Is the productivity premium of internationalized firms technology-driven?
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Is the productivity premium of internationalized firms technology-driven? Michele Battisti1 · Filippo Belloc2 · Massimo Del Gatto3 Received: 5 March 2020 / Accepted: 2 September 2020 © The Author(s) 2020
Abstract We ask whether the productivity advantage of internationalized firms documented by the international trade literature can be interpreted most accurately in terms of proximity to the “technological frontier”. We answer in the affirmative using a methodology (based on mixture models) of unbundling technology and total factor productivity (TFP) by estimating “technology-specific” production function parameters. Exploiting detailed data provided by the EFIGE database (a sample of firms distributed across Austria, France, Germany, Hungary, Italy, Spain, and the UK), we find technology gaps (with respect to the frontier) more than three times larger than the TFP gaps on average. We also find sizable technology advantages for firms undertaking foreign direct investment and/or exporting to other European Union countries or to China, for importers of materials, and for firms with competitors in China and the USA. Medium and large firms feature a higher technology premium, which is even higher for firms operating in country-sectors that are more exposed to import competition from China. Younger firms use better technologies but less effectively. Keywords Heterogenous firm · Productivity premium · Selection effect · Technology · TFP · Trade model JEL Classification F12 · F14 · D24 · 033
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Massimo Del Gatto [email protected] Michele Battisti [email protected] Filippo Belloc [email protected]
1
University of Palermo and RCEA, Palermo, Italy
2
University of Siena, Siena, Italy
3
“G.d’Annunzio” University, LUISS Guido Carli and CRENoS, Roma, Italy
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M. Battisti et al.
1 Introduction Productivity differentials across economic units are commonly interpreted in terms of “technological” heterogeneity, independently of being measured as labor productivity or total factor productivity (TFP). This practice is particularly pervasive in firm level studies, where making technological upgrading more accessible to the less “productive” firms seems to be the main prescription for helping them reduce their distance from the “frontier” and ultimately enhancing aggregate productivity growth. However, productivity is a broad notion encompassing several hard-to-measure factors, which comprise all that cannot be explained by capital accumulation, in its standard TFP formulation, and even capital accumulation itself if labor productivity is used. Hence, enucleating the relative importance of the technological dimension within the wide notion of productivity is becoming increasingly important, particularly from a policy perspective. For instance, the OECD (2015) documents labour productivity growth amounting to 3.5% at the global (manufacturing) frontier, against 0.5% for non-frontier firms, over the course of the 2000s (the gap is even more pronounced in the services sector). On the one hand, this report
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