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Whittling Away At Productivity Dispersion Futher Notes: Persistent Dispersion or Measurement Error?
November 1996
Working Paper Number:
CES-96-11
This note considers several hypotheses regarding measurement error as a source of observed cross-sectional dispersion in plant-level productivity in the US textile industry. The hypotheses that reporting error and/or price rigidity in either materials and/or output account for a substantial portion of the observed dispersion in productivity are consistent with the data. Similarly, the hypothesis that transitory product niches or fashion effects lead to differential markups and consequently dispersion in observed productivity is consistent with the data. The hypothesis that transfer pricing problems lead to persistent differences in plant-level productivity, in contrast, does not appear to be consistent with the data. Finally, the hypothesis that some plants have permanent product niches that lead to dispersion in observed productivity does not appear to be consistent with data. In order to avoid imposing a strong functional form on the data, this note follows a non-parametric methodology developed in the early paper.
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Firm Performance And Evolution Empirical Regularities In The U.S. Microdata
October 1996
Working Paper Number:
CES-96-10
This paper presents a view of firm performance, industry evolution, and economic growth that contrasts with the traditional representative firm model. The paper reviews recent empirical work, primarily studies using the Longitudinal Research Database (LRD), that explicitly focuses on individual business units. The major empirical regularity in the studies is that heterogeneity is pervasive -- it is found across and within all sectors and across all plant characteristics. Further, firms are not only different in the cross-section. They enter at different times, make different choices, and react differently to economic shocks. Thus, to understand economic performance and competition, one must move beyond representative firm models. Competition must be understood as a process in which some firms choose correctly and grow while other firms choose poorly and die; the growth of the successful firms at the expense of less successful rivals drives economic growth.
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Primary Versus Secondary Production Techniques in U.S. Manufacturing
October 1994
Working Paper Number:
CES-94-12
In this paper we discuss and analyze a classical economic puzzle: whether differences in factor intensities reflect patterns of specialization or the co-existence of alternative techniques to produce output. We use observations on a large cross-section of U.S. manufacturing plants from the Census of Manufactures, including those that make goods primary to other industries, to study differences in production techniques. We find that in most cases material requirements do not depend on whether goods are made as primary products or as secondary products, which suggests that differences in factor intensities usually reflect patterns of specialization. A few cases where secondary production techniques do differ notably are discussed in more detail. However, overall the regression results support the neoclassical assumption that a single, best-practice technique is chosen for making each product.
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Testing the Advantages of Using Product Level Data to Create Linkages Across Industrial Coding Systems
October 1993
Working Paper Number:
CES-93-14
After the major revision of the U.S. Standard Industrial Classification system (SIC) in the 1987, the problem arose of how to evaluate industrial performance over time. The revision resulted in the creation of new industries, the combination of old industries, and the remixing of other industries to better reflect the present U.S. economy. A method had to be developed to make the old and new sets of industries comparable over time. Ryten (1991) argues for performing the conversion at the "most micro level," the product level. Linking industries should be accomplished by reclassifying product data of each establishment to a standard system, reassigning the primary activity of the establishment, reaggregating the data to the industry level, and then making the desired statistical comparison (Ryten, 1991). This paper discusses linking the data at the very micro, product level, and at the more macro, industry level. The results suggest that with complete product information the product level conversion is preferable for most industries in manufacturing because it recognizes that establishments may switch their primary industry because of the conversion. For some industries, especially those having no substantial changes in SIC codes over time, the conversion at the industry level is fairly accurate. A small group of industries lacks complete product information in 1982 to link the 1982 product codes to the 1987 codes. This results in having to rely on the industry concordance to create a time series of statistics.
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Evidence on IO Technology Assumptions From the Longitudinal Research Database
May 1993
Working Paper Number:
CES-93-08
This paper investigates whether a popular IO technology assumption, the commodity technology model, is appropriate for specific United States manufacturing industries, using data on product composition and use of intermediates by individual plants from the Census Longitudinal Research Database. Extant empirical research has suggested the rejection of this model, owing to the implication of aggregate data that negative inputs are required to make particular goods. The plant-level data explored here suggest that much of the rejection of the commodity technology model from aggregative data was spurious; problematic entries in industry-level IO tables generally have a very low Census content. However, among the other industries for which Census data on specified materials use is available, there is a sound statistical basis for rejecting the commodity technology model in about one-third of the cases: a novel econometric test demonstrates a fundamental heterogeneity of materials use among plants that only produce the primary products of the industry.
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Price Dispersion In U.S. Manufacturing: Implications For The Aggregation Of Products And Firms
March 1992
Working Paper Number:
CES-92-03
This paper addresses the question of whether products in the U.S. Manufacturing sector sell at a single (common) price, or whether prices vary across producers. Price dispersion is interesting for at least two reasons. First, if output prices vary across producers, standard methods of using industry price deflators lead to errors in measuring real output at the industry, firm, and establishment level which may bias estimates of the production function and productivity growth. Second, price dispersion suggests product heterogeneity which, if consumers do not have identical preferences, could lead to market segmentation and price in excess of marginal cost, thus making the current (competitive) characterization of the Manufacturing sector inappropriate and invalidating many empirical studies. In the course of examining these issues, the paper develops a robust measure of price dispersion as well as new quantitative methods for testing whether observed price differences are the result of differences in product quality. Our results indicate that price dispersion is widespread throughout manufacturing and that for at least one industry, Hydraulic Cement, it is not the result of differences in product quality.
