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Decomposing differences in total factor productivity across firm size

  • Laia Castany

    ()

    (Faculty of Economics, University of Barcelona)

  • Enrique Lopez-Bazo

    ()

    (Faculty of Economics, University of Barcelona)

  • Rosina Moreno

    ()

    (Faculty of Economics, University of Barcelona)

This paper investigates the extent to which the gap in total factor productivity between small and large firms is due to differences in the endowment of factors determining productivity and to the returns associated with these factors. We place particular emphasis on the contribution of differences in the propensity to innovate and in the use of skilled labor across firms of different size. Empirical evidence from a representative sample of Spanish manufacturing firms corroborates that both differences in endowments and returns to innovation and skilled labor significantly contribute to the productivity gap between small and large firms. In addition, it is observed that the contribution of innovation to this gap is caused only by differences in quantity, while differences in returns have no effect; in the case of human capital, however, most of the effect can be attributed to increasing differences in returns between small and large firms.

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File URL: http://www.ub.edu/irea/working_papers/2007/200705.pdf
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Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 200705.

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Length: 25 pages
Date of creation: Mar 2007
Date of revision: Mar 2007
Handle: RePEc:ira:wpaper:200705
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