Kox, Henk L.M. and Leeuwen, George van (2012): Dynamic market selection in EU business services.
Download (867kB) | Preview
European business services has witnessed about two decades of virtual productivity stagnation. The paper investigates whether this is caused by weak dynamic market selection. The time pattern of scale-related inefficiencies is used as an indicator for the effectiveness of market selection. We use a DEA method to construct the productivity frontier by sub-sector and size class, for business services in 13 EU countries. From this we derive scale economies and their development over time. Between 1999 and 2005 we observe a persistence of scale inefficiencies and X-inefficiencies , with scale efficiency falling rather than growing over time. This indicates malfunctioning competitive selection. The time pattern of inefficiencies is significantly explained by regulatory policies that hamper entry and exit dynamics and labour adjustment, and by a lack of import penetration. The results suggest that policy reform and more market openness will have positive productivity effects. This holds for business services itself, but also wider, because of business services’ products are widely used as intermediary inputs in other parts of the European economy.
|Item Type:||MPRA Paper|
|Original Title:||Dynamic market selection in EU business services|
|English Title:||Dynamic market selection in EU business services|
|Keywords:||competition; scale economies; market contestability; regulation; EU; productivity|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms
L - Industrial Organization > L8 - Industry Studies: Services
D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity
|Depositing User:||Henk L.M. Kox|
|Date Deposited:||03. Sep 2012 15:12|
|Last Modified:||16. Feb 2013 01:08|
Aghion, P. and G. Saint-Paul, 1993, Uncovering some causal relationships between productivity growth and the structure of economic fluctuations: a tentative survey, NBER WP #4603, NBER, Cambridge, MA.
Antipa, P. and M.E. de la Serve, 2010, International comparisons of industry-based productivity levels in the financial and business service sectors, International Productivity Monitor, 19 (Spring), 66-81.
Ark, B. van, M. O'Mahony and M. Timmer, 2008, The productivity gap between Europe and the United States: trends and causes, GGDC Research Memorandum GD-89, Groningen Growth and Development Center, Groningen.
Arnold, J., G. Nicoletti and S. Scarpetta, 2008, Regulation, Allocative Efficiency and Productivity in OECD Countries: Industry and Firm-Level Evidence, OECD Economics Dept. WP No.616, OECD, Economics Dept., Paris.
Arnold, J., G. Nicoletti and S. Scarpetta, 2011, Does anti-competitive regulation matter for productivity? Evidence from European firms, IZA DP No. 5511, IZA, Bonn.
Asplund, M. and V. Nocke, 2006, Firm turnover in imperfectly competitive markets, Review of Economic Studies, 73 (2), 295-327.
Axtell, R., 2006, Firm Sizes: Facts, Formulae, Fables and Fantasies, Center on Social and Economic Dynamics Working Paper No.44, Brookings, Washington.
Axtell, R., 2001, Zipf Distribution of U.S. Firm Sizes, Science, 293, 1818-1820.
Baker, P., and I. Miles, 2008, Study on industrial policy and services, Commissioned by the European Commission (DG Enterprise), ECORYS, Brussels / Rotterdam.
Banker, R., W. Cooper, L. Seiford, R. Thrall and J. Zhu, 2004, Returns to scale in different DEA models, European Journal of Operational Research, 154, 345–362.
Bartelsman, E., J. Haltiwanger and S. Scarpetta, 2012, Cross-country differences in productivity: the role of allocation and selection, American Economic Review (forthcoming).
Bartelsman, E. and M. Doms, 2000, Understanding productivity: lessons from longitudinal micro data, Journal of Economic Literature, 83 (3), 569-594.
Baumol, W., J. Panzar and R. Willig, 1982, Contestable Markets and the Theory of Industry Structure, Harcourt Brace Jovanovich, New York.
Biatour, B., M. Dumont and C. Kegels, 2011, The determinants of industry-level total factor productivity in Belgium, Working Paper No.7-11, Federal Planning Bureau, Brussels.
Boone, J,. 2001, Intensity of competition and the incentive to innovate, International Journal of Industrial Organization, 19(5), 715-726.
Boone, J., 2004, A New Way to Measure Competition, CEPR DP #4330, C.E.P.R. , London.
Boone, J., J. van Ours and H. van der Wiel, 2007, How (not) to measure competition, CEPR DP #6275, London.
