Productivity drivers of infrastructure companies: network industries to maximize economies of scale in the digital era

Nakatani, Ryota (2022): Productivity drivers of infrastructure companies: network industries to maximize economies of scale in the digital era. Forthcoming in: Annals of Public and Cooperative Economics

Abstract

What drives the productivity dynamics of infrastructure companies? Using a panel of firms in fourteen countries, we study total factor productivity (TFP) enhancers of utility and network services companies. We find that the catching up of TFP with the technological frontier drives productivity growth at higher speeds in Asian countries than in European countries. We also find that financial leverage exerts a positive effect on TFP growth for larger infrastructure firms, and more financially developed countries utilize economies of scale through better use of financial resources. Large utility and transportation companies display a higher rate of TFP growth, indicating that a competition policy to encourage M&As would be prudent for the utility/transportation sectors to maximize economies of scale. In contrast, we find diseconomies of scale for energy companies in some countries. Moreover, young network firms improve TFP growth faster than their peers in countries with fewer product market regulations. Therefore, the policies should remove entry barriers while facilitating the exit of old and low-productivity firms from the network markets. Finally, policymakers should offer well-targeted fiscal incentives for intangible investments to boost TFP because the accumulation of intangible assets such as digital technology promotes more scale economies through network effects.

• Item Type: MPRA Paper
• Language: English
• Keywords: total factor productivity; utility and network services; infrastructure companies; energy industry; transportation industry; (dis)economies of scale; financial leverage; intangible assets
• Subjects: D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope; L - Industrial Organization > L8 - Industry Studies: Services > L87 - Postal and Delivery Services; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O34 - Intellectual Property and Intellectual Capital

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