Industrial organisation

David Martínez Turégano, 30 March 2020

The large differences in labour productivity across EU countries go a long way towards explaining their divergent living standards. To help explain variations in labour productivity, this column focuses on firm size and finds an overall positive relation between firm size and labour productivity. Countries with a distribution skewed to smaller firms – particularly in Southern Europe – show significantly depressed productivity performance. Improving judicial and government efficiency could help stimulate productivity growth in these member states.

Michal Gradzewicz, 26 March 2020

Capital investment at firm level can have both short-run and long-run effects on labour productivity. This column uses evidence from Poland to explore the relationship further. It is clear that different types and sizes of firms, from various sectors, demonstrate a range of trends. What is notable is that the impact of ‘learning by doing’ runs deep and affects the initial decision process of the capital investment itself. 

Debora Revoltella, Désirée Rückert, Christoph Weiss, 18 March 2020

European firms lag behind the US in R&D investment and the adoption of digital technologies. Using firm-level data from 2019, this column finds that larger firms have higher rates of digital adoption than do their smaller peers, and that digital firms have better management practices and show more dynamism. European policymakers looking to close the innovation gap should address structural barriers to investment in digitalisation, remove disincentives to grow, and reduce market fragmentation, particularly in the service sector.

Natalie Bau, Adrien Matray, 16 March 2020

The misallocation of inputs, and in particular capital, may explain the large disparities in productivity across countries. This column exploits a policy in India in the early 2000s to quantify the effects of foreign capital liberalisation on misallocation and aggregate manufacturing productivity. As a result of the liberalisation policies, capital-constrained firms expanded their assets by 60%, spent more on labour (+24%), and increased their revenue by 18% relative to non-constrained firms. The effects of liberalisation were largest in areas with less developed local banking sectors.

Eiichi Tomiura, Banri Ito, Byeongwoo Kang, 14 March 2020

Cross-border data flows are becoming increasingly important in the modern economy. In response, many countries have introduced regulations to control data transfers. This column discusses the firm-level response to such regulations using a recent survey of Japanese firms. Firms react by changing the location of data storage and processing, as well as by tightening data protection. However, these responses vary significantly depending on where the regulations originate. 

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