Boone, J., 2008, A new way to measure competition, Economic Journal,. 118(531), 1245-1261.
Bourlès, R., G. Cette, J. Lopez, J. Mairesse and G. Nicoletti, 2010, Do product market regulations in upstream sectors curb productivity growth? - panel data evidence for OECD countries, Document de Travail No. 283, Banque de France, Paris.
Brown, C, J. Haltiwanger and J. Lane, 2006, Economic turbulence: is a volatile economy good for America?, University of Chicago Press, Chicago.
Buti, M., S. Deroose et al., 2010, Surveillance of intra-Euro-Area competitiveness and imbalances, European Economy, 2010(1), DG Economic and Fianancial Affairs, European Commission, Brussels.
Caballero, R. and M. Hammour, 1994, The cleansing effect of recessions, American Economic Review, 84, 1350-68.
Cantner, U., J. Krüger and H. Hanusch, 2007, Produktivitäts- und Effizienzanalyse - Der nichtparametrische Ansatz, Springer, Berlin-Heidelberg.
Coelli, J., D. Prasada Rao, C. O'Donnell and G. Battese, 2005, An Introduction to Efficiency and Productivity Analysis, Springer, New York.
Conway, P. & G. Nicoletti, 2008, Product market regulation in the non-manufacturing sectors of OECD countries: measurement and highlights, OECD Economics Department Working Paper No. 530, OECD, Paris.
Coviello, D., A. Ichino and N. Persico, 2010, Don’t spread yourself too thin: the impact of task juggling on workers’ speed of job completion , NBER WP #16502, NBER, Cambridge (Ma).
De Wit, G., 2005, Firm size distributions - an overview of steady-state distributions resulting from firm dynamic models, International Journal of Industrial Organization, 23, 423-450.
Dixit, A. and J. Stiglitz, 1977, Monopolistic competition and optimum product diversity, American Economic Review, 67, 297-308.
Djankov, S., R. La Porta, F. Lopez, and A. Shleifer, 2002, The regulation of entry, Quarterly Journal of Economics, 117 (1), pp 1-37.
Ewijk, C. van, 1997, Entry and exit, cycles, and productivity growth, Oxford Economic Papers, 49 , 167-187.
Foster, L., J. Haltiwanger, and Ch. Syverson, 2008, Reallocation, firm turnover, and efficiency: selection on productivity or profitability? American Economic Review, 98 (1), 394–425.
Francois, J., 1990, Producer services, scale and the division of labour, Oxford Economic Papers, 42, 715-729.
Garicano, L., C. Lelarge and J. Van Reenen, 2012, Firm size distortions and the productivity distribution: evidence from France, Centre for Economic Performance, LSE, London.
Grilo, I. et al., 2009, Product Market Review 2009: microeconomic consequences of the crisis and implications for recovery, European Economy 2009 (11), DG Economic and Financial Affairs, European Commission Brussels.
Guner, N., G. Ventura and Y. Xu, 2008, Macroeconomic implications of size-dependent policies, Review of Economic Dynamics, 11 (4), 721-744.
Gust, C. and J. Marquez, 2002, International comparisons of productivity growth: the role of information technology and regulatory practices, International Finance Discussion Papers, #727, Federal Reserve System.
Hsiao, Ch., 2006, Panel data analysis - advantages and challenges, IEPR WP#06-49, Institute of Economic Policy Research, USC, Los Angeles.
Hsieh, Ch. and P. Klenow, 2009, Misallocation and manufacturing TFP in China and India, Quarterly Journal of Economics, 124 (4), 1403-1448.
Hulten, C., 2001, Total factor productivity: a short biography, in C. Hulten, E. Dean and M.Harper, eds., New Developments in Productivity Analysis, Studies in Income and Wealth, vol. 63, Chicago: University of Chicago Press , pp. 1–47
Ilzkovitz, F., A. Dierx and N. Sousa, 2008, An analysis of the possible causes of product market malfunctioning in the EU: First results for manufacturing and service sectors, European Economy - Economic Papers 336, DG Economic and Monetary Affairs, European Commission, Brussels.
Ivaldi, M., and F. Verboven, F., 2005, Quantifying the Effects from Horizontal Mergers in European Competition Policy, International Journal of Industrial Organization, 23 (9-10), 669-91.
Johnson, N., S. Kotz and N. Balakrishnan, 1994, Continuous univariate distributions, John Wiley, New York.
