Industrial organisation

Xinshen Diao, Mia Ellis, Margaret McMillan, Dani Rodrik, 01 March 2021

Before Covid-19 struck, many economies in sub-Saharan Africa were expanding rapidly – faster than at any time since independence. Yet African growth accelerations were anomalous when viewed from the perspective of comparative development patterns; structural changes were accompanied by declining within-sector productivity growth in modern sectors. This column explores this anomaly in the context of African manufacturing using newly created firm-level panel data for Tanzania and Ethiopia. In both countries, there is a sharp dichotomy between larger firms that exhibit superior productivity performance but do not expand employment much, and small firms that absorb employment but do not experience any productivity growth. These patterns appear to be related to technological advances in global manufacturing which are making it more capital intensive.

Gee Hee Hong, Yukiko Saito, 25 February 2021

Firm exits have been at the centre of policy discussions since the start of the Covid-19 pandemic. This column explores Japanese firm exit patterns during severe crises as well as during normal times. Using a dataset that distinguishes firm exit types, the authors find that Japanese firms mainly exit voluntarily, while bankruptcy rates are extremely low. Further, Japanese firms respond to economic shocks mainly through adjustments to output instead of exits – as was seen during the Covid-19 crisis. The ‘cleansing effects’ of firm exits vary by exit type, but appear stable during the current crisis.

Christine Blandhol, Magne Mogstad, J Peter Nilsson, Ola L. Vestad, 13 February 2021

Worker representation on corporate boards has gained popularity as a way to promote the workers’ interests. This column explores whether worker wages are linked to worker representation on corporate boards, using ten years of data from Norway. Workers are paid more and face less earnings risk if they work in firms with worker representation on the board, but these benefits can be entirely explained by firm size and the share of unionised workers. While workers may benefit from being employed in firms with worker representation, they would not benefit from legislation mandating worker representation on corporate boards.

Philippe Aghion, Antonin Bergeaud, John Van Reenen, 01 February 2021

While there is suggestive evidence that regulations may have a stifling effect on innovation, there is as yet no rigorous economic framework to quantify the magnitude of such regulatory effects on innovation and the aggregate economy. This column proposes such a framework tests its implications on data from France. As the framework predicts, regulations do indeed hamper innovation, but the negative effects concern only incremental innovations and are absent for radical innovations.  Overall, regulations are estimated to reduce aggregate innovations by 5%. 

Xavier Vives, 20 January 2021

The dominance of Big Tech and other ‘superstar’ firms’ has put market power back on the agenda of politicians, as well as in research. But although oligopoly markets have been introduced in macroeconomic and trade models, this is mostly in the context of a very large ‘continuum’ of sectors such that a firm has market power in its sector but no influence on the wider economy.  This column argues that it is high time that oligopoly is integrated fully into the macroeconomics toolbox.

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