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What drives firm productivity growth ?

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  • Anos-Casero, Paloma
  • Udomsaph, Charles
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    Abstract

    This paper presents new evidence on the causal links between changes in the business environment and firm productivity growth. It contributes to the literature in three important aspects. First, it constructs a unique database merging information from two large firm-level databases. The samples of both databases are merged on four criteria-country, sub-national location, firm size, and year-producing a panel of 22,004 firms in eight economies of Eastern Europe and the former Soviet Union: Bulgaria, Croatia, Czech Republic, Estonia,, Poland, Romania, Serbia, and Ukraine. Second, the paper addresses shortcomings of earlier studies, namely reverse causation, multicollinearity, and unreliable productivity estimates. Firm productivity growth is estimated drawing on corporate financial data from manufacturing firms included in the AMADEUS database. Changes in the business environment are estimated from the World Bank Enterprise Surveys conducted in 2002 and 2005. Multicollinearity problems in the full model regression are mitigated by constructing a set of six aggregate indicators of the business environment (using principal component analysis). The paper finds that, over the period 2001 to 2004, an increase of one standard deviation in infrastructure quality, financial development, governance, labor market flexibility, labor quality, and market competition raises the total factor productivity of the average firm by 9.8, 7.8, 3.2, 3.4, 5.8, and 3 percent, respectively. Lastly, the paper decomposes firm productivity growth and ranks the relative impact of changes in these six aspects of the business environment by country, by firm size, and by industry.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4841.

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    Date of creation: 01 Feb 2009
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    Handle: RePEc:wbk:wbrwps:4841

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    Related research

    Keywords: E-Business; Banks&Banking Reform; Labor Policies; Governance Indicators; Economic Theory&Research;

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    References

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    1. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
    2. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2005. "Investment Climate and Firm Performance in Developing Economies," Economic Development and Cultural Change, University of Chicago Press, vol. 54(1), pages 1-31, October.
    3. Fernandes, Ana M., 2003. "Trade policy, trade volumes, and plant-level productivity in Colombian manufacturing industries," Policy Research Working Paper Series 3064, The World Bank.
    4. Philippe Van Kerm, 2003. "Adaptive kernel density estimation," Stata Journal, StataCorp LP, StataCorp LP, vol. 3(2), pages 148-156, June.
    5. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
    6. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
    7. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: a Skeptic's Guide to the Cross-National Evidence," Working Papers, Economic Research Forum 9912, Economic Research Forum, revised Apr 1999.
    8. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, Elsevier, vol. 40(6), pages 1203-1228, June.
    9. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
    10. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
    11. Escribano, Alvaro & Guasch, J. Luis, 2005. "Assessing the impact of the investment climate on productivity using firm-level data : methodology and the cases of Guatemala, Honduras, and Nicaragua," Policy Research Working Paper Series 3621, The World Bank.
    12. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
    13. Gonzalez, Alvaro & Ernesto Lopez-Cordova, J. & E. Valladares, Elio, 2007. "The incidence of graft on developing-country firms," Policy Research Working Paper Series 4394, The World Bank.
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    Cited by:
    1. Lau, Chi Keung Marco & Demir, Ender & Bilgin, Mehmet Huseyin, 2013. "Experience-based corporate corruption and stock market volatility: Evidence from emerging markets," Emerging Markets Review, Elsevier, Elsevier, vol. 17(C), pages 1-13.

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