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Leading American and European economists discuss monetary and fiscal policy from an international macroeconomic perspective in a companion volume to the NBER Macroeconomics Annual: cutting-edge research on macroeconomic issues and topical questions concerning the eastward expansion of the European Monetary Union.
The typical size distribution of manufacturing plants in developing countries has a thick left tail compared to developed countries. The same holds across Indian states, with richer states having a much smaller share of their manufacturing employment in small plants. In this paper, I explore the hypothesis that this income-size relation arises from the fact that low income countries and states have high demand for low quality products which can be produced efficiently in small plants. I provide evidence which is consistent with this hypothesis from both the consumer and producer side. In particular, I show empirically that richer households buy higher price goods while larger plants produce higher price products (and use higher price inputs). I develop a model which matches these cross-sectional facts. The model features non-homothetic preferences with respect to quality on the consumer side. On the producer side, high quality production has higher marginal costs and requires higher fixed costs. These two features imply that high quality producers are larger on average and charge higher prices. The model can explain about forty percent of the cross-state variation in the left tail of manufacturing plants in India.
Economic and social progress requires a diverse ecosystem of firms that play complementary roles. Making It Big: Why Developing Countries Need More Large Firms constitutes one of the most up-to-date assessments of how large firms are created in low- and middle-income countries and their role in development. It argues that large firms advance a range of development objectives in ways that other firms do not: large firms are more likely to innovate, export, and offer training and are more likely to adopt international standards of quality, among other contributions. Their particularities are closely associated with productivity advantages and translate into improved outcomes not only for their owners but also for their workers and for smaller enterprises in their value chains. The challenge for economic development, however, is that production does not reach economic scale in low- and middle-income countries. Why are large firms scarcer in developing countries? Drawing on a rare set of data from public and private sources, as well as proprietary data from the International Finance Corporation and case studies, this book shows that large firms are often born large—or with the attributes of largeness. In other words, what is distinct about them is often in place from day one of their operations. To fill the “missing top†? of the firm-size distribution with additional large firms, governments should support the creation of such firms by opening markets to greater competition. In low-income countries, this objective can be achieved through simple policy reorientation, such as breaking oligopolies, removing unnecessary restrictions to international trade and investment, and establishing strong rules to prevent the abuse of market power. Governments should also strive to ensure that private actors have the skills, technology, intelligence, infrastructure, and finance they need to create large ventures. Additionally, they should actively work to spread the benefits from production at scale across the largest possible number of market participants. This book seeks to bring frontier thinking and evidence on the role and origins of large firms to a wide range of readers, including academics, development practitioners and policy makers.
The Census Bureau has recently begun releasing official statistics that measure the movements of firms in and out of business and workers in and out of jobs. The economic analyses in Producer Dynamics exploit this newly available data on establishments, firms, and workers, to address issues in industrial organization, labor, growth, macroeconomics, and international trade. This innovative volume brings together a group of renowned economists to probe topics such as firm dynamics across countries; patterns of employment dynamics; firm dynamics in nonmanufacturing industries such as retail, health services, and agriculture; employer-employee turnover from matched worker/firm data sets; and turnover in international markets. Producer Dynamics will serve as an invaluable reference to economists and policy makers seeking to understand the links between firms and workers, and the sources of economic dynamics, in the age of globalization.
This paper examines the variation in life cycle growth across the universe of Mexican firms. We establish two stylized facts to motivate our analysis: first, we show that firm size matters for development by illustrating a close correlation with state-level per capita incomes. Second, we show that few firms grow as much as their U.S. peers while the majority stagnates at less than twice their initial size. To gain insights into the distinguishing characteristics of the two groups, we then econometrically decompose life cycle growth across firms. We find that firms that have financial access and multiple establishments and that are formal, part of diversified industries and located in population centers can grow at sizeable rates.
Technology Differences over Space and Time looks at how countries use their productive resources—such as workers, skills, equipment and structures, and natural resources. Francesco Caselli develops methods to assess the efficiency with which productive inputs are used, and how these efficiencies vary across countries and over time. Caselli finds that richer countries use skilled workers relatively more efficiently than unskilled workers, and equipment and structures relatively more efficiently than natural resources. They also are relatively more efficient users of labor than of capital. Technological change tends to make countries particularly efficient at using skills and less efficient at using capital. Technical change also favors experienced workers. In order to interpret and understand these findings, Caselli presents a theory of technology choice. In this theory, firms pick technologies that make the most efficient use of the most abundant production factors when these factors are good substitutes for the less abundant factors. Firms pick technologies that make the most of less abundant factors when other suitable factors are not available for substitution. For example, rich countries, where skilled workers are abundant, use skilled workers efficiently, as these are good substitutes for unskilled workers. This flexible framework can be applied to other pairs of inputs, over time, and across countries. Technology Differences over Space and Time has significant implications not only for the theoretical understanding of development and technological innovation, but also for government formulation of industrial policy and multinationals making decisions about what to invest in and where to make those investments.
The definitive reference on the most current economics of development and institutions The essential role that institutions play in understanding economic development has long been recognized across the social sciences, including in economics. Academic and policy interest in this subject has never been higher. The Handbook of Economic Development and Institutions is the first to bring together in one single volume the most cutting-edge work in this area by the best-known international economists. The volume’s editors, themselves leading scholars in the discipline, provide a comprehensive introduction, and the stellar contributors offer up-to-date analysis into institutional change and its interactions with the dynamics of economic development. This book focuses on three critical issues: the definitions of institutions in order to argue for a causal link to development, the complex interplay between formal and informal institutions, and the evolution and coevolution of institutions and their interactions with the political economy of development. Topics examined include the relationship between institutions and growth, educational systems, the role of the media, and the intersection between traditional systems of patronage and political institutions. Each chapter—covering the frontier research in its area and pointing to new areas of research—is the product of extensive workshopping on the part of the contributors. The definitive reference work on this topic, The Handbook of Economic Development and Institutions will be essential for academics, researchers, and professionals working in the field.
This volume draws together researchers working in a variety of disciplines in order to explore the many ways that locations matter for firms. The authors draw on newly available data, recently developed theory, and diverse methodology to understand the relationships between firm boundaries, firm activities, and geographic borders.
In an era when trade and currency wars threaten to end a long-standing period of growing trade and capital flows, the economics of international trade, investment and finance have become more important than ever. This three-volume Encyclopedia provides a comprehensive and up-to-date overview of the theory and evidence on the causes and consequences of global trade, and the theory and evidence on the economics of international trade, financial and monetary transactions.It provides, first of all, a comprehensive set of entries explaining the key theoretical concepts in international economics as well as the latest empirical and simulation techniques used in the academic literature. In addition, various entries present the history behind — and the controversies surrounding — the core current global trade and monetary institutions, from the World Trade Organization to the European Monetary Union.The three volumes also provide a serious discussion of today's central policy debates, including the impact of globalization on employment, wages and income distribution, the imposition of controls on international financial flows, the effects of tariffs and protectionist policies, fixed versus flexible exchange rate regimes, and the role of the multinational enterprise on global growth, technical change and income distribution, among many others.
Leading American and European economists discuss monetary and fiscal policy from an international macroeconomic perspective in a companion volume to the NBER Macroeconomics Annual: cutting-edge research on macroeconomic issues and topical questions concerning the eastward expansion of the European Monetary Union.