Do-it-yourself digital: the production boundary, the productivity puzzle and economic welfare

Part of the debate about the ‘productivity puzzle’ concerns potential mismeasurement of GDP due to digital activities. This paper discusses some measurement issues arising from digitally-enabled substitutions in activity across the conventional production boundary. Production boundary issues are not new, as conventionally defined GDP statistics account for the monetary cost but not the time cost of consumption and production. This means changes in the way time is allocated between market and home production affect measured growth and productivity. Just as technological innovation in domestic appliances led to a substitution from home production into market consumption in the second half of the 20th century, today’s digital innovations are driving some reverse substitution out of the market into home production. Statistical agencies do not currently collect the data needed to measure the scale of the switch, but the available evidence suggests it may be enough to make a contribution to understanding the puzzling behaviour of measured productivityEconomics Statistics Centre of Excellenc

Supporting small suppliers through buyer-backed purchase order financing

This paper considers a creditworthy buyer who has two supplies: a low-cost but capital-constrained unreliable SME (small and medium-sized enterprise), and a high-cost but reliable backup source. The buyer may consider a novel financing mechanism named BPOF (buyer-backed purchase order financing) for supporting the SME indirectly. Under the BPOF scheme, the buyer provides partial or full guarantee to share the bank’s financing risk thus facilitate the SME’s loan application. To balance the risk with the benefit due to BPOF, we specify the conditions under which BPOF works and identify the properties of the buyer’s optimal strategy for sourcing and guaranteeing jointly. Generally speaking, a rational buyer’s guarantee should positively correlate to her product margins and the suppliers’ reliability. Finally, we claim when the risk-adjusted wholesale price is sufficiently low, dual financing (BPOF and subsidy) should be suggested