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Why Are Plant Deaths Countercyclical: Reallocation Timing or Fragility?
November 2006
Working Paper Number:
CES-06-24
Because plant deaths destroy specific capital with large local economic impacts and potentially important macroeconmic effects, understanding the causes of deaths and, in particular, why they are concentrated in cyclical downturns, is important. The reallocationtiming hypothesis posits that plants suffering adverse permanent demand/productivity shocks delay shutdowns until cyclical downturns when plant capacity is less valuable, while the fragility hypothesis posits that shutdowns occur in downturns because the option value of maintaining the plant through low profitability periods is too small. I show that the effect that a plant's specific capital has on the timing of plant deaths differs across these two hypotheses and then use this insight to test the hypotheses' relative importance. I find that fragility is the dominant cause of the countercyclical behavior of plant deaths. This suggests that the endogenous destruction of capital is likely an important amplification and propagation mechanism for cyclical shocks and that stabilization policies have the benefit of reduced capital destruction.
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The Impact of Hurricanes Katrina, Rita and Wilma on Business Establishments: A GIS Approach
August 2006
Working Paper Number:
CES-06-23
We use Geographic Information System tools to develop estimates of the economic impact of disaster events such as Hurricane Katrina. Our methodology relies on mapping establishments from the Census Bureau's Business Register into damage zones defined by remote sensing information provided by FEMA. The identification of damaged establishments by precisely locating them on a map provides a far more accurate characterization of affected businesses than those typically reported from readily available county level data. The need for prompt estimates is critical since they are more valuable the sooner they are released after a catastrophic event. Our methodology is based on pre-storm data. Therefore, estimates can be made available very quickly to inform the public as well as policy makers. Robustness tests using data from after the storms indicate our GIS estimates, while much smaller than those based on publicly available county-level data, still overstate actual observed losses. We discuss ways to refine and augment the GIS approach to provide even more accurate estimates of the impact of disasters on businesses.
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Do Tax Incentives Affect Local Economic Growth? What Mean Impacts Miss in the Analysis of Enterprise Zone Policies
September 2003
Working Paper Number:
CES-03-17
Geographically-targeted tax incentives remain popular initiatives in response to deteriorating economic conditions of urban and industrial areas. This paper exploits the exogenous variations of the U.S. state Enterprise Zone programs to estimate the impact of various incentive features on a number of dimensions of local economic growth. The econometric analysis uses plant level data to sort out growth outcomes into gross flows separately accounted for by new, existing, and vanishing businesses in the target areas. Results offer empirical evidence to support a number of specific policy recommendations and show that the impact of the incentives has more complex dynamics than those revealed by the null mean impact estimates obtained from analyzing net growth outcomes.
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Plant Vintage, Technology, and Environmental Regulation
September 2001
Working Paper Number:
CES-01-08
Does the impact of environmental regulation differ by plant vintage and technology? We answer this question using annual Census Bureau information on 116 pulp and paper mills' vintage, technology, productivity, and pollution abatement operating costs for 1979-1990. We find a significant negative relationship between pollution abatement costs and productivity levels. This is due almost entirely to integrated mills (those incorporating a pulping process), where a one standard deviation increase in abatement costs is predicted to reduce productivity by 5.4 percent. Older plants appear to have lower productivity but are less sensitive to abatement costs, perhaps due to 'grandfathering' of regulations. Mills which undergo renovations are also less sensitive to abatement costs, although these vintage and renovation results are not generally significant. We find similar results using a log-linear version of a three input Cobb-Douglas production function in which we include our technology, vintage, and renovation variables. Sample calculations of the impact of pollution abatement on productivity show the importance of allowing for differences based on plant technology. In a model incorporating technology interactions we estimate that total pollution abatement costs reduce productivity levels by an average of 4.7 percent across all the plants. The comparable estimate without technology interactions is 3.3 percent, approximately 30% lower.
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THE IMPACT OF STATE URBAN ENTERPRISE ZONES ON BUSINESS OUTCOMES*
December 1998
Working Paper Number:
CES-98-20
Since the early 1980s, a vast majority of states have implemented enterprise zones. This paper examines the impact of zone programs in the urban areas of six states on business outcomes, the main target of zone incentives. The primary source of outcome data is the U.S. Bureau of Census' Longitudinal Research Database (LRD), which tracks manufacturing establishments over time. Matched sample and geographic comparison groups are created to measure of the impact of zone policy on employment, establishment, shipment, payroll, and capital spending outcomes. Consistent with previous research findings, the difference in difference estimates indicate that zones appears to have little impact on average. However, by exploiting the establishment-level data, the paper finds that zones have a positive impact on the outcomes of new establishments and a negative impact on the outcomes of previously existing establishments.
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Manufacturing Extension And Productivity Dynamics
June 1998
Working Paper Number:
CES-98-08
This paper presents results from an investigation of the effects of manufacturing extension on the productivity dynamics of client plants. Previous econometric studies of manufacturing extension had very little time series information. This limited what researchers could say about the relative timing of extension services and performance improvements. In turn, this makes it difficult to attribute performance improvements to the receipt of extension services. In this paper, I use a panel of client and nonclient plants to more carefully analyze the dynamics of extension and productivity. The results suggest that the timing of observed productivity improvements at client plants is consistent with a positive impact of manufacturing extension. Estimated program impacts are within the range of those found in previous studies.
