The core-periphery gap raises important questions for economic geography. Using Japanese data, this column examines firms’ decision to separate non-production activities from production plant facilities. Large plants, plants which intensively purchase materials, and plants located further from the core are more likely to have separate corporate headquarters, though the magnitude of this effect is small. Small-sized plants appear to be especially vulnerable to remoteness from urban cores.
Toshihiro Okubo, Eiichi Tomiura, 02 January 2017
Florin Bilbiie, Fabio Ghironi, Marc Melitz, 13 September 2016
Structural reform and deregulation are often promoted as ways to lower barriers to market entry. The Dixit-Stiglitz model provides an important benchmark – given specific preferences, there is a constrained-optimal amount of producer entry and product variety. This column reconsiders optimality of product creation, differentiating between consumer-producer and intertemporal inefficiencies and quantifying the welfare costs of inefficient entry. Monopoly profits should be preserved when product variety is endogenously determined by firm entry, as they play a crucial role in generating the welfare-maximising level of product variety in equilibrium.
Andrew Bernard, Valerie Smeets, Frederic Warzynski, 22 June 2016
Deindustrialisation is a major policy concern in high-income countries not only because of resulting unemployment, but also because of the long-run implications for growth. This column uses evidence from Denmark to analyse whether it is being measured in the right way. A substantial fraction of the decline in manufacturing actually reflects the changing nature of production. Service sector firms that still perform many of the value-adding activities of traditional manufacturing firms should not be overlooked by policymakers.
Ariel Pakes, 20 June 2016
A key task for economists is predicting how markets will respond to complex changes in environment. This column discusses recent empirical developments that allow for a deeper understanding of such market dynamics. Game theory has informed conditional pricing models that take account of products marketed and their production costs. Likewise, dynamic models of productive efficiency allow for analyses of the role of market structure in inducing competitive efficiencies.
Gilles Duranton, Ejaz Ghani, Arti Grover Goswami, William Kerr, 27 May 2016
Optimising the allocation of factors of production improves productivity. In India, where evidence suggests land is severely misallocated to inefficient manufacturing firms, access to financing is disproportionately tied to access to land. This column examines the link between the misallocation of land and access to capital through financial markets. A very strong positive correlation emerges between the two, consistent with the fact that land and buildings can provide strong collateral support for accessing finance from the credit market.
Konstantins Benkovskis, Julia Woerz, 14 January 2016
Global value chains have increased the complexity of good economic analysis no end. This column assess the extent to which global value chains change how we think about the world, and argues that the evolution of global market shares is no longer an adequate indicator of a country’s competitiveness in most cases. ‘Made in China’ has changed almost everything.
Matthieu Crozet, Emmanuel Milet, 14 December 2015
Industrial classifications tend to depict the economy as a collection of separate sectors, and arbitrary lines are consequently drawn between these sectors. This column argues that this way of thinking ignores the complexity of production processes and management strategies, creating a divide between ‘manufacturing’ and ‘services’ which is stronger than it should be. In fact, manufacturing firms often produce and sell services to third parties – known as ‘servitisation’. Economic policies that fail to take into account the dual aspect of the activities of manufacturing firms may prove inadequate.
Lorenzo Caliendo, Ferdinando Monte, Esteban Rossi-Hansberg, 31 August 2012
Firms that reorganise production to grow account for almost 40% of the value added created in the manufacturing sector. They add layers of management, increase by 7% the average hours worked in the firm, and reduce the average wage at pre-existing layers of managers or workers by 11%. This column presents new stylised facts about the way firms organise production and explains how recent advances in economic theory can help to understand these findings.