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Competition and Performance: The Different Roles of Capital and Labor

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  • Pierre Mohnen

    ()

  • Thijs Ten Raa

Abstract

Neoclassical economists argue that competition promotes efficiency. They consider technology as given though. In the long run technological progress is an important determinant of the level of welfare and Schumpeter argued that monopoly rents help entrepreneurs to capture the gains of R&D and hence to invest in it. We investigate the overall effect of competition on performance. Performance is measured by TFP-growth. As a negative measure of competition we use rent. Rent is defined as the excess factor rewards over and above their perfectly competitive values (marginal productivities). Input-output analysis enables us to calculate rent for the Canadian sectors over a thirty-year period and to decompose it in its capital and labor components. In line with the literature we find that rent has no significant influence on productivity. We find an interesting result however: the components influence performance in opposite directions. Capital rent has a positive role and labor rent a negative one. The neoclassical economists and Schumpeter seem both right, but the mechanisms differ. The use of rent as a source of funding for R&D applies to capital and the argument that rent yields slack pertains to labor. Les économistes néoclassiques soutiennent que la concurrence est bonne pour l'efficacité. Mais pour eux la technologie est donnée. Et pourtant, dans le long terme, le progrès technologique est un déterminant majeur du niveau de bien-être. Schumpeter quant à lui soutient le point de vue opposé que les rentes de monopole incitent les entrepreneurs à investir en recherche et développement. Nous allons examiner l'effet global de la concurrence sur la croissance de la productivité. La concurrence est mesurée par l'inverse des rentes. Celles-ci sont définies comme les rémunérations factorielles qui dépassent leurs valeurs marginales en concurrence parfaite. Une analyse entrée-sortie nous permet de calculer les rentes pour les secteurs de l'économie canadienne sur une période de 30 ans et de les décomposer en rentes incombant au travail et au capital. Comme d'autres travaux antérieurs, nous ne trouvons pas d'effet significatif des rentes sur les productivités. Mais nous obtenons le résultat intéressant que les rentes factorielles n'affectent pas la croissance de la productivité dans le même sens. Les rentes sur le capital jouent favorablement sur la productivité tandis que celles sur le travail pas. À la fois les économistes néoclassiques tout comme les adeptes de Schumpeter ont raison, mais ils font appel à des mécanismes différents. Les rentes qui aident à financer la R-D sont celles sur le capital et celles qui portent au laisser-aller sont celles sur le travail.

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Bibliographic Info

Paper provided by CIRANO in its series CIRANO Working Papers with number 2003s-66.

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Date of creation: 01 Nov 2003
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Handle: RePEc:cir:cirwor:2003s-66

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Keywords: competition; rent; TFP; Schumpeter hypothesis; concurrence; rente; productivité totale des facteurs; hypothèse de Schumpeter;

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  1. Raa, T. ten, 2005. "Aggregation of productivity indices: The allocative efficiency correction," Open Access publications from Tilburg University urn:nbn:nl:ui:12-171684, Tilburg University.
  2. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies.
  3. Edward Wolff, 2006. "The growth of information workers in the US economy, 1950-2000: the role of technological change, computerization, and structural change," Economic Systems Research, Taylor & Francis Journals, vol. 18(3), pages 221-255.
  4. Thijs Raa, 2005. "Aggregation of Productivity Indices: The Allocative Efficiency Correction," Journal of Productivity Analysis, Springer, vol. 24(2), pages 203-209, October.
  5. Raa, T. ten & Mohnen, P., 2002. "Neoclassical growth accounting and frontier analysis: A synthesis," Open Access publications from Tilburg University urn:nbn:nl:ui:12-90106, Tilburg University.
  6. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
  7. Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
  8. Boone, Jan, 2001. "Intensity of competition and the incentive to innovate," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 705-726, April.
  9. Harris, Christopher & Howitt, Peter & Vickers, John & Aghion, Philippe, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Scholarly Articles 12375013, Harvard University Department of Economics.
  10. Mohnen, P. & Raa, T. ten, 2000. "A general equilibrium analysis of the evolution of Canadian service productivity," Open Access publications from Tilburg University urn:nbn:nl:ui:12-86157, Tilburg University.
  11. Surendra Gera & Wulong Gu & Zhengxi Lin, 2001. "Technology and the demand for skills in Canada: an industry-level analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 34(1), pages 132-148, February.
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Cited by:
  1. Fischer, Justina A.V., 2012. "Globalization and Political Trust," MPRA Paper 36692, University Library of Munich, Germany.
  2. Antonio Amores & Thijs ten Raa, 2014. "Firm efficiency, industry performance and the economy: three-way decomposition with an application to Andalusia," Journal of Productivity Analysis, Springer, vol. 42(1), pages 25-34, August.
  3. Wang, Vey & Lai, Chung-Hui, 2011. "Franchise fee, competition and economic growth," Economic Modelling, Elsevier, vol. 28(5), pages 2090-2099, September.
  4. Thomas Strobel, 2012. "New evidence on the sources of EU countries’ productivity growth—industry growth differences from R&D and competition," Empirica, Springer, vol. 39(3), pages 293-325, August.
  5. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy: Extended Version," MPRA Paper 37816, University Library of Munich, Germany.
  6. Fischer, Justina A.V., 2012. "The choice of domestic policies in a globalized economy," MPRA Paper 36990, University Library of Munich, Germany.

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