What Drives Firm Productivity Growth?
This paper presents new evidence on the causal links between changes in the business environment and firm productivity growth. It contributes to the literature in three important aspects. First, it constructs a unique database merging information f...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090223101112 http://hdl.handle.net/10986/4037 |
| Summary: | This paper presents new evidence on the
causal links between changes in the business environment and
firm productivity growth. It contributes to the literature
in three important aspects. First, it constructs a unique
database merging information from two large firm-level
databases. The samples of both databases are merged on four
criteria-country, sub-national location, firm size, and
year-producing a panel of 22,004 firms in eight economies of
Eastern Europe and the former Soviet Union: Bulgaria,
Croatia, Czech Republic, Estonia,, Poland, Romania, Serbia,
and Ukraine. Second, the paper addresses shortcomings of
earlier studies, namely reverse causation,
multicollinearity, and unreliable productivity estimates.
Firm productivity growth is estimated drawing on corporate
financial data from manufacturing firms included in the
AMADEUS database. Changes in the business environment are
estimated from the World Bank Enterprise Surveys conducted
in 2002 and 2005. Multicollinearity problems in the full
model regression are mitigated by constructing a set of six
aggregate indicators of the business environment (using
principal component analysis). The paper finds that, over
the period 2001 to 2004, an increase of one standard
deviation in infrastructure quality, financial development,
governance, labor market flexibility, labor quality, and
market competition raises the total factor productivity of
the average firm by 9.8, 7.8, 3.2, 3.4, 5.8, and 3 percent,
respectively. Lastly, the paper decomposes firm productivity
growth and ranks the relative impact of changes in these six
aspects of the business environment by country, by firm
size, and by industry. |
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