Productivity and Innovation

Florin Maican, Matilda Orth, Mark Roberts, Van Anh Vuong, 26 January 2021

Firms’ incentives to undertake innovation investments can be affected by their activities in domestic and international markets. This column uses a structural framework to estimate the returns to innovation investments and analyse the impact of trade on those returns. It shows that a firm’s R&D investments raise its future productivity in both domestic and export markets, with a larger impact in the export market. Furthermore, it shows that public efforts to stimulate innovation investments can be offset by trade restrictions limiting access to world markets. These findings are important for policymakers to recognise when fostering innovation. 

Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka, Gregory Thwaites, 18 January 2021

The Covid-19 shock has had asymmetric effects across sectors of the economy, with those sectors that involve the most social contact in consumption bearing the brunt. This column uses data from the Decision Maker Panel business survey data to assess how the spread of Covid-19 and measures to contain it are likely to affect productivity. It estimates total factor productivity in the UK private sector is likely to be lower than it would have been, by up to 5% in 2020 Q4, falling back to a 1% reduction in the medium term. Firms anticipate a large reduction in ‘within-firm’ productivity, primarily because measures to contain Covid-19 are expected to increase intermediate costs. Since the pandemic disproportionally affected firms in low-productivity sectors, and the least productive firms within these sectors, these become a smaller part of the economy and therefore a positive ‘between-firm’ reallocation effect partially offsets the negative ‘within-firm’ effect.

Liuchun Deng, Verena Plümpe, Jens Stegmaier, 16 January 2021

Robots will shape the future of labour. This column uses a large-scale, plant-level survey to provide the first microscopic portrait of robotisation in Germany, the country with the highest robot density in Europe. The findings reveal substantial within-industry heterogeneity – robot use remains relatively rare and its distribution highly skewed. Factors that influence a plant’s decision to adopt robots include size, skill composition, labour costs, and exporter status. New adopters have contributed substantially to the recent growth in Germany’s robotisation.

Debora Revoltella, Pedro J. F. de Lima, 21 December 2020

The Covid-19 pandemic poses severe risks for Europe’s economy, but it also presents opportunities. The sharp short-term shock will be followed by large structural changes to the global economy in the long term. This column sheds light on the challenges ahead using data from the European Investment Bank Investment Survey. Large sectors of Europe’s economy, particularly SMEs, need to innovate and adopt digital technologies to avoid falling behind. Policy support needs to evolve from liquidity provision to a more targeted push for structural transformation. 

Jie Bai, Maggie Chen, Jin Liu, Daniel Yi Xu, 15 December 2020

Global e-commerce platforms present new export opportunities for small and medium-sized enterprises in developing countries by significantly lowering the entry barriers of exporting. This column shows, however, that the lack of market selection can lead to severe congestion in consumers' search process and, when firms' intrinsic quality is not perfectly observed, hinder market allocation towards better firms. Policies aimed at alleviating information frictions and reducing the number of firms can help to improve allocative efficiency and raise consumer welfare.

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