Determinants of Productivity Differences in International Manufacturing
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18, 1985.
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JOURNAL OF INTERNATIONAL BUSINESS STUDIES, SPRING 1986
empirical investigations have been carried out. Yet, the studies usually have resulted in a fairly large residual factor that is left unexplained. The predictable effects of slowing of capital investment, unfavorable demographic changes, slowed application of new technology, and aging equipment are often found in these studies. However, only a portion of the productivity slowdown is typically explained by these factors. It appears that some major variable or variables that affect productivity are "missing." The research described in this paper attempts to explain the residual by introducing several new variables which may influence productivity. Most productivity studies are based upon a production function that relates output to several factor inputs. Capital and labor are usually included as factors of production and occasionally materialsand energy are added. Land is often used in agricultural studies but is usually not considered a major input for industry. However, an important input to the production process would seem to be excluded from these investigations. That input is management which determines how the other factors of production will be combined and how efficiently they will be utilized. This deficiency in productivity research apparently results more from the difficulty of measuring management input than from a belief that management is unimportant to productivity. Yet, there is substantial researchevidence that indicates management contributes to efficiency differences. That evidence will be presented later in this paper. Another characteristic of many production function-based productivity studies is the assumption that factor inputs are homogeneous. A worker or labor hour is assumed to have the same productivity for all observations. Capital is assumed to incorporate similar levels of technology and rates of output and firms only differ in the amount employed. These homogeneity assumptions seem unrealistic. In this study several variables will be added that will adjust for lack of homogeneity of factor inputs, including variables for worker skill and motivation levels and technology level of the plant. Other factors that may influence productivity are the specialization and experience of the plant and the ratio of staff personnel to line workers. Nelson [1981, p. 1044] has noted, "to the extent that firm structures and decision-making style are important variables influencing productivity, this fact in itself cautions against thinking of the determinants of labor productivity simply in terms of the quantity of complementary inputs and technology. A richer set of variablesis involved. These variables may, and likely do, influence productivity in the average firm as well as the extent of interfirm dispersion." To be able to incorporate these factors in a production fun
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