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Productivity and the international firm: dissecting heterogeneity

Author

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  • Davide Castellani

    (University of Perugia)

  • Giorgia Giovannetti

    (University of Florence, European University Institute and Fondazione Manlio MASI-ICE)

Abstract

Firms in competitive markets are more likely achieve higher productivity. Indeed a better performance of multinationals and exporters with respect to domestic firms has been documented in the literature. The sources of these premia have however largely remained a black box: standard theoretical models consider differences in productivity as the results of a random draw. Only recently models have acknowledged that in competitive environments, firms are more likely to adopt new technologies. This theoretical framework reconciles recent empirical work noting that productivity differences among firms can be explained by different managerial practices, I.T. and organizational capital. In this paper, using an original dataset on Italian firms, we show that the higher use of knowledge workers (such as R&D workers, as well as workers in managerial and clerical occupations) explains some of the TFP premium of exporters and multinational firms. Our results suggest that TFP differences are not only the results in different constant in the production function between international and noninternational firms, but they rather reflect differences in the slopes of the production function. In fact, allowing for different returns to inputs between domestic and international firms, we explain all of the productivity premium and beyond. This is the result of the fact that multinational firms are both more capital intensive and exhibit higher returns to capital. Furthermore, we find that managers and capital are complements in the productivity of multinational firms. This is consistent with the idea that multinational firms have superior organizational capabilities and managerial practices.

Suggested Citation

  • Davide Castellani & Giorgia Giovannetti, 2009. "Productivity and the international firm: dissecting heterogeneity," Development Working Papers 270, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:270
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    References listed on IDEAS

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    More about this item

    Keywords

    productivity; tfp; competition; management; mode of internationalization;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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