Product Differentiation, Multi-product Firms and Estimating the Impact of Trade Liberalization on Productivity

In this paper I analyze the productivity gains from trade liberalization in the Belgian textile industry. So far, empirical research has established a strong relationship between opening up to trade and productivity, relying almost entirely on deflated sales to proxy for output in the production function. The latter implies that the resulting productivity estimates still capture price and demand shocks which are most likely to be correlated with the change in the operating environment, which invalidate the evaluation of the welfare implications. In order to get at the true productivity gains I propose a simple methodology to estimate a production function controlling for unobserved prices by introducing an explicit demand system. I combine a unique data set containing matched plant-level and product-level information with detailed product-level quota protection information to recover estimates for productivity as well as parameters of the demand side (markups). I find that when correcting for unobserved prices and demand shocks, the estimated productivity gains from relaxing protection are only half (from 8 to only 4 percent) of those obtained with standard techniques.

Merger review: How much of industry is affected in an international perspective?.

Industries; Industry; International;

Creative Destruction and Productivity Growth in an Emerging Economy Evidence from Slovenian Manufacturing

In most transition countries the aggregate level evidence suggests that most industries are just destroying jobs, due to the legacy of communism where overmanning levels of employment were the norm. This paper sheds light on whether the transition process in Slovenian manufacturing has been one of just destruction or in contrast one of creative destruction. To this end we start by documenting gross job flows for the Slovenian manufacturing sector between 1994 and 2000. In contrast to slowly reforming transition economies where the transition process in manufacturing is characterized by little job creation and high job destruction, we find for Slovenian manufacturing a process of both substantial job creation and destruction. This indicates that restructuring in Slovenia involves a substantial reallocation process. We find higher job reallocation in private and small firms where the contribution of entry and exit to the job reallocation process is higher. We further use the Olley-Pakes methodology to estimate total factor productivity (TFP) and show that TFP has increased in most sectors. We find that this is mainly driven by existing firms becoming more efficient and by the net entry process, i.e. more efficient firms enter the industry

Creative Destruction and Productivity Growth in an Emerging Economy Evidence from Slovenian Manufacturing

In most transition countries the aggregate level evidence suggests that most industries are just destroying jobs, due to the legacy of communism where overmanning levels of employment were the norm. This paper sheds light on whether the transition process in Slovenian manufacturing has been one of just destruction or in contrast one of creative destruction. To this end we start by documenting gross job flows for the Slovenian manufacturing sector between 1994 and 2000. In contrast to slowly reforming transition economies where the transition process in manufacturing is characterized by little job creation and high job destruction, we find for Slovenian manufacturing a process of both substantial job creation and destruction. This indicates that restructuring in Slovenia involves a substantial reallocation process. We find higher job reallocation in private and small firms where the contribution of entry and exit to the job reallocation process is higher. We further use the Olley-Pakes methodology to estimate total factor productivity (TFP) and show that TFP has increased in most sectors. We find that this is mainly driven by existing firms becoming more efficient and by the net entry process, i.e. more efficient firms enter the industry

Markups and firm-level export status

Estimating markups has a long tradition in industrial organization and international trade. Economists and policy makers are interested in measuring the effect of various competition and trade policies on market power, typically measured by markups. The empirical methods that were developed in empirical industrial organization often rely on the availability of very detailed market-level data with information on prices, quantities sold, characteristics of products and more recently supplemented with consumer-level attributes. Often, both researchers and government agencies cannot rely on such detailed data, but still need an assessment of whether changes in the operating environment of firms had an impact on markups and therefore on consumer surplus. In this paper, we derive an estimating equation to estimate markups using standard production plant-level data based on the insight of Hall (1986) and the control function approach of Olley and Pakes (1996). Our methodology allows for various underlying price setting models, dynamic inputs, and does not require measuring the user cost of capital or assuming constant returns to scale. We rely on our method to explore the relationship between markups and export behavior using plant-level data. We find that i) markups are estimated significantly higher when controlling for unobserved productivity, ii) exporters charge on average higher markups and iii) firms’ markups increase (decrease) upon export entry (exit).We see these findings as a first step in opening up the productivity-export black box, and provide a potential explanation for the big measured productivity premia for firms entering export markets.

Merger Review: How much of industry is affected in an international perspective?

The ex ante merger control process that exists at the EC as well as in many of the constituting member states is a particular type of government intervention, namely one in the market for corporate control. As such, it is supposed to correct for a market failure. Here in particular, merging firms could gain market power and raise prices at the expense of consumers in a way the welfare standard is reduced..

Markup and price dynamics: linking micro to macro. National Bank of Belgium, Working Paper No. 357

We analyze the aggregate markup of a small-open economy, Belgium, using a firm-level dataset that includes all non-financial, private firms. The dataset covers the period 1980-2016 and merges the annual firm accounts over three periods when firms faced different reporting thresholds for the key variables we use. After harmonizing the data, we find that for the median firm the revenue share of service intermediates doubles, to some extent at the expense of in-house employment. As this general patterns holds true for the vast majority of firms and all sectors of the economy, we need to control for it in the calculation of our firm-level markup estimates. We document increasing markups in the overall economy throughout the first fifteen years of our sample, 1980-1995, and a continued rise in manufacturing until the early 2000s. In the remaining years, the aggregate markup, although cyclical, remained relatively stable. These patterns are driven by the dynamics in the sales-to-expenditure ratio, with only a small role for changes in the technology parameters. Two decompositions illustrate that the aggregate pattern masks systematic dynamics at the sector and firm level. We find that in periods where the aggregate markup rises—for the full economy or for one of the major sectors—it is almost entirely due to the within component, i.e. firm-level markup growth. In periods where the aggregate markup is stable, the average hides a strong process of reallocation. Firms or sectors with high markups increase their market share, which raises the aggregate markup, but this is dominated by a negative correlation between changes in market share and markups, which depresses the aggregate

Merger Review: How much of industry is affected in an international perspective?

The ex ante merger control process that exists at the EC as well as in many of the constituting member states is a particular type of government intervention, namely one in the market for corporate control. As such, it is supposed to correct for a market failure. Here in particular, merging firms could gain market power and raise prices at the expense of consumers in a way the welfare standard is reduced..