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.
Gilles Duranton, Ejaz Ghani, Arti Grover Goswami, William Kerr, 27 May 2016
Manuel García Santana, Josep Pijoan-Mas, Enrique Moral-Benito, Roberto Ramos, 23 May 2016
Spain enjoyed substantial growth in the decade prior to the Global Crisis, despite declining aggregate productivity. Recent research blames the poor productivity on different forms of a ‘financial resource curse’. This column argues that resource misallocation was particularly severe due to corruption and crony capitalism. This suggests future growth will require serious political reforms.
Clément Bosquet, Henry Overman, 29 April 2016
The effect of an individual’s place of residence on their life chances has long been discussed in public policy debates. This column uses British Household Panel Survey data to assess whether birthplace plays a role in determining future earnings. On average, an individual born in London in the 1970s will earn around 7% more than an individual of the same age and gender born in Manchester; who in turn will earn 5.5% more than an individual born in Cardiff. Parental sorting and the influence of birthplace in decisions about current location both play a role in explaining this effect.
Andrew B. Bernard, Toshihiro Okubo, 23 April 2016
Recent research has found that certain firms increase their innovative activity during periods of falling demand. This column investigates this puzzle by analysing how Japanese firms adjust their product mix over the business cycle. During transitions from recession to expansion, firm-level product churning – that is, simultaneously adding and dropping products – increases by 25%. The findings lend support to the ‘trapped factor’ model, in which negative demand shocks see the redeployment of underemployed resources towards innovation processes.
Bronwyn H. Hall, Christian Helmers, Georg von Graevenitz, 23 April 2016
Patent filings have proliferated globally in recent years. While some may see this as a direct consequence of increased innovation, this column uses evidence from the UK to show that patent thickets – patents belonging to many companies protecting overlapping technology – reduce innovation. Patent thickets decrease entry (i.e. first time patenting in an area) by 20%, which is substantial bearing in mind that the average probability of entry into a technology area is only about 1.5%.
André Sapir, 12 February 2016
Misalignments of real exchange rates continue to be the most visible and painful symptom of asymmetric shocks within the Eurozone. An important factor behind such misalignment is the difference in national wage formation and bargaining systems, especially between core and periphery members. This column argues that all members need to have institutions that ensure wage developments are in line with productivity developments. This would eliminate an important source of asymmetric behaviour and reduce resistance to EZ-wide fiscal mechanisms capable of absorbing asymmetric shocks.
Diane Coyle, 08 February 2016
Digital technologies are having dramatic impacts on consumers, businesses, and markets. These developments have reignited the debate over the definition and measurement of common economic statistics such as GDP. This column examines the measurement challenges posed by digital innovation on the economic landscape. It shows how existing approaches are unable to capture certain elements of the consumer surplus created by digital innovation. It further demonstrates how they can misrepresent market-level shifts, leading to false assessments of production and growth.
Gerben Bakker, Nicholas Crafts, Pieter Woltjer, 05 February 2016
The Great Depression is considered one of the darkest times for the US economy, but some argue that the US economy experienced strong productivity growth over the period. This column reassesses this performance using improved measures of total factor productivity that allow for comparisons of productivity growth in the Depression era and in later decades. Contrary to Alvin Hansen’s gloomy prognosis of secular stagnation, the US economy was in a very strong position during the 1930s by today’s standards.
Lorenzo Caliendo, Giordano Mion, Luca David Opromolla, Esteban Rossi-Hansberg , 23 January 2016
Reorganisation doesn’t always create a more efficient and effective firm. This column assesses the extent to which a firm’s physical productivity varies as a result of reorganisation. The results suggest significant variation. For policymakers, studying and understanding the internal organisational responses of firms to firm-specific and economy-wide shocks is essential to understanding the level and distribution of productivity in an economy.
Rudiger Ahrend, Alexander C. Lembcke, Abel Schumann, 19 January 2016
A city’s metropolitan governance structure has a critical influence on the quality of life and economic outcomes of its inhabitants. This column quantifies the impact of governance on productivity using data from five OECD countries. Administrative fragmentation, which complicates policy coordination across a city, has a negative effect on individual productivity. This finding, combined with benefits from good governance such as improved transport and lower pollution levels, highlights the importance of well-designed metropolitan authorities.
