by addressing several econometric problems that may have biased the results of earlier research. Based on a firm-level panel data set from Lithuania, the estimation results are consistent with the existence of productivity spillovers. They suggest that a 10 percent increase in the foreign presence in downstream sectors is associated with 0.38 percent rise in output of each domestic firm in the supplying industry. The data indicate that these spillovers are not restricted geographically, since local firms seem to benefit from the operation of downstream foreign affiliates on their own, as well as in other regions. The results further show that greater productivity benefits are associated with domestic-market, rather than export-oriented, foreign affiliates. But no difference is detected between the effects of fully-owned foreign firms and those with joint domestic and foreign ownership. The findings of a positive correlation between productivity growth of domestic firms and the increase in multinational presence in downstream sectors should not, however, be interpreted as a call for subsidizing FDI. These results are consistent with the existence of knowledge spillovers from foreign affiliates to their local suppliers, but they may also be a result of increased competition in upstream sectors. While the former case would call for offering FDI incentive packages, it would not be the optimal policy in the latter. Certainly more research is needed to disentangle these two effects. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to study the contribution of trade and foreign direct investment to technology transfer.

3,013 citations

Journal ArticleDOI
TL;DR: The authors surveys and evaluates recent empirical work addressing the question of why businesses differ in their measured productivity levels, and lays out what I see are the major questions that research in the area should address going forward.
Abstract: 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)

2,380 citations

Journal ArticleDOI
TL;DR: In this paper, the authors reconcile trade theory with plant-level export behavior, extending the Ricardian model to accommodate many countries, geographic barriers, and imperfect competition, and examine the impact of globalization and dollar appreciation on productivity, plant entry and exit, and labor turnover.
Abstract: We reconcile trade theory with plant-level export behavior, extending the Ricardian model to accommodate many countries, geographic barriers, and imperfect competition. Our model captures qualitatively basic facts about U.S. plants: (i) productivity dispersion, (ii) higher productivity among exporters, (iii) the small fraction who export, (iv) the small fraction earned from exports among exporting plants, and (v) the size advantage of exporters. Fitting the model to bilateral trade among the United States and 46 major trade partners, we examine the impact of globalization and dollar appreciation on productivity, plant entry and exit, and labor turnover in U.S. manufacturing. (JEL F11, F17, O33)

2,280 citations

BookDOI
TL;DR: In this paper, the authors focus on the issue of FDI spillovers through backward linkages and go beyond existing studies by shedding some light on factors driving this phenomenon, which is consistent with the existence of knowledge spillovers from foreign affiliates to their local suppliers, but they may also be a result of increased competition in upstream sectors.
Abstract: Many countries compete against one another in attracting foreign investors by offering ever more generous incentive packages and justifying their actions with the productivity gains that are expected to accrue to domestic producers from knowledge externalities generated by foreign affiliates. Despite this being hugely important to public policy choices, there is little conclusive evidence indicating that domestic firms benefit from foreign presence in their sector. It is possible, though, that researchers have been looking for foreign direct investment (FDI) spillovers in the wrong place. Multinationals have an incentive to prevent information leakage that would enhance the performance of their local competitors in the same industry but at the same time may want to transfer knowledge to their local suppliers in other sectors. Spillovers from FDI may be, therefore, more likely to take place through backward linkages-that is, contacts between domestic suppliers of intermediate inputs and their multinational clients-and thus would not have been captured by the earlier literature. This paper focuses on the understudied issue of FDI spillovers through backward linkages and goes beyond existing studies by shedding some light on factors driving this phenomenon. It also improves over existing literature by addressing several econometric problems that may have biased the results of earlier research. Based on a firm-level panel data set from Lithuania, the estimation results are consistent with the existence of productivity spillovers. They suggest that a 10 percent increase in the foreign presence in downstream sectors is associated with 0.38 percent rise in output of each domestic firm in the supplying industry. The data indicate that these spillovers are not restricted geographically, since local firms seem to benefit from the operation of downstream foreign affiliates on their own, as well as in other regions. The results further show that greater productivity benefits are associated with domestic-market, rather than export-oriented, foreign affiliates. But no difference is detected between the effects of fully-owned foreign firms and those with joint domestic and foreign ownership. The findings of a positive correlation between productivity growth of domestic firms and the increase in multinational presence in downstream sectors should not, however, be interpreted as a call for subsidizing FDI. These results are consistent with the existence of knowledge spillovers from foreign affiliates to their local suppliers, but they may also be a result of increased competition in upstream sectors. While the former case would call for offering FDI incentive packages, it would not be the optimal policy in the latter. Certainly more research is needed to disentangle these two effects.

2,127 citations

References
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Abstract: : The results of observational studies are often disputed because of nonrandom treatment assignment. For example, patients at greater risk may be overrepresented in some treatment group. This paper discusses the central role of propensity scores and balancing scores in the analysis of observational studies. The propensity score is the (estimated) conditional probability of assignment to a particular treatment given a vector of observed covariates. Both large and small sample theory show that adjustment for the scalar propensity score is sufficient to remove bias due to all observed covariates. Applications include: matched sampling on the univariate propensity score which is equal percent bias reducing under more general conditions than required for discriminant matching, multivariate adjustment by subclassification on balancing scores where the same subclasses are used to estimate treatment effects for all outcome variables and in all subpopulations, and visual representation of multivariate adjustment by a two-dimensional plot. (Author)

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TL;DR: Ebsco as mentioned in this paper focuses on additive and homogeneous production possibility frontiers that have played an important role in formulating statistical tests of the theory of production and characterizes the class of production possibility frontier that are homogeneous and additive.
Abstract: Focuses on additive and homogeneous production possibility frontiers that have played an important role in formulating statistical tests of the theory of production. Characterization of the class of production possibility frontiers that are homogenous and additive; Representation of the production possibility frontier; Statistical tests of the theory of production. (Из Ebsco)

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TL;DR: In this paper, the authors provide a model of firm and industry dynamics that allows for entry, exit, and firm-specific uncertainty generating variability in the fortunes of firms, focusing on the impact of uncertainty arising from investment in research and exploration.
Abstract: This paper provides a model of firm and industry dynamics that allows for entry, exit, and firm-specific uncertainty generating variability in the fortunes of firms. It focuses on the impact of uncertainty arising from investment in research and exploration. It analyzes the behavior of individual firms in an evolving market place and derives optimal policies, including exit. Then it adds an entry process and aggregates the optimal behavior of all firms, including potential entrants, into a rational expectations Markov-perfect industry equilibrium and proves ergodicity of the equilibrium process. Numerical examples illustrate the detailed characteristics of the stochastic process generating industry structures.

2,423 citations

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TL;DR: In this article, a variable aleatoire (X,Z) dans #7B-R P ×#7b-R q is considered, and an estimateur generalisant l'estimateur des moindres carres ordinaires en inserant des estimateurs non parametriques de la regression dans la projection orthogonale non lineaire sur Z is constructed.
Abstract: On considere une variable aleatoire (X,Z) dans #7B-R P ×#7B-R q . On construit un estimateur generalisant l'estimateur des moindres carres ordinaires en inserant des estimateurs non parametriques de la regression dans la projection orthogonale non lineaire sur Z

2,393 citations

Journal ArticleDOI

1,907 citations