Lecture 6
October 18, 2022 11:03 AM
Title: ‘FDI & trade’ and firm organization
• To know what drives differences across firms, we need to study what is different in
their operation:
YI it important to • This week focuses on:
zoom into the firm's ○ Paper 1: Firm's management quality
operations?
▪ Builds on Helpman et al. (2004).
○ Paper 2: Manager's expertise/quality
▪ Builds on Bloom et al. (2012), the 1st paper.
Introduction to 1st paper: Bloom et al. (2012) - Americans do IT better
• This paper aims to explain the puzzle of the productivity miracle:
W empirical puzzle • Europe was converging to US productivity until recently, but they are now
motivates Bloom et diverging again.
al. (2012)? • In the US the “miracle” appears linked in to the “IT using” sectors.
• Even though IT technology is also available, productivity growth in the same
sectors in Europe is laggard.
WI special about the
data used for this • This paper uses a great firm-level data set (incl. IT and management practices for 3
paper? classes of firms).
WI the paper's • It has a great identification strategy:
identification • The US achieved the productivity miracle rather than EU because of one of two
strategy? arguments:
W could be the 2 1. Standard: US advantage lies in geographic, business or demographic
reasons as to Y US environment (e.g. more space, younger workers).
firms have higher 2. Alternative: US advantage lies in their firm organizational or management
productivity?
practices.
• This paper uses two micro data sets (one from the UK and one from Europe)
WD this paper studies
firms outside the US? that support Argument 2:
○ The idea is to look within UK and Europe (holds environment constant)
and compare US and non-US multinationals (= the identification strategy
used)
○ Conceptually one wants to see if there are differences between US and
European production functions.
▪ The model is based on a production function that models output (Q)
WI the production as a function of TFP (A), Non-IT Capital (K), Labor (L), Materials (M)
function specified? and IT-Capital (C)
□
W parameter do they ▪ The focus is whether there are any differences between the US and
want to show
differences to Europe in the output elasticity coefficients , , and .
support their • Methodology (simplified): Estimate a production function for establishment at
hypothesis? time .
WI the methodology
used?
○
▪ Where:
□ : gross output
□ : Non-IT capital
□ : materials
□ : TFP
FDI Page 67
, □ : TFP
□ : Labor
YD they allow for
factor □ : IT capital
coefficients and TFP ○ On this model, they also allow TFP and factor coefficients to vary by
to vary by ownership? ownership (US, non- US multinational and domestic firms).
• Main results:
• Using the first dataset (UK, without data on management quality…):
WD they find about ○ Results:
US/MNE returns on IT ▪ (US) MNEs are more productive, via more IT capital investment
capital? HI this
mediated by driven by better (US) management practices
management practices? ○ Possible interpretation:
▪ US firms are managed in a way that make them more IT intensive,
WR the possible
explanations to this? both in the US and as multinationals abroad.
▪ When IT prices fell rapidly in mid-1990s onwards they benefited
more than European firms
D US MNE have higher • Using the second dataset (EU, with data on management quality…):
returns on IT capital ○ US firms & multinationals are indeed differently managed
due to their ▪ This explains much of the higher US productivity of IT
management practices?
▪ Empirically they show that and
Introduction to 2nd paper: Mion & Opromolla (2014) - Managers' mobility, trade
performance, and wages
• This paper aims to answer 2 main questions:
WR the 2 main 1. Are managers with (specific) export experience key to export performance
questions in Mion & ○ Answer: YES!
Opromolla (2014)? 2. Do they earn higher wages?
○ Answer: YES!
WI the difference of
this paper with that • This paper focuses on managers, unlike the 1st paper that focuses on management
of Bloom et al.? practices.
WI the methodology of • Methodology:
this paper? • Data: panel data set for Portuguese firms and workers
• Method: 2 steps:
WI the goal of the ○ 1st step: estimation of wage equation
1st step? WI the ▪ Aim: find whether (matched) export experience influences the
method? wages of managers and other workers.
▪ Wages:
□ Managers: without X experience < with X experience < with
WD they find about matched X experience
the wages of managers
(3 categories)? □ Workers: does not depend on their experience
And the wages of
other workers?
▪
○ 2nd step: is managerial export experience good for firm export
WI the goal of the
performance?
second step? WI the ▪ Aim: to assess whether differences in the export experience of
method? managers lead to differences in firm export performance.
