Publications
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1. Industrial Organization . . . . . . . . . . . . . . . . . 2. Trade 3. Prod 4. Develop
- Trends and Complementarities in the Canadian Automobile Industry
ABSTRACT:
Three issues have deeply influenced the Canadian automobile industry in the last decades. Proliferation of models and vehicle-types has reduced the average sales per vehicle with important consequences on the manufacturing side. Manufacturers have responded by adopting flexible production technology in their assembly plants. One of the most important features of the flexible technology is the ability to build a variety of different models on the same assembly line. Many firms also reorganized their supply chain. Increased outsourcing of components, even sharing the burden of research and development with preferred (tier 1) suppliers, and just-in-time inventory management are the most visible exponents of this transformation. These three trends are discussed with an eye to their interrelatedness, the impact on industrial performance, and policy options available to Canada. The importance of each trend independently and taken together is evaluated using plant and firm-level data.
By Johannes Van Biesebroeck
in Z. Chen, and M. Duhamel (eds.) Industrial Organization in Canada: Empirical Evidence and Policy Challenges, Montreal: McGill-Queen's University Press, 2011. (forthcoming).
- Introduction: The Automobile and Its Industry in Canada
ABSTRACT:
By Dimitry Anastakis & Johannes Van Biesebroeck
Editors' introduction to special issue of Canadian Public Policy. 36, April 2010, pp. Siii-x.
- Bidding for Investment Projects: Smart Public Policy or Corporate Welfare?
ABSTRACT:
Even before the bailouts of GM and Chrysler in 2009, several governments in Canada have shown an increased willingness to subsidize private investment projects, especially in the manufacturing sector, to the dismay of tax conservatives. I evaluate under what circumstances these government subsidies make sense, paying particular attention to the efforts of the Ontario and federal governments to attract new investments in the automobile sector. I show what governments should expect to pay when they join a bidding war and derive the expected welfare gain. The analysis suggests that, in contrast with the public debate and many previous studies, it is not the absolute size of benefits that matters, but the relative private attractiveness for the investing firm and the relative size of externalities in each location.
By Johannes Van Biesebroeck
Canadian Public Policy, 36, April 2010, pp. S31-47.
- Effects of the 2008-09 Crisis on the Automotive Industry in Developing Countries: A Global Value Chain Perspective
ABSTRACT:
This chapter examines the impact of the 2008-09 economic crisis on global value chains (GVCs) in the automotive industry. The goal is to provide an overview of GVCs in this important industry, examine government responses to the recent economic crisis, and discuss where the industry is headed, particularly in light of the increasing importance of both production and consumption in large developing countries such as China and India.
By Johannes Van Biesebroeck & Timothy Sturgeon
in Olivier Cattaneo, Gary Gereffi and Cornelia Staritz