Resumen de Essays on productivity and firm dynamics
There are large differences in income per capital across countries. Those differences have been attributed mainly to differences in aggregate productivity. But, what is aggregate productivity? Aggregate productivity is the efficiency level at which a country is able to transform inputs, capital and labor, into final goods. Taking firms or plants as basic units of production, the aggregate productivity of the country can be decomposed into two terms. The first one is an aggregate of the firm-level productivity of all the firms operating in the economy, i.e. the distribution of productivity across firms. The second is the distribution of economic resources across those heterogeneous firms. If the most productive firms do not have access to more capital and labor than the lower productive counterparts, the aggregate productivity of the country will be lower.
This thesis uses a unique dataset that covers almost the whole universe of Spanish firms to study these two channels for the Spanish economy. The first chapter gives an introduction to the topic, state the main results of the following chapters and how they contribute to the literature.
Chapter 2, Rank Correlation to Quantify and Decompose Resource Misallocation, studies how the efficiency in the allocation of resources evolves with firm's age. In order to assess the efficiency in the resource allocation, I rely on the rank correlation among physical productivity and measures of firm size and/or input usage by firms of a given age within narrowly defined sectors. The results point out to a slow but continuous improvement in the allocation of resources over the firm's life cycle.
This pattern holds across the main sectors of the Spanish economy, across spatial locations and it is robust to alternative methods of measuring resource misallocation.
I also quantify how much the improvement in the allocation of resources over the firm's life cycle increases the aggregate productivity of the economy. In order to do so, I compute the aggregate productivity of an economy where all the firms have the same efficiency in their allocation of resources, independently of their age. That is to say, the efficiency level in the allocation of resources across firms is assumed to be same for all ages and set to the oldest firms in the economy (which are 50 years or older). The aggregate productivity in the baseline economy is 20% lower than this counterfactual economy with no age-dependence in the resource allocation. This is 1/5th of the overall aggregate effects of misallocation in the Spanish economy.
Finally, I provide evidence on how the allocation of resources evolves over time, from 1995 to 2013.
The main result is a worsening in the allocation of resources during this period at all stages of the firm's life cycle. This is especially intense for the capital factor. The worsening in the allocation of resources that happened from 1995 to 2013 reduced the aggregate productivity of the Spanish economy by –7.6%. During this period, some sectors grew while others reduced their weight in the economy. The different economic structure, where more productive sectors are more prevalent nowadays, partially offsets the negative effects on the worsening in the allocation of resources (+2.7%). The total reduction in the aggregate productivity is –5.1%. This matches the actual reduction in aggregate productivity that the Spanish economy (–5.2%) experienced during this period.
In chapter 3, Productivity Dynamics: A Non-Parametric Estimation of the Productivity Process, I study the productivity dynamics of Spanish firms and as a result the firm's productivity distribution. I use the same dataset as in chapter 2 to estimate non-parametrically the firm productivity dynamics.
Methodologically, I apply the recent techniques developed in the income dynamics literature, based on quantile approaches, to the firm productivity. This estimation method allows the productivity persistence and shock variability to depend on the past history of the firm productivity. It also does not impose any functional assumption in the shock distribution. Along those lines, I find that the productivity process is highly non-linear, as persistence and shock variability depend on past productivity. Particularly, the productivity persistence is hump-shaped with respect to past productivity, while the shock variability is U-shaped. I also find that the productivity shocks are non- Gaussian. Particularly, skewness is positive for low productive firms, while it is negative for high productive ones. At the same time, shock kurtosis is estimated to be larger than the one implied by the Gaussian distribution.
These dynamics differ from the ones implied by a standard AR(1) process, commonly used in the firm dynamics literature. Under a standard AR(1) process, persistence and shock variability is constant, the same for all the firms. Furthermore, shocks come from a Gaussian distribution.
Interestingly, despite of the differences in the estimated productivity dynamics with respect to the AR(1) process, the stationary distributions implied by the non-linear and non-Gaussian estimation and the AR(1) are very similar. But, the implications for firm growth and uncertainty are very different. The richer productivity dynamics uncovered in this chapter support larger growth opportunities for low productive firms and more turnover in the high productivity states than the ones implied by the standard AR(1) process. Those richer productivity dynamics can affect on how frictions distort the allocation of resources, and as a result the aggregate productivity of the economy.
In chapter 4, Financial Frictions, Firm Dynamics and the Aggregate Economy: Insights from Richer Productivity Processes, I study the interaction of the estimated productivity dynamics in chapter 3 and financial frictions. Particularly, I ask how do financial frictions affect firm dynamics, allocation of resources across firms, and aggregate productivity and output? Is the nature of productivity shocks that firms face important for the effects of financial frictions? In order to answer those questions, I build a model of firm dynamics with financial frictions in which productivity shocks are non-linear and non-Gaussian, as estimated in chapter 3. The model is consistent with a host of evidence on firm dynamics, financial frictions, and firm's financial behavior.
Particularly, the model is able to capture the differential returns to capital with respect to firm characteristics, age, size and productivity. It also identifies which firms are more likely to access credit, young, large and less productive, and by how much they rely on debt, measured in terms of leverage.
In the model economy, financial frictions affect the firm's life cycle. Without financial frictions, the size of an entrant firm will be three times larger. Furthermore, profit accumulation, which allows firms to overcome financial frictions, is slow, and it only speeds up when firms are mature. As a result, the average exiting firm is smaller than it would be without financial frictions. The aggregate consequences of financial frictions are large. One out of three firms are financially constrained in their capital decision. This results in misallocation of capital and reduces aggregate productivity by 16%. This figure is only 8% if productivity dynamics evolve according to a standard AR(1) process.
Finally, I quantify the general equilibrium effects of financial frictions. The increase in aggregate productivity due to the removal of financial frictions increases the demand for capital and labor. After prices readjust to restore the equilibrium in the capital and labor markets, I find that the general equilibrium effects of removing financial frictions are large. Output and aggregate productivity increase a 54% and 18%, respectively. Workers also benefit as wages increase by 49% and at the same time total consumption rise a 46%.
The last chapter contains the main conclusions of this thesis. It also states the next steps the literature will need to cover to get a better understanding on firm dynamics and their impact on aggregate outcomes. It will be of particular interest to understand the economic decisions behind the non-linear and non-Gaussian nature of the productivity dynamics and how economic frictions can distort those decisions. That is to say how economic frictions distort the firm productivity distribution and not only the allocation of resources across firms.
