Papers Containing Tag(s): 'TFPQ'
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Total Factor Productivity - 21
Annual Survey of Manufactures - 12
Center for Economic Studies - 12
TFPR - 11
Viewing papers 1 through 10 of 24
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Working PaperForeign Direct Investment, Geography, and Welfare
September 2024
Working Paper Number:
CES-24-45
We study the impact of FDI on domestic welfare using a model of internal trade with variable markups that incorporates intranational transport costs. The model allows us to disentangle the various channels through which FDI affects welfare. We apply the model to the case of Ethiopian manufacturing, which received considerable amounts of FDI during our study period. We find substantial gains from the presence of foreign firms, both in the local market and in other connected markets in the country. FDI, however, resulted in a modest worsening of allocative efficiency because foreign firms tend to have significantly higher markups than domestic firms. We report consistent findings from our empirical analysis, which utilises microdata on manufacturing firms, information on FDI projects, and geospatial data on improvements in the road network.View Full Paper PDF
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Working PaperGood Dispersion, Bad Dispersion
March 2024
Working Paper Number:
CES-24-13
We document that most dispersion in marginal revenue products of inputs occurs across plants within firms rather than between firms. This is commonly thought to reflect misallocation: dispersion is 'bad.' However, we show that eliminating frictions hampering internal capital markets in a multi-plant firm model may in fact increase productivity dispersion and raise output: dispersion can be 'good.' This arises as firms optimally stagger investment activity across their plants over time to avoid raising costly external finance, instead relying on reallocating internal funds. The staggering in turn generates dispersion in marginal revenue products. We use U.S. Census data on multi-plant manufacturing firms to provide empirical evidence for the model mechanism and show a quantitatively important role for good dispersion. Since there is less scope for good dispersion in emerging economies, the difference in the degree of misallocation between emerging and developed economies looks more pronounced than previously thought.View Full Paper PDF
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Working PaperOpening the Black Box: Task and Skill Mix and Productivity Dispersion
September 2022
Working Paper Number:
CES-22-44
An important gap in most empirical studies of establishment-level productivity is the limited information about workers' characteristics and their tasks. Skill-adjusted labor input measures have been shown to be important for aggregate productivity measurement. Moreover, the theoretical literature on differences in production technologies across businesses increasingly emphasizes the task content of production. Our ultimate objective is to open this black box of tasks and skills at the establishment-level by combining establishment-level data on occupations from the Bureau of Labor Statistics (BLS) with a restricted-access establishment-level productivity dataset created by the BLS-Census Bureau Collaborative Micro-productivity Project. We take a first step toward this objective by exploring the conceptual, specification, and measurement issues to be confronted. We provide suggestive empirical analysis of the relationship between within-industry dispersion in productivity and tasks and skills. We find that within-industry productivity dispersion is strongly positively related to within-industry task/skill dispersion.View Full Paper PDF
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Working PaperThe Micro-Level Anatomy of the Labor Share Decline
March 2020
Working Paper Number:
CES-20-12
The labor share in U.S. manufacturing declined from 62 percentage points (ppts) in 1967 to 41 ppts in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppts during the same period. Using micro-level data, we document five salient facts: (1) since the 1980s, there has been a dramatic reallocation of value added toward the lower end of the labor share distribution; (2) this aggregate reallocation is not due to entry/exit, to 'superstars" growing faster or to large establishments lowering their labor shares, but is instead due to units whose labor share fell as they grew in size; (3) low labor share (LL) establishments benefit from high revenue labor productivity, not low wages; (4) they also enjoy a product price premium relative to their peers, pointing to a significant role for demand-side forces; and (5) they have only temporarily lower labor shares that rebound after five to eight years. This transient pattern has become more pronounced over time, and the dynamics of value added and employment are increasingly disconnected.View Full Paper PDF
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Working PaperMisallocation or Mismeasurement?
