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Decomposing differences in total factor productivity across firm size

Author

Listed:
  • Laia Castany

    () (Grup de Recerca d'Anàlisi Quantitativa Regional (AQR), Institut de Recerca en Economia Aplicada (IREA), Universitat de Barcelona)

  • Enrique López-Bazo

    () (Grup de Recerca d'Anàlisi Quantitativa Regional (AQR), Institut de Recerca en Economia Aplicada (IREA), Departament d'Econometria, Estadística i Economia Espanyola, Universitat de Barcelona)

  • Rosina Moreno

    () (Grup de Recerca d'Anàlisi Quantitativa Regional (AQR), Institut de Recerca en Economia Aplicada (IREA), Departament d'Econometria, Estadística i Economia Espanyola, Universitat de Barcelona)

Abstract

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.

Suggested Citation

  • Laia Castany & Enrique López-Bazo & Rosina Moreno, 2007. "Decomposing differences in total factor productivity across firm size," Working Papers XREAP2007-01, Xarxa de Referència en Economia Aplicada (XREAP), revised Mar 2007.
  • Handle: RePEc:xrp:wpaper:xreap2007-01
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Total Factor Productivity; skilled labor; innovation; firm size; Oaxaca decomposition;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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