Wiener Institut für Internationale Wirtschaftsvergleiche The Vienna Institute for International Economic Studies Johannes Pöschl, Neil Foster, Robert Stehrer WIOD Final Conference 24-26 April 2012 Manufacturing Productivity: Effects of Institutions and Service Sector Innovations
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute for International Economic Studies
Johannes Pöschl, Neil Foster, Robert Stehrer WIOD Final Conference 24-26 April 2012
Manufacturing Productivity: Effects of Institutions and Service Sector Innovations
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Paper Overview
Starting point - Industries can profit from research output of other industries by
using their new products as intermediates => this can lead to productivity increase if prices are not fully adjusted for quality improvements
Goals - Estimation of productivity effects of spillovers from manufacturing
and service industries - Investigation of the influence of institutions on the size of the
spillover effect
Presentator
Presentatienotities
service industries have mostly been ignored in the spillover literature Dixit-Stiglitz framework
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Motivation
Size of spillovers important for the worldwide distribution of productivity and GDP - Small spillovers ► Divergence - Large spillovers ► Convergence
Real GDP growth 2010
Presentator
Presentatienotities
A vast empirical literature has evolved in the last two decades analysing the extent of spillovers across firms, industries and countries rent spillovers: occur if prices are not fully adjusted for quality improvements (imperfect monopolistic pricing)
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Rent Spillovers - Theory
The capital good is produced according to the function
where χ(m) denotes a capital good of variety m
R&D affects production function χ and leads to an increase in the quality or a decrease of price of a product
The number of employed varieties M can differ across countries and industries
Presentator
Presentatienotities
= chi
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Rent Spillovers - Literature
Estimation of spillovers based on R&D expenditures of partner countries / industries and linkages from trade and input-output data - Terleckyj, N. E. (1974). “Effects of R&D on the productivity growth
of industries” - Coe, D. T., Helpman, E. (1995). “International R&D Spillovers” - Keller, W. (2002). “Trade and the transmission of technology”
Problems of studies at the industry level - I/O tables often not available for all countries - Time dimension missing (vertical integration)
Extension of framework
Presentator
Presentatienotities
foreign R&D has positive effects on domestic productivity … size of the spillover effect depends on the trade openness of the country disadvantages of the hitherto existing approach regarding foreign intermediates: First of all, import input-output tables are usually not available – at least not for all countries. Therefore domestic tables or tables of other “similar” countries are used for the weighting of imports. Since outsourced activities have certain characteristics and input requirements different from those domestically, assuming that the input/output structure of domestic activities is similar to those of foreign suppliers is quite bold. Furthermore input-output tables are usually only available for a few or even one year, disregarding recent changes in the vertical specialization of firms. More specifically, Keller (2002) in his seminal work assumes in the construction of the spillover variable of foreign intermediates of the same industry that all foreign intermediates produced in industry i are used as intermediates in industry i, whereas they might of course be used in other industries as well.
Do not include due to possible distortion effects: “Financial Intermediation”, “Real Estate Activities” and "Wholesale and retail trade, repairs“ Other business act. include business, legal and management consultancy, technical testing activities, market research, advertising and engineering as well as architectural activities. Moreover it contains the NACE industry “Research and experimental development on natural sciences and engineering”
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Influence of Institutions
Human capital and absorptive capacity - Engelbrecht, H.-J. (1997). “International R&D spillovers human
capital and productivity in OECD economies”
Patent protection - Czarnitzki, D., Toole, A. (2008). “Patent Protection, Market
Uncertainty and R&D Investment”
Ease of doing business, quality of tertiary education - Coe, D. T., Helpman, E., Hoffmaister A. W. (2009). “International
R&D Spillovers and Institutions”
Presentator
Presentatienotities
extensively discussed in the literature: quality of educational institution influencing the absorptive capacity Explain why patent protection important Secure temporary monopoly rights => stimulate R&D activities after all important for long term reasearch like in pharmaceutical sector
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Institutional quality
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
CZE HUN ITA SVN PRT ESP JPN BEL FRA USA IRL DEU GBR NLD AUS SWE DNK FIN
law 1996 law 1996-2005
Quality of contract enforcement, property rights and courts
Presentator
Presentatienotities
Scandinavian countries on top Italy (Berlusconi effect) The governance indicators presented here reflect the statistical compilation of responses on the quality of governance given by a large number of enterprise, citizen and expert survey respondents in industrial and developing countries, as reported by a number of survey institutes, think tanks, non-governmental organizations, and international organizations
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Data Sources
WIOD: Input/Output linkages for 40 countries and 35 ind.
EU Klems: Productivity Data (TFP gross output)
STAN Anberd: R&D stocks calculated from R&D expenditures using perpetual inventory method (comparability: PPP USD / deflated)
Worldwide Governance Indicators: Institutional data on quality of contract enforcement, property rights
Barro and Lee dataset: Secondary school completion ratios
Final sample contains 18 countries from 1995/1996 to 2005 AUS, BEL, CZE, DEU, DNK, ESP, FIN, FRA, GBR, HUN, IRL, ITA, JPN, NLD, PRT, SVN, SWE, USA
Presentator
Presentatienotities
The World Input-Output Database (WIOD) allows us to go beyond the traditional approach of using trade in intermediates for the estimation of international spillovers to the application of input-output linkages
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Empirical specification
R&D spillovers from Same country Other countries
Same industry RDs RDfs
Other industries RDo
Service industries RDserv
LAWct … Law enforcement: contracts, property rights, patents
EDUct … Secondary school completion ratio
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Presentatienotities
Country x Industry dummies control for innitial productivity differences of each industry in each country or innitial inst. Differences Law foreign is constructed as a sum of R&D spillovers from each country interacted with institutional variables
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Variable Construction
RDict … R&D spillover Effect to industry i in country c at time t
Rict … R&D stock of industry i in country c
ωicjdt … industry i‘s (located in country c) share of intermediate inputs from ind. j in country d at time t
Presentator
Presentatienotities
Dixit-Stiglitz framework I/O weighted R&D is multiplied with the institutional variable of the partner country
The values represent W-t-bar statistics of the one-sided Im-Pesaran-Shin test (2003). The number of lags included in respective tests is chosen using the Akaike information criterion. . ***, ** and * denote tests being significant at a 1, 5 and 10% level, respectively.
Westerlund ECM panel cointegration tests
Panel unit root test
A rejection of H0 for the Ga and Gt test-statistics should be taken as evidence of cointegration of at least one cross-sectional unit. The Pa and Pt test statistics pool information over all the cross-sectional units and a rejection of H0 provides evidence for cointegration for the panel as a whole. ***, ** and * denote tests being significant at a 1, 5 and 10% level, respectively.
Dynamic OLS
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Presentatienotities
null hypothesis of the test states that all panels have a unit root
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Empirical results Services Services LAW LAW EDU All