February 2020
Working Paper Number:
CES-20-07
The ratio of revenue to inputs differs greatly across plants within countries such as the U.S. and India. Such gaps may reflect misallocation which hinders aggregate productivity. But differences in measured average products need not reflect differences in true marginal products. We propose a way to estimate the gaps in true marginal products in the presence of measurement error. Our method exploits how revenue growth is less sensitive to input growth when a plant's average products are overstated by measurement error. For Indian manufacturing from 1985'2013, our correction lowers potential gains from reallocation by 20%. For the U.S. the effect is even more dramatic, reducing potential gains by 60% and eliminating 2/3 of a severe downward trend in allocative efficiency over 1978'2013.View Full Paper PDF
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Working PaperMANAGING TRADE: EVIDENCE FROM CHINA AND THE US
May 2019
Working Paper Number:
CES-19-15
We present a heterogeneous-firm model in which management ability increases both production efficiency and product quality. Combining six micro-datasets on management practices, production and trade in Chinese and American firms, we find broad support for the model's predictions. First, better managed firms are more likely to export, sell more products to more destination countries, and earn higher export revenues and profits. Second, better managed exporters have higher prices, higher quality, and lower quality-adjusted prices. Finally, they also use a wider range of inputs, higher quality and more expensive inputs, and imported inputs from more advanced countries. The structural estimates indicate that management is important for improving production efficiency and product quality in both countries, but it matters more in China than in the US, especially for product quality. Panel analysis for the US and a randomized control trial in India suggest that management exerts causal effects on product quality, production efficiency, and exports. Poor management practices may thus hinder trade and growth, especially in developing countries.View Full Paper PDF
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Working PaperInnovation, Productivity Dispersion, and Productivity Growth
February 2018
Working Paper Number:
CES-18-08
We examine whether underlying industry innovation dynamics are an important driver of the large dispersion in productivity across firms within narrowly defined sectors. Our hypothesis is that periods of rapid innovation are accompanied by high rates of entry, significant experimentation and, in turn, a high degree of productivity dispersion. Following this experimentation phase, successful innovators and adopters grow while unsuccessful innovators contract and exit yielding productivity growth. We examine the dynamic relationship between entry, productivity dispersion, and productivity growth using a new comprehensive firm-level dataset for the U.S. We find a surge of entry within an industry yields an immediate increase in productivity dispersion and a lagged increase in productivity growth. These patterns are more pronounced for the High Tech sector where we expect there to be more innovative activities. These patterns change over time suggesting other forces are at work during the post-2000 slowdown in aggregate productivity.View Full Paper PDF
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Working PaperMacro and Micro Dynamics of Productivity: From Devilish Details to Insights
January 2017
Working Paper Number:
CES-17-41R
Researchers use a variety of methods to estimate total factor productivity (TFP) at the firm level and, while these may seem broadly equivalent, how the resulting measures relate to the TFP concept in theoretical models depends on the assumptions about the environment in which firms operate. Interpreting these measures and drawing insights based upon their characteristics thus must take into account these conceptual differences. Absent data on prices and quantities, most methods yield 'revenue productivity' measures. We focus on two broad classes of revenue productivity measures in our examination of the relationship between measured and conceptual TFP (TFPQ). The first measure has been increasingly used as a measure of idiosyncratic distortions and to assess the degree of misallocation. The second measure is, under standard assumptions, a function of funda- mentals (e.g., TFPQ). Using plant-level U.S. manufacturing data, we find these alternative measures are (i) highly correlated; (ii) exhibit similar dispersion; and (iii) have similar relationships with growth and survival. These findings raise questions about interpreting the first measure as a measure of idiosyncratic distortions. We also explore the sensitivity of estimates of the contribution of reallocation to aggregate productivity growth to these alternative approaches. We use recently developed structural decompositions of aggregate productivity growth that depend critically on estimates of output versus revenue elasticities. We find alternative approaches all yield a significant contribution of reallocation to productivity growth (although the quantitative contribution varies across approaches).View Full Paper PDF
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Working PaperReady-to-Mix: Horizontal Mergers, Prices, and Productivity
January 2017
Working Paper Number:
CES-17-38
I estimate the price and productivity effects of horizontal mergers in the ready-mix concrete industry using plant and firm-level data from the US Census Bureau. Horizontal mergers involving plants in close proximity are associated with price increases and decreases in output, but also raise productivity at acquired plants. While there is a significant negative relationship between productivity and prices, the rate at which productivity reduces price is modest and the effects of increased market power are not offset. I then present several additional new results of policy interest. For example, mergers are only observed leading to price increases after the relaxation of antitrust standards in the mid-1980s; price increases following mergers are persistent but tend to become smaller over time; and, there is evidence That firms target plants charging below average prices for acquisition. Finally, I use a simple multinomial logit demand model to assess the effects of merger activity on total welfare. At acquired plants, the consumer and producer surplus effects approximately cancel out, but effects at acquiring plants and non-merging plants, where prices also rise, cause a substantial decrease in consumer surplus.View Full Paper PDF
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Working PaperAre firm-level idiosyncratic shocks important for U.S. aggregate volatility?
January 2017
Working Paper Number:
CES-17-23
This paper quantitatively assesses whether firm-specific shocks can drive the U.S. business cycle. Firm-specific shocks to the largest firms can directly contribute to aggregate fluctuations whenever the firm size distribution is fat-tailed giving rise to the granular hypothesis. I use a novel, comprehensive data set compiled from administrative sources that contains the universe of firms and trade transactions, and find that the granular hypothesis accounts at most for 16 percent of the variation in aggregate sales growth. This is about half of that found by previous studies that imposed Gibrat's law where all firms are equally volatile regardless of their size. Using the full distribution of growth rates among U.S. firms, I find robust evidence of a negative relationship between firm-level volatility and size, i.e. the size-variance relationship. The largest firms (whose shocks drive granularity) are the least volatile under the size-variance relationship, thus their influence on aggregates is mitigated. I show that by taking this relationship into account the effect of firm-specific shocks on observed macroeconomic volatility is substantially reduced. I then investigate several plausible mechanisms that could explain the negative sizevariance relationship. After empirically ruling out some of them, I suggest a 'market power' channel in which large firms face smaller price elasticities and therefore respond less to a givensized productivity shock than small firms do. I provide direct evidence for this mechanism by estimating demand elasticities among U.S. manufactures. Lastly, I construct an analytically tractable framework that is consistent with several empirical regularities related to firm size.View Full Paper PDF
