The Global Productivity Slowdown, Technology Divergence and Public Policy: A Firm Level Perspective
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Transcript of The Global Productivity Slowdown, Technology Divergence and Public Policy: A Firm Level Perspective
THE GLOBAL PRODUCTIVITY
SLOWDOWN, TECHNOLOGY
DIVERGENCE AND PUBLIC
POLICY: A FIRM LEVEL
PERSPECTIVE
Dan Andrews† and Chiara Criscuolo††
Based on joint work with Peter N. Gal †
† Economics Department †† Directorate for Science, Technology and Innovation
2016 Conference of the Global Forum on Productivity
Lisbon | 7 July 2016
• Did aggregate productivity growth slow because:
1. Slowing growth at the global productivity frontier?
2. Stalling diffusion: productivity convergence to the global frontier (GF) has slowed?
3. Rising resource misallocation?
• Debate (i.e. Gordon vs Brynjolfsson) has generally centred on #1 but we know little about GF firms.
• Our firm level analysis suggests:
– Labour productivity (LP) at GF remained robust but laggard firms fell increasingly behind
– LP Divergence reflects MFP divergence and most probably technological divergence.
– This divergence was to some extent inevitable, due to structural changes in the global economy.
– But there was scope for policy to lean against the wind.
Our contribution: bringing micro
evidence to a largely macro debate
PRODUCTIVITY DIVERGENCE:
NEW EVIDENCE
Frontier
Non-frontier
Frontier
Non-frontier
Rising labour productivity gap
between global frontier and laggards Average of labour productivity across each 2-digit sector (log, 2001=0)
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.
Divergence is robust (slide A2).
Average of MFPR across each 2-digit sector (log, 2001=0)
... largely reflects MFPR divergence
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.
Frontier
Frontier
Non-frontier Non-frontier
Capital deepening plays
less of a role (slide A3).
... which may reflect technological
divergence (MFPQ) Average of mark-up corrected MFP across each 2-digit sector (log, 2001=0)
Correcting for GF firms ability to charge
higher mark-ups (slide A4) does not
substantively change the story.
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.
Frontier
Frontier
Non-frontier
Non-frontier
TECHNOLOGICAL DIVERGENCE:
THE ROLE OF STRUCTURAL
DRIVERS
The increasing potential for digital technologies to unleash winner take all dynamics in global markets may have allowed frontier firms to pull away.
If winner takes all dynamics are relevant, we should see:
MFPR divergence coupled with divergence in sales [slide A5];
Larger MFP divergence in: ICT-intensive sectors and within the global frontier grouping in ICT intensive sectors.
Technological divergence: winner
takes all dynamics?
A: MFPR in ICT-intensive services B: MFPR in total business services
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Frontier firms
Non-frontier firms
Top 10%
Top 5%
Top 2%
Importance of tacit knowledge (TK) as a source of
competitive advantage for GF firms may have risen if new
technologies have become more complex:
This could raise the amount and sophistication of
complementary investments (e.g. MQ) required for adoption.
The rising importance of TK could act as a barrier to the catch-
up of laggard firms.
Smoking gun: it is increasingly difficult for firms situated
outside the top 20% of the MFP distribution to enter the GF,
especially in services where TK is more important [slide A6].
We estimated that the pace of MFP convergence to the GF
may have slowed by ~30% since the late 1990s [slide A7].
Technological divergence: stalling
technological diffusion?
TECHNOLOGICAL DIVERGENCE:
THE ROLE OF POLICY
Pro-competitive product market reforms can promote the
diffusion of frontier technologies by:
1. Sharpening the incentives for incumbent firms to adopt better
technologies.
2. Raising managerial quality, which is complementary to
adoption.
3. Reducing entry barriers: young firms possess a comparative
advantage in commercialising leading technologies.
4. Raising returns to “innovation” in downstream manufacturing
sectors via input-output linkages.
5. More efficient reallocation.
Competition, innovation and
diffusion
Structural changes in the global economy meant that some increase
in MFP divergence was somewhat inevitable but there was scope for
diffusion-enhancing policy reforms to lean against these headwinds.
The pace of PMR reform in services
has slowed over time
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.
The restrictiveness of product market regulations over time, 1998-2013
Notes: The horizontal line in the boxes represents the median,
the upper and lower edges of each boxes reflect the 25th and
75th percentiles and the markers on the extremes denote the
maximum and the minimum across countries.
The need for reforms in services – esp.
professional services – has become
increasingly urgent, and divergence was
most marked in these sectors (slide A8).
