Published in: the Review of Economic Studies, 84(7), July 2020 (pp. 1989-2018)
Abstract. In this article, I directly test the hypothesis that interactions between inventors of different firms drive knowledge spillovers. I construct a network of publicly traded companies in which each link is a function of the relative proportion of two firms’ inventors who have former patent collaborators in both organizations. I use this measure to weigh the impact of R&D performed by each firm on the productivity and innovation outcomes of its network linkages. An empirical concern is that the resulting estimates may reflect unobserved, simultaneous determinants of firm performance, network connections, and external R&D. I address this problem with an innovative IV strategy, motivated by a game-theoretic model of firm interaction. I instrument the R&D of one firm’s connections with that of other firms that are sufficiently distant in network space. With the resulting spillover estimates, I calculate that among firms connected to the network the marginal social return of R&D amounts to approximately 112% of the marginal private return.
Abstract. We provide evidence that increased labor flexibility, through a more liberal use of temporary contracts by firms, adversely impacted the total factor productivity (TFP) in the lower segments of the productivity distribution across manufacturing industries, while leaving the rest of the distribution largely unaltered. Specifically, we show that following an Italian labor market reform from 2001, firms at the bottom of the TFP distribution are less productive than the counterfactual firms, with a difference of 4-to-5 percentage points. This adverse effect monotonously decreases along the distribution itself. Moreover, these firms’ exit rates were reduced by 20-to-30% within two years after the reform. Instead, firms in the middle-to-high segments of the productivity distribution experienced no sizable impact on the TFP as well as an increase in labor productivity by 5-to-8% within three years. We build a general equilibrium model with monopolistic competition to argue about what mechanisms can rationalize the empirical evidence. Our model, which relates the equilibrium productivity distributions across sectors to frictions in both labor and capital markets, highlights how labor wedges may have heterogeneous effects and ambiguous net impact, as they can potentially mitigate misallocation effects due to distortions of other kinds.
Abstract. Using administrative data for the universe of firm-to-firm transactions in Costa Rica, we study the role and prevalence of “good suppliers”, defined as those upstream firms that provide better, more valuable inputs to their downstream buyers. We then investigate the frictions that might prevent buyers from matching with good suppliers and thus become more productive. Our analysis proceeds in three phases. First, we adapt standard machine learning techniques to the estimation of production functions with many inputs in order to identify the good suppliers in the economy. Next, we quantify the frictions that may preclude buyers from matching with the good suppliers. We do so by empirically estimating a production network formation model through a conditional likelihood approach specifically suited to this problem. Finally, we perform economy-wide counterfactual simulations of industrial policies aimed at supporting good suppliers. The objective of this paper is to study matching distortions in input markets as a microeconomic origin of misallocation in developing economies and to suggest adequate policy responses.