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Manufacturing Plant Location: Does State Pollution Regulation Matter?
July 1997
Working Paper Number:
CES-97-08
This paper tests whether differences across states in pollution regulation affect the location of manufacturing activity in the U.S. Plant-level data from the Census Bureau's Longitudinal Research Database is used to identify new plant births in each state over the 1963-1987 period. This is combined with several measures of state regulatory intensity, including business pollution abatement spending, regulatory enforcement activity, congressional pro-environment voting, and an index of state environmental laws. A significant connection is found: states with more stringent environmental regulation have fewer new manufacturing plants. These results persist across a variety of econometric specifications, and the strongest regulatory coefficients are similar in magnitude to thos4e on other factors expected to influence location, such as unionization rates. However, a subsample of high-pollution industries, which might have been expected to show much larger impacts, gets similar coefficients. This raises the possibility that differences between states other than environmental regulation might be influencing the results.
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Exploring The Role Of Acquisition In The Performance Of Firms: Is The "Firm" The Right Unit Of Analysis?
November 1995
Working Paper Number:
CES-95-13
In this article, we examine the effect of acquisitions on productivity performance of acquiring firms using the conventional regression analysis and a method of productivity decomposition. Our empirical work uses both plant- and firm-level data taken from the Longitudinal Research Database (LRD) on the entire population of U.S. food manufacturing firms that operated continuously during 1977-87. We find that (1) acquisitions had a significant, positive effect on acquiring firms' productivity growth, but this effect becomes insignificant when only firm-level data on multi-unit firms are included in the regressions; and (2) the decomposition results show that while the productivity contribution of the external component (acquired plants) is positive, the contribution of the internal component (existing plants) is negative; the two components offset each other leaving productivity of multi-unit acquiring firms virtually unchanged after acquisitions. These results suggest that assessing the impact of acquisitions on the structure and performance of firms requires a careful look at the individual components (i.e., plants) of the firms, particularly for large multi-unit firms.
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Using Matched Client And Census Data To Evaluate The Performance Of The Manufacturing Extension Partnership
April 1995
Working Paper Number:
CES-95-07
This paper proposes a framework for evaluating the Manufacturing Extension Partnership (MEP). The MEP is administered by the National Institute of Standards and Technology (NIST) as part of its effort to improve the global competitiveness of U.S. manufacturing industries. As the name implies, the MEP is modelled after agricultural extension. Rather than farmers the MEP's target population is small and medium sized manufacturers, generally those with less than 500 employees. The MEP currently supports 44 manufacturing extension centers around the country. These centers provide technical and business assistance for manufacturers much as county extension agents do for farmers. The goal of evaluation is to see if MEP engagements lead to positive outcomes from the view of important MEP stakeholders (e.g., MEP clients, MEP centers, NIST, state and local governments and Congress). These outcomes are discussed in McGuckin and Redman (1995) and include: Process Outcomes (e.g., adoption of a new technology by a client); Intermediate Outcomes (e.g., reduction in the clients defect rate); Business Outcomes (e.g., survival and profits) and Policy Outcomes (increases in employment,wages and/or exports). The evaluation framework described in this paper has two components. The first component is an evaluation dataset which contains measures of many of the program outcomes listed above for both MEP clients and a representative control group of non- clients. This dataset will be constructed by linking MEP client records with plant level Census data housed at the Center for Economic Studies of the Census Bureau. The Census data provides measures of several outcome and control variables which are comparable across both plants and time. The Census data include observations for all manufacturing plants in the U.S. from which representative control groups can be constructed. The MEP client records provide data on the type and intensity of extension engagements. Linking these rich sources of information yields a comprehensive and powerful dataset for MEP evaluation. The second component is an evaluation methodology which exploits this rich dataset to make statistical inferences about the impact of MEP services, while carefully controlling for other influences. By using this methodology, we can address many of the shortcomings which plagued previous attempts to evaluate extension services. In addition to evaluation, the dataset described in this paper may be used to profile the characteristics of MEP clients and compare them to non-clients. The Census data contain the complete universe of manufacturing establishments in the U.S.
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The Choice of Input-Out Table Embedded in Regional Econometric Input-Out Models
January 1994
Working Paper Number:
CES-94-01
In this paper we investigate the role of input-output data source in the regional econometric input-output models. While there has been a great deal of experimentation focused on the accuracy of alternative methods for estimating regional input-output coefficients, little attention has been directed to the role of accuracy when the input-output system is nested within a broader accounting framework. The issues of accuracy were considered in two contexts, forecasting and impact analysis focusing on a model developed for the Chicago Region. We experimented with three input-output data sources: observed regional data, national input-output, and randomly generated input-output coefficients. The effects of different sources of input-output data on regional econometric input-output model revealed that there are significant differences in results obtained in impact analyses. However, the adjustment processes inherent in the econometric input-output system seem to mute the initial differences in input- output data when the model is used for forecasting. Since applications of these types of models involve both impact and forecasting exercises, there would still seem to be a strong motivation for basing the system on the most accurate set of input-output accounts.
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