The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data

OECD Economics Department Working Paper No. 329

63 Pages Posted: 6 May 2002

See all articles by Stefano Scarpetta

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs; IZA Institute of Labor Economics

Philip Hemmings

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Thierry Tressel

International Monetary Fund (IMF) - Research Department

Jaejoon Woo

International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: April 22, 2002

Abstract

This paper presents empirical evidence on the role that policy and institutional settings in both product and labour market play for productivity and firm dynamics. It exploits a new firm-level database for ten OECD countries and industry-level data for a broader set of countries, together with a set of indicators of regulation and institutional settings in product and labour markets. Aggregate productivity patterns are largely the result of within-firm performance. But, the contribution from firm dynamic processes should not be overlooked, most notably in high-tech industries where new firms tend to play an important role. Industry productivity performance is negatively affected by strict product market regulations, especially if there is a significant technology gap with the technology leader. Likewise, high hiring and firing costs seem to hinder productivity, especially when these costs are not offset by lower wages and/or more internal training. Moreover, burdensome regulations on entrepreneurial activity as well as high costs of adjusting the workforce seem to negatively affect the entry of new small firms. Our data also suggest different features of entrant and exiting firms across countries. In particular, in the U.S., entrant firms tend to be smaller and with lower than average productivity, but those which survive the initial years expand rapidly. By contrast, firms tend to enter with a relatively higher size in Europe but do not expand significantly subsequently.

Keywords: micro and industry data, productivity, firm dynamics, regulations, institutions

JEL Classification: O12, O57, L50, C33

Suggested Citation

Scarpetta, Stefano and Hemmings, Philip and Tressel, Thierry and Woo, Jaejoon, The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data (April 22, 2002). OECD Economics Department Working Paper No. 329. Available at SSRN: https://ssrn.com/abstract=308680 or http://dx.doi.org/10.2139/ssrn.308680

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs ( email )

2 rue Andre Pascal
Paris Cedex 16, 75016
France
+33 1 45 24 19 88 (Phone)
+33 1 45 24 18 59 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Philip Hemmings

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France
+33 1 45 24 76 69 (Phone)
+33 1 45 24 18 59 (Fax)

Thierry Tressel

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Jaejoon Woo

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1,005
Abstract Views
4,477
rank
21,450
PlumX Metrics