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Product quality, productive efficiency, and international technology diffusion : evidence from plant-level panel data

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  • Kraay, Aart
  • Soloaga, Isidro
  • Tybout, James

Abstract

What mechanisms most frequently transmit foreign technologies to developing country firms? Do these foreign technologies affect both productive efficiency and product quality in the recipient firms? Under what circumstances do firms pursue activities that give them access to foreign knowledge? To address these questions, the authors develop a new methodology and apply the framework to plant-level panel data from Colombia, Mexico, and Morocco. Their results point to several basic messages. First, by imposing enough structure on the production function and the demand system, it is possible to measure product quality and marginal costs at the plant level and to relate the evolution of these variables to firms'activity histories. Doing so, the authors find strong firm-level persistence in both quality and marginal costs. But in most industry or country panels that they study, past international activities help little in predicting current performance once past realizations on quality and marginal cost are controlled for. That is, activities do not typically Granger-cause performance. Interestingly, in the minority of cases where significant associations emerge, international activities appear to move costs and product quality in the same direction. So the net effect on profits in these cases is not immediately apparent. Second, several basic patterns emerge with respect to the determinants of international activities. Most fundamentally, activities are highly persistent, even after unobserved heterogeneity is controlled for. That suggests that firms incur sunk threshold costs when they initiate or cease activities, so temporary policy or macroeconomic shocks may have long-run effects on the patterns of activities observed in a particular country or industry. Also, activities tend to go together, so that studies that relate firms'performance to one international activity and ignore the others may generate misleading conclusions. But the bundling of activities seems to mainly reflect unobserved plant characteristics, such as managerial philosophy, contacts, product niche, and location. Once these are controlled for, there is little evidence that engaging in one international activity increases the probability that a firm will engage in others in the future.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2759.

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Date of creation: 31 Jan 2002
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Handle: RePEc:wbk:wbrwps:2759

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Keywords: Educational Sciences; Environmental Economics&Policies; Economic Theory&Research; Markets and Market Access; Decentralization; Environmental Economics&Policies; Economic Theory&Research; Educational Sciences; Markets and Market Access; Access to Markets;

References

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  1. James Tybout, 1998. "Manufacturing Firms In Developing Countries: How Well Do They Do, And Why?," Development and Comp Systems 9805004, EconWPA.
  2. Keller, Wolfgang, 1997. "How trade patterns and technology flows affect productivity growth," Policy Research Working Paper Series 1831, The World Bank.
  3. Eaton, Jonathan & Kortum, Samuel, 1996. "Trade in ideas Patenting and productivity in the OECD," Journal of International Economics, Elsevier, Elsevier, vol. 40(3-4), pages 251-278, May.
  4. Keane, Michael P, 1992. "A Note on Identification in the Multinomial Probit Model," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 10(2), pages 193-200, April.
  5. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  6. Coe, David T & Helpman, Elhanan, 1993. "International R&D Spillovers," CEPR Discussion Papers, C.E.P.R. Discussion Papers 840, C.E.P.R. Discussion Papers.
  7. Geweke, John F. & Keane, Michael P. & Runkle, David E., 1997. "Statistical inference in the multinomial multiperiod probit model," Journal of Econometrics, Elsevier, Elsevier, vol. 80(1), pages 125-165, September.
  8. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 72(3), pages 389-405, June.
  9. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, American Economic Association, vol. 80(3), pages 511-28, June.
  10. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, American Economic Association, vol. 87(4), pages 545-64, September.
  11. Goldberg, Pinelopi Koujianou & Knetter, Michael M., 1999. "Measuring the intensity of competition in export markets," Journal of International Economics, Elsevier, Elsevier, vol. 47(1), pages 27-60, February.
  12. Elhanan Helpman & David T. Coe, 1993. "International RandD Spillovers," IMF Working Papers 93/84, International Monetary Fund.
  13. Tybout, James R. & Westbrook, M. Daniel, 1995. "Trade liberalization and the dimensions of efficiency change in Mexican manufacturing industries," Journal of International Economics, Elsevier, Elsevier, vol. 39(1-2), pages 53-78, August.
  14. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Jean Habarurema & Abena Oduro & Remco Oostendorp & Catherine Pattillo & Måns Söderbom & Franc, 2000. "Exports and firm-level efficiency in African manufacturing," CSAE Working Paper Series 2000-16, Centre for the Study of African Economies, University of Oxford.
  15. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, Elsevier, vol. 42(1), pages 51-74, October.
  16. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  17. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 841-90, July.
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Citations

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Cited by:
  1. Sule Ozler & Kamil Yilmaz, 2009. "Productivity response to reduction in trade barriers: evidence from Turkish manufacturing plants," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 145(2), pages 339-360, July.
  2. Wolfgang Keller, 2001. "International Technology Diffusion," NBER Working Papers 8573, National Bureau of Economic Research, Inc.
  3. Damijan, Jože P. & Kostevc, Crt, 2007. "Knowledge Transfer, Innovation and Growth," Papers, Economic and Social Research Institute (ESRI) DYNREG06, Economic and Social Research Institute (ESRI).
  4. Tulus Tambunnan, 2007. "Trade and Investment Liberalization Effects on SME Development: A Literature Review and a Case Study of Indonesia," Working Papers, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada. 4207, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
  5. Marcel Fafchamps & Mans Soderbom, 2011. "Network Proximity and Business Practices in African Manufcaturing," CSAE Working Paper Series 2011-08, Centre for the Study of African Economies, University of Oxford.
  6. Fisher-Vanden, Karen & Ho, Mun S., 2010. "Technology, development, and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 94-108, January.
  7. Yasar, Mahmut & Morrison Paul, Catherine J., 2008. "Foreign Technology Transfer and Productivity: Evidence From a Matched Sample," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 26, pages 105-112, January.
  8. Wolfgang Keller & Stephen R. Yeaple, 2003. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," Working Papers 2003-06, Brown University, Department of Economics.
  9. Lumenga-Neso, Olivier & Olarreaga, Marcelo & Schiff, Maurice, 2001. "On"indirect"trade-related research and development spillovers," Policy Research Working Paper Series 2580, The World Bank.
  10. Keller, Wolfgang & Yeaple, Stephen R, 2003. "Multinational Enterprises, International Trade and Productivity Growth: Firm-Level Evidence from the US," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3805, C.E.P.R. Discussion Papers.
  11. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, Elsevier, vol. 71(1), pages 52-71, March.
  12. Alessandra Tucci, 2005. "Trade, Foreign Networks and Performance: a Firm-Level Analysis for India," Development Working Papers 199, Centro Studi Luca d\'Agliano, University of Milano.
  13. Haijime Katayama & Shihua Lu & James Tybout, 2003. "Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference," NBER Working Papers 9617, National Bureau of Economic Research, Inc.
  14. Gong, Guan & Keller, Wolfgang, 2003. "Convergence and polarization in global income levels: a review of recent results on the role of international technology diffusion," Research Policy, Elsevier, Elsevier, vol. 32(6), pages 1055-1079, June.

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