Firm heterogeneity in productivity across Europe. What explains what?

Aiello, Francesco and Ricotta, Fernanda (2014): Firm heterogeneity in productivity across Europe. What explains what?

Abstract

This paper analyses the TFP heterogeneity of a sample of manufacturing firms operating in seven EU countries (Austria, France, Germany, Hungary, Italy, Spain and UK). TFP data refer to 2008. The empirical setting is based on the multilevel modelling which provides two main results. Firstly, we show that TFP heterogeneity is largely due to firm-specific features (85% of TFP variability in the empty-model). Interestingly, we find that some key-drivers of TFP (size, family-management, group membership, innovations and human capital) influence heterogeneity in productivity with the expect sign, but do not, on the whole, absorb much of firm-TFP variance, implying that differences in productivity are due to sizable yet unobservable firm characteristics. Secondly, as far the role of localization is concerned, we demonstrate that country-effect is more influential than region-effect in explaining individual productivity. Net of the country-effect, the localisation in different European regions explains about 5% of TFP firm heterogeneity. When considering the case of three individual countries (France, Italy and Spain), location in different regions explains 4.7% of TFP heterogeneity in Italy, while this proportion is lower (2.9%) in France and higher (7.6%) in Spain.

• Item Type: MPRA Paper
• Language: English
• Keywords: TFP heterogeneity, firm-behavior, localization, European countries, multilevel model
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C30 - General; D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L60 - General; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R15 - Econometric and Input-Output Models ; Other Models

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