Jorgenson, D., M. Ho, and K. Stiroh, 2005, Information technology and the American growth resurgence, Cambridge, MA: MIT Press.
Jovanovic, B., 1982, Selection and the evolution of industry, Econometrica, 50, 649-670.
Kessides, I., 1988, Market structure and sunk costs: an empirical test of the contestability hypothesis, WP #88-50, Economics Dept.,University of Maryland, Maryland.
Klette, J., 1999, Market power, scale economies and productivity: estimates from a panel of establishment data, The Journal of Industrial Economics, 47 (4), 451-476.
Klapper, L., L. Laeven and R. Rajan, 2006, Entry regulation as a barrier to entrepreneurship, Journal of Financial Economics, 82 (3), 591-629.
Kox, H. and A. Lejour, 2006, The effect of the Services Directive on intra-EU trade and FDI, Revue Economique, 57 (4), 747-769.
Kox, H. and G. van Leeuwen, 2012, Market selection and scale inefficiency - a new methodology applied to EU business services, Structural Change and Economic Dynamics, 23 (forthcoming: http://dx.doi.org/10.1016/j.strueco.2012.02.006).
Kox, H., G. van Leeuwen and H. van der Wiel, 2010, Small firms captive in a box like lobsters: causes of poor productivity performance in European business services, CPB Discussion Paper #158, CPB, The Hague.
Lahiri, S. and Y. Ono, 1988, Helping Minor Firms Reduces Welfare, The Economic Journal, 98 (393), 1199-1202.
Markusen, J., 1989, Trade in producer services and in other specialized intermediate inputs, American Economic Review, 79, 85-95.
Marrewijk, C. van, J. Stibora, A. de Vaal and J.-M. Viaene, 1997, Producer services, comparative advantage, and international trade patterns, Journal of International Economics, 42, 195-220.
Nicoletti, G. and S. Scarpetta, 2003, Regulation, productivity and growth: OECD evidence, Economic Policy No.36, April.
Nordås, H. and H. Kox, 2009, Quantifying regulatory barriers to services trade, OECD Trade Policy Working Paper No. 85, OECD, Paris.
OECD Competition Committee (2012), Annex to the summary record of the 115th meeting of the Competition Committee held on 13-14 June 2012 -- executive summary of the discussion on market definition, DAF/COMP/M(2012)2/ANN3, Directorate For Financial And Enterprise Affairs, Paris.
O’Mahony, M. and M. Timmer, 2009, Output, input and productivity measures at the industry level: the EU KLEMS database, The Economic Journal, 119 (June), F374–F403.
O'Mahony,M., A. Rincon-Aznar & C.Robinson, 2010, Productivity growth in Europe and the US: a sectoral study, Review of Economics and Institutions, 1(1).
Olley, G. and A. Pakes, 1996, The dynamics of productivity in the telecommunications equipment industry, Econometrica, 64, pp. 1263-1297.
Paterson, I., M. Fink, and A. Ogus, 2003, Economic impact of regulation in the field of liberal professions in different Member States - regulation of professional services, Institute for Advanced Studies, Vienna.
Post, T., 1999, Finding the Frontier, Methodological Advances in Data Envelopment Analysis, Ph.D Thesis, Erasmus University, Rotterdam.
Restuccia, D. and R. Rogerson, 2008, Policy distortions and aggregate productivity with heterogeneous establishments, Review of Economic Dynamics, 11 (4), 707-720.
Rubalcaba, L. and H. Kox, 2007, Business services in European economic growth, Palgrave MacMillan, Basingstoke/ New York.
Shy, O., 2001, The economies of network industries, Cambridge University Press, Cambridge.
Schwartz, M., 1986, The nature and scope of contestability theory, Oxford Economic Papers, 38 (Supplement November), 37-57.
Triplett, J. and B. Bosworth, 2004, Productivity in the US services sector: new sources of economic growth, Brookings Institution Press, Washington.
Venn, D. (2009), Legislation, collective bargaining and enforcement: updating the OECD employment protection indicators, DELSA/ELSA/WD/SEM(2009)17, OECD, Paris.
Weizsäcker, C. von, 1980, A welfare analysis of barriers to entry, Bell Journal of Economics, 11(2), 399-420.
Zhu, J., 2009, Quantitative models for performance evaluation and benchmarking, 2nd edition. Springer, Berlin.