FDI Page 68
October 18, 2022 11:03 AM
Title: ‘FDI & trade’ and firm organization
• To know what drives differences across firms, we need to study what is different in
their operation:
YI it important to • This week focuses on:
zoom into the firm's ○ Paper 1: Firm's management quality
operations?
▪ Builds on Helpman et al. (2004).
○ Paper 2: Manager's expertise/quality
▪ Builds on Bloom et al. (2012), the 1st paper.
Introduction to 1st paper: Bloom et al. (2012) - Americans do IT better
• This paper aims to explain the puzzle of the productivity miracle:
W empirical puzzle • Europe was converging to US productivity until recently, but they are now
motivates Bloom et diverging again.
al. (2012)? • In the US the “miracle” appears linked in to the “IT using” sectors.
• Even though IT technology is also available, productivity growth in the same
sectors in Europe is laggard.
WI special about the
data used for this • This paper uses a great firm-level data set (incl. IT and management practices for 3
paper? classes of firms).
WI the paper's • It has a great identification strategy:
identification • The US achieved the productivity miracle rather than EU because of one of two
strategy? arguments:
W could be the 2 1. Standard: US advantage lies in geographic, business or demographic
reasons as to Y US environment (e.g. more space, younger workers).
firms have higher 2. Alternative: US advantage lies in their firm organizational or management
productivity?
practices.
• This paper uses two micro data sets (one from the UK and one from Europe)
WD this paper studies
firms outside the US? that support Argument 2:
○ The idea is to look within UK and Europe (holds environment constant)
and compare US and non-US multinationals (= the identification strategy
used)
○ Conceptually one wants to see if there are differences between US and
European production functions.
▪ The model is based on a production function that models output (Q)
WI the production as a function of TFP (A), Non-IT Capital (K), Labor (L), Materials (M)
function specified? and IT-Capital (C)
□
W parameter do they ▪ The focus is whether there are any differences between the US and
want to show
differences to Europe in the output elasticity coefficients , , and .
support their • Methodology (simplified): Estimate a production function for establishment at
hypothesis? time .
WI the methodology
used?
○
▪ Where:
□ : gross output
□ : Non-IT capital
□ : materials
□ : TFP
FDI Page 67
, □ : TFP
□ : Labor
YD they allow for
factor □ : IT capital
coefficients and TFP ○ On this model, they also allow TFP and factor coefficients to vary by
to vary by ownership? ownership (US, non- US multinational and domestic firms).
• Main results:
• Using the first dataset (UK, without data on management quality…):
WD they find about ○ Results:
US/MNE returns on IT ▪ (US) MNEs are more productive, via more IT capital investment
capital? HI this
mediated by driven by better (US) management practices
management practices? ○ Possible interpretation:
▪ US firms are managed in a way that make them more IT intensive,
WR the possible
explanations to this? both in the US and as multinationals abroad.
▪ When IT prices fell rapidly in mid-1990s onwards they benefited
more than European firms
D US MNE have higher • Using the second dataset (EU, with data on management quality…):
returns on IT capital ○ US firms & multinationals are indeed differently managed
due to their ▪ This explains much of the higher US productivity of IT
management practices?
▪ Empirically they show that and
Introduction to 2nd paper: Mion & Opromolla (2014) - Managers' mobility, trade
performance, and wages
• This paper aims to answer 2 main questions:
WR the 2 main 1. Are managers with (specific) export experience key to export performance
questions in Mion & ○ Answer: YES!
Opromolla (2014)? 2. Do they earn higher wages?
○ Answer: YES!
WI the difference of
this paper with that • This paper focuses on managers, unlike the 1st paper that focuses on management
of Bloom et al.? practices.
WI the methodology of • Methodology:
this paper? • Data: panel data set for Portuguese firms and workers
• Method: 2 steps:
WI the goal of the ○ 1st step: estimation of wage equation
1st step? WI the ▪ Aim: find whether (matched) export experience influences the
method? wages of managers and other workers.
▪ Wages:
□ Managers: without X experience < with X experience < with
WD they find about matched X experience
the wages of managers
(3 categories)? □ Workers: does not depend on their experience
And the wages of
other workers?
▪
○ 2nd step: is managerial export experience good for firm export
WI the goal of the
performance?
second step? WI the ▪ Aim: to assess whether differences in the export experience of
method? managers lead to differences in firm export performance.
FDI Page 68
