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Productivity and Globalization

Productivity and Globalization. Eric Bartelsman Vrije Universiteit Amsterdam and Tinbergen Institute EPC 2006 , Helsinki August 31, 200 6

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Productivity and Globalization

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  1. Productivity and Globalization Eric Bartelsman Vrije Universiteit Amsterdam and Tinbergen Institute EPC 2006, Helsinki August 31, 2006 This work is partially funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

  2. Overview • Introduction • Understanding Productivity • Recent Findings

  3. Introduction • Why are we here • What is Globalization • What is Productivity

  4. Why are we here? • Trade and Industry • Your job, your future • Threats and opportunities • Policy makers • Politics of globalization • Innovation policy • Framework/Lisbon • Research community • Fun new results?

  5. What is Globalization? • Increasing intensity of international ‘interactions’ • Goods, services • Capital, labor • (Culture, Value Systems) • Relentless turmoil brought on by owners of capital in order to increase profits by circumventing rules of law and decency

  6. source: Axel Dreher, 2006

  7. Globalization of Goods and Service Flows Location Decision • Economic Environment • Wages • Infrastruction (phys/legal) • Regulation • Transportation Costs • Bulk/value • Obsolescence • Time sensitivity Domestic outsourcing Global outsourcing Market Specialization Intl’ Trade Control Captive Globalization Shared services Control Decision • Transaction costs • ‘Coaseian’ span of control • Market structure • Reputational issues Within Firm FDI Offshoring Domestic Global Location source: derived from MGI 2005

  8. What is Productivity? • Output per unit of input • E.g. GDP per hour worked • Real quality adjusted production per unit of aggregate input (KLEMS) • Increases in productivity are bound only by our own imagination • ….subject to optimal accumulation of physical and human capital and hard resource constraints • Productivity improvements may ‘buy’ goods, leisure, environment etc…

  9. Long run productivity growth Source: Brad DeLong, 1991-2000

  10. Growth Accounting – USA Source: Corrado, Lengermann, Bartelsman, Beaulieu; 2006

  11. Unanswered questions • Why has ICT-capital not contributed as much in EU? • Why do EU firms invest less in ICT • Does ICT contribution depend on characteristics of firms? • Why is US TFP growth now broad based. • Is TFP growth high in all firms? • Does it depend on firm characteristic?

  12. Overview • Introduction • Understanding Productivity • Recent Findings

  13. Firms matter • Productivity in industry depends on composition • Could have e.g. long tail problem: country1 long tail • Mean productivity could be bad estimate of frontier country2 Global frontier

  14. Firms in the UK and the global frontier

  15. Aggregate productivity depends not only on the distribution of firms within an industry…

  16. …but also on size

  17. Drivers of the productivity frontier • Innovation • R&D • Experimentation with business concepts and processes • Incentives for increased innovation • IPR (but see Boldrin and Levine) • Subsidy to cover wedge social and private return • Availability of ‘innovation inputs’ • Rapid scale expansion of new goods/services/business concepts. (Because knowledge and other intangible assets are non-rival in production, return goes up)

  18. Productivity growth below the frontier • Reallocation from low to high productivity firms • flexibility in product markets • low hiring/firing costs • low entry/exit barriers • Diffusion of existing technology • Market pressure • Human capital • National innovation system

  19. Overview • Introduction • Understanding Productivity • Recent Findings

  20. The indirect effect: market contestability

  21. The indirect effect: market contestability

  22. Productivity growth below the frontier • Convergence to which frontier? National or Global? • Bartelsman, Haskel and Martin, 2006 • Both frontiers matter • Pull from Global frontier declines with distance to frontier • Pull from National frontier does not

  23. Baseline results

  24. Varying Convergence Speeds

  25. Conclusions • Drivers of productivity are different for firms at the ‘technology frontier’ and behind the frontier • At frontier: leveraging intangible assets matters: potential scale is important • Inside frontier: • adoption of technology • resource reallocation

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