Sluggish market reform effort in
services amplified MFP divergence
2.3% 2.4%
3.8% 3.9%
4.4%
1.0%
1.4%1.7% 1.7%
2.0%
0%
1%
2%
3%
4%
5%
Energy Retail Legal andaccounting
services
Technicalservices
Air transport
Observed increase in gap
Increase in gap due to slow deregulation
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming. Based on estimates in A9.
Estimated contribution to the annual change in the MFP gap of the
slower pace of reform relative to the best practice industry (telecoms)
• The slowdown in aggregate productivity growth masks an increasing divergence between GF and laggard firms:
– Structural changes in the global economy unleashed winner takes all dynamics and made adoption more difficult.
– Thus, MFP divergence was partly inevitable but policy could have worked harder
– The opportunity cost of poorly designed PMR has risen
• If diffusion stalled, what other factors may matter?
– Role of digitalisation and network economies
– Role of complementary factors (e.g. managerial quality, skills)
– IPR regimes need updating?
– Lobbying blocking penetration of ICT and new business models in services
• Inclusiveness: MFP divergence and wage inequality.
Diffusion: some conjectures and
future work
SPARES
A1. Characteristics of the global frontier
A2. Divergence: robustness
A3. Divergence: capital deepening
A4. Divergence: mark-ups
A5. Divergence: sales
A6. Entrenchment at the global frontier
A7. Slowing convergence to the frontier
A8. Divergence & market reform in services: descriptives
A9. Divergence & market reform in services: econometrics
A1. The globally most productive
firms: Who are they?
• Robustness – not driven by:
– Productivity measure: LP, TFP
– Frontier definition: Top 50, 100, 5%
– Robustness to different time periods:
– Industry-level analysis from 1985 shows a bigger
divergence from the early 2000s
– Robustness to retaining only HQ-s (their
consolidated accounts, i.e. everything is at the
group level) and standalone firms (not part of any
group)
A2. Productivity divergence:
robustness
Average capital deepening across each 2-digit sector (log, 2001=0)
A3. How much is it a capital
deepening story?
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.
Frontier
Frontier
Non-frontier
Non-frontier
A4. Mark-ups for frontier firms has grown
in services but not in manufacturing
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.
Frontier
Frontier
Non-frontier
Non-frontier
Average estimated mark-up across each 2-digit sector (log, 2001=0)
A5. Frontier firms are getting larger
in terms of sales! Average of log sales for global frontier firms and the rest
Based on top 5% of MFP; index, 2001=0
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.
Frontier
Frontier
Non-frontier
Non-frontier
A6. Entry into the global frontier has become
more entrenched amongst top quintile firms
Proportion of frontier firms in time t according to their frontier status in t-2
A: MFPR
B: Mark-up corrected MFP (MFPQ)
Manufacturing Services
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
Fromtop
20%
Fromtop
10%
Fromtop
5%
Manufacturing Services
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
Fromtop
20%
Fromtop
10%
Fromtop 5%
A7. The speed of convergence to the
frontier slowed, even before the crisis
Estimated convergence parameter from neo-Schumpeterian model and 95% confidence intervals
A: MFPR
B: Mark-up corrected MFP (MFPQ)
0.06
0.08
0.10
0.12
0.14
0.16
0.18
0.20
0.22
0.06
0.08
0.10
0.12
0.14
0.16
0.18
0.20
0.22
A8. Slower product market reform, a
larger increase in the MFP gap
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.
Selected industries; annual average change over time and across countries
Note: The figure shows the annual change in the (log) MFPR gap between the frontier and laggard firms and
the change in the (log) PMR indicator. Technical services refer to architecture and engineering.
A9. Higher MFP divergence when
market reforms in services lagged
(1) (2) (3) (4)
0.205*** 0.231*** 0.332*** 0.311**
(0.065) (0.083) (0.103) (0.132)
Country fixed effects YES NO YES NO
Industry fixed effects YES YES YES YES
Year fixed effects YES NO YES NO
Country X year fixed effects NO YES NO YES
Observations 458 458 376 376
R-squared 0.201 0.323 0.327 0.463
Y: Δ MFP gap Y: Δ Mark-up corrected MFP gap
Δ Product Market
Regulations,c,t
Notes: Cluster robust standard errors (at the industry-year level) in parentheses. *** p<0.01, ** p<0.05, * p<0.1 Both the
MFP gap and the PMR indicator are measured in log terms. The MFP gap is calculated at the country-industry-year level,
by taking the difference between the global frontier and the average of log productivity of non-frontier firms.
MFP divergence and product market regulation in services
Estimation method – five-year long differences; 1998-2013
Source: Andrews, D. C. Criscuolo and P. Gal (2015), “The Global Productivity Slowdown, Technology Divergence
and Public Policy: a Firm Level Perspective”, OECD Productivity Papers forthcoming.