1. Productivity and Globalization
Eric Bartelsman
Vrije Universiteit Amsterdam and Tinbergen Institute
EPC 2006, Helsinki
August 31, 2006
This work is partially funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

2. Overview
Introduction
Understanding Productivity
Recent Findings

3. Introduction Why are we here What is Globalization
What is Productivity

4. Why are we here? Trade and Industry Policy makers Research community
Your job, your future
Threats and opportunities
Policy makers
Politics of globalization
Innovation policy
Framework/Lisbon
Research community
Fun new results?

5. What is Globalization?
Increasing intensity of international ‘interactions’
Goods, services
Capital, labor
(Culture, Value Systems)
Relentless turmoil brought on by owners of capital in order to increase profits by circumventing rules of law and decency

6. source: Axel Dreher, 2006

7. Globalization of Goods and Service Flows
Location Decision
Economic Environment
Wages
Infrastruction (phys/legal)
Regulation
Transportation Costs
Bulk/value
Obsolescence
Time sensitivity
Domestic outsourcing
Global outsourcing
Market
Specialization
Intl’ Trade
Control
Captive Globalization
Control Decision
Shared services
Transaction costs
‘Coaseian’ span of control
Market structure
Reputational issues
Within Firm
FDI
Offshoring
Domestic
Global
Location
source: derived from MGI 2005

8. What is Productivity? Output per unit of input
E.g. GDP per hour worked
Real quality adjusted production per unit of aggregate input (KLEMS)
Increases in productivity are bound only by our own imagination
….subject to optimal accumulation of physical and human capital and hard resource constraints
Productivity improvements may ‘buy’ goods, leisure, environment etc…

9. Long run productivity growth
Commodity
Time to earn 1885 (hours)
Time to earn 2000 (hours)
Productivity multiple
1-speed Bicycle
260
7.2
36.1
Office chair 24
2.0
12.0
Hair brush 16
8.0
Silver Spoon 26
34.0
0.8
Source: Brad DeLong,

10. Growth Accounting – USA
Growth rate
Sectoral growth contribution
Sectoral contribution to acceleration vs
Sectoral Production
TFP
ICT
Non-farm Private Business
2.3
0.5
1.2
-0.6
Non High-Tech
2.0
1.7
0.4
1.4
-0.4
Manufacturing
0.6
0.0
0.3
-0.1
Construction
0.9
0.1
Distr and Trade
3.1
0.7
-0,1
FIRE
2.8
0.2
0.8
-0.2
Pers. Services
2.1
High-tech
3.2
Source: Corrado, Lengermann, Bartelsman, Beaulieu; 2006

11. Unanswered questions
Why has ICT-capital not contributed as much in EU?
Why do EU firms invest less in ICT
Does ICT contribution depend on characteristics of firms?
Why is US TFP growth now broad based.
Is TFP growth high in all firms?
Does it depend on firm characteristic?

12. Overview
Introduction
Understanding Productivity
Recent Findings

13. Firms matter Productivity in industry depends on composition
Could have e.g. long tail problem:
country1
long tail
Mean productivity could be bad estimate of frontier
country2
Global frontier

14. Firms in the UK and the global frontier

15. Aggregate productivity depends not only on
the distribution of firms within an industry…

16. …but also on size

17. Drivers of the productivity frontier
Innovation
R&D
Experimentation with business concepts and processes
Incentives for increased innovation
IPR (but see Boldrin and Levine)
Subsidy to cover wedge social and private return
Availability of ‘innovation inputs’
Rapid scale expansion of new goods/services/business concepts. (Because knowledge and other intangible assets are non-rival in production, return goes up)

18. Productivity growth below the frontier
Reallocation from low to high productivity firms
flexibility in product markets
low hiring/firing costs
low entry/exit barriers
Diffusion of existing technology
Market pressure
Human capital
National innovation system

19. Overview
Introduction
Understanding Productivity
Recent Findings

22. The indirect effect: market contestability

23. The indirect effect: market contestability

24. Productivity growth below the frontier
Convergence to which frontier? National or Global?
Bartelsman, Haskel and Martin, 2006
Both frontiers matter
Pull from Global frontier declines with distance to frontier
Pull from National frontier does not

25. Baseline results (1) (2) (3) DTFN only DTFG only DTFN & DTFG DTFN
0.320
0.211
(39.25)
(8.13)
DTFG
0.287
0.101
(39.66)
(4.68)
RD_sales
0.581
0.458
0.542
(1.53)
(1.20)
(1.43)
MNE Dummy
0.072
0.073
(15.87)
(15.76)
(16.02)
ΔAGit-1
-0.061
0.103
-0.004
(1.97)
(3.31)
(0.11)
Observations
27582
R-squared
0.18
Robust t statistics in parentheses

26. Varying Convergence Speeds
DTF top vs bot
DTFN
0.204
(7.92)
DTFG _top
0.181
(6.62)
DTFG _bot
0.115
(5.30)
RD_sales
0.549
(1.45)
MNE dummy
0.073
(16.00)
ΔAGit-
0.007
(0.22)

27. Conclusions
Drivers of productivity are different for firms at the ‘technology frontier’ and behind the frontier
At frontier: leveraging intangible assets matters: potential scale is important
Inside frontier:
adoption of technology
resource reallocation