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The Determinants of U.S. Intra-Industry Trade
December 1990
Working Paper Number:
CES-90-13
Responses from the Yale University survey of 650 research and development executives were linked to U.S. trade statistics at the four-digit SIC level for the years 1965-85 to test several hypotheses concerning intra-industry trade. A new index of intra-industry trade was developed to capture both the level and balance dimensions of import and export flows. Intra-industry trade is found to be more extensive, the higher industry R&D/sales ratios were, the more important economies of learning-by-doing were, and greater the relevance of academic engineering research was, and the more niche-filling strategies were emphasized in new product development. When firms oriented their R&D efforts toward meeting the specialized demands of individual customers, intra-industry trade was lower. The highest levels of intra-industry trade were found in loosely oligopolistic industries.
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The Extent and Nature of Establishment Level Diversification in Sixteen U.S. Manufacturing Industries
August 1990
Working Paper Number:
CES-90-08
This paper examines the heterogeneity of establishments in sixteen manufacturing industries. Basic statistical measures are used to decompose product diversification at the establishment level into industry, firm, and establishment effects. The industry effect is the weakest; nearly all the observed heterogeneity is establishment specific. Product diversification at the establishment level is idiosyncratic to the firm. Establishments within a firm exhibit a significant degree of homogeneity, although the grouping of products differ across firms. With few exceptions, economies of scope and scale in production appear to play a minor role in the establishment's mix of outputs.
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Price Dispersion in U.S. Manufacturing
October 1989
Working Paper Number:
CES-89-07
This paper addresses the question of whether products in the U.S. Manufacturing sector sell at a single (common) price, or whether prices vary across producers. The question of price dispersion is important for two reasons. First, if prices vary across producers, the standard method of using industry price deflators leads to errors in measuring real output at the firm or establishment level. These errors in turn lead to biased estimates of the production function and productivity growth equation as shown in Abbott (1988). Second, if prices vary across producers, it suggests that producers do not take prices as given but use price as a competitive variable. This has several implications for how economists model competitive behavior.
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Measuring The Trade Balance In Advanced Technology Products
January 1989
Working Paper Number:
CES-89-01
Because of the dramatic decline in the United States Trade Balance since the early 1970's, many economists and policy makers have become increasingly concerned about the ability of U.S. manufacturers to compete with foreign producers. Initially concern was limited to a few basic industries such as shoes, clothing, and steel; but more recently foreign producers have been effectively competing with U.S. manufacturers in automobiles, electronics, and other consumer products. It now seems that foreign producers are even challenging the dominance of America in high technology industries. The most recent publication from the International Trade Administration shows that the U.S. Trade Balance in high technology industries fell from a $24 billion surplus in 1982, to a $2.6 billion deficit in 1986, before rebounding to a $591 million surplus in 1987. As part of the efforts of the U.S. Census Bureau to provide policy makers and other interested parties with the most complete and accurate information possible, we recently completed a review of the methodology and data used to construct trade statistics in the area of high technology trade. Our findings suggest that the statistics presented by the International Trade Administration, although technically correct, do not provide an accurate picture of international trade in high or advanced technology products because of the level of aggregation used in their construction. The ITA statistics are based on the Department of Commerce's DOC3 definition of high technology industries. The DOC3 definition requires that each product classified in a high tech industry be designated high tech. As a result, many products which would not individually be considered high tech are included in the statistics. After developing a disaggregate, product- based measure of international trade in Advanced Technology Products (ATP), we find that although the trade balance in these products did decline over the 1982-1987 period, the decline is much smaller (about $5 billion) than reported by ITA (approximately $24 billion). This paper discusses the methodology used to define the ATP measure, contrasts it to the DOC3 measure, and provides a comparison of the resulting statistics. After discussing alternative approaches to identifying advanced technology products, Section 2 describes the advanced technologies in the classification. (Appendix A, provides definitions and examples of the products which embody these technologies. In addition, Appendix B, available on request, provides a comprehensive list of Advanced Technology Products by technology grouping.) Having described the ATPs, Section 3 examines annual trade statistics for ATP products, in 1982, 1986, and 1987, and compares these statistics with equivalent ones based on the DOC3 measure. The differences between the two measures over the 1982- 87 period stem from changes in the balance of trade of items included in the DOC3 measure but excluded by the Census ATP measure; i.e. the differences are due to changes in the trade balance of "low tech" products which are produced in "high tech" industries. This finding corroborates a principal argument for construction of the ATP measure, that the weakness of the DOC3 measure of high technology trade is the level of aggregation used in its construction. It also suggests that at the level of individual products the high technology sectors of the economy continue to enjoy a strong comparative advantage and are surprisingly healthy. Nonetheless, some areas of weakness are identified, such as low tech products in high tech industries. (Appendix C, supplements this material by providing a detailed listing of traded products included and excluded from the Advanced Technology definition for each DOC3 high tech commodity grouping. These Tables enable the reader to directly assess the Census classification.)
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