Alessandra Bonfiglioli, Rosario Crinò, Gino Gancia, 13 January 2016
Inequality, both in firm revenues and wages, varies greatly across sectors, has increased over time and is positively correlated to export opportunities. To explain these observations, this column propose a new theory in which firms’ investment at the entry stage affects the variance of the possible realisations of their productivity. It suggests that export opportunities and competition, besides reallocating resources across existing firms, increase the value of technological heterogeneity. This hints to a new powerful channel through which globalisation is making firms and wages more unequal.
Keting Shen, Jing Wang, John Whalley, 05 January 2016
Many argue that China has had a higher total factor productivity growth rate than India and the US since the late 1970s. This column assesses changes in China’s technology gaps between both the US and India from 1979 to 2008 with a constant elasticity of substitution production framework. The calculations suggest that the technology gap between China and the US was significantly larger than that between India and the US for the period before 2008.
Koji Nomura, 18 December 2015
Though Asian economies have maintained stable growth since 2010, their overall economic performance has slowed down compared to the peak in the 2000s. This column discusses the recent productivity trends in the Asian region and argues that the reason for the slowdown has been the end of China’s economic boom. Asian countries must undertake initiatives for achieving sustainable improvement of TFP across the region.
Linda Yueh, 25 November 2015
The British government has placed productivity at the centre of its economic growth agenda. Yet, despite the economy recovering to pre-Crisis levels, productivity has slowed. This column argues that we mustn’t lose sight of investing in productivity as a sure-fire and long-term guard against slow growth, outlining a range of strategies to get to a healthy level of investment.
Jan Lorenz, Fabrizio Zilibotti, Michael König, 19 November 2015
Received wisdom would make you think that you need lots of small firms that are innovating in order to push productivity in an economy. This column provides data suggesting that large firms with high productivity growth can act as technological leaders and supply the economy with a continuous stream of innovations. Overly strong patent protection can significantly reduce growth and increase inequality.
Gerlinde Sinn, Hans-Werner Sinn, 01 November 2015
With a European transfer union on the cards, we can learn a lot from Germany’s reunification – a transfer union of sorts. This column takes us through various lessons, concluding that transfers would cement southern Europe’s lack of competitiveness and drive Europe into permanent stagnation.
Robert Z. Lawrence, 15 October 2015
The US debate over income inequality in the 1980s and 1990s focused on the growing disparity between the earnings of the skilled, the unskilled and the super-rich. After the global crash, the decline in labour’s share of national income has been added to these concerns. This column presents an alternative explanation for this decline, arguing that limited substitution possibilities between capital and labour combined with the acceleration in the pace of labour-augmenting technical change raises the effective labour-capital ratio. The policy implications of this alternative explanation are profoundly different from those currently circulating.
Gita Gopinath, Sebnem Kalemli-Ozcan, Loukas Karabarbounis, Carolina Villegas-Sanchez, 28 September 2015
Joining the Eurozone was once a near unquestionably good idea. Now, the costs of joining the monetary union are under close scrutiny. This column takes a slightly different tack, presenting an alternative perspective on how joining the euro has impacted productivity in southern Europe. It turns out that capital wasn’t allocated efficiently across firms after cheap borrowing at low interest rates, impacting total factor productivity.
Elias Papaioannou, 07 September 2015
The focus of European policymaking in the 1990s was on meeting a set of nominal criteria. This chapter argues that instead the focus should be on institutional reform and convergence. The main issues that need to be addressed are related to state capacity (tax collection), property rights protection, investor rights, red tape, and administrative-bureaucratic quality. If Europe is to proceed with an even closer union, it should set up institutional rather than nominal targets.
Brian McCaig, Nina Pavcnik, 04 August 2015
Finding employment in the formal sector in developing countries is difficult. Countries with an abundance of informal firms suffer from low aggregate productivity. This column suggests that as countries develop, more workers transition from the informal to the formal sector. A ten-year period of rapid growth in Vietnam displayed a decrease in the employment in the informal sector in favour of the formal one. Most of it was due to changing cohorts in the workforce. In addition, this transition leads to gains in aggregate productivity in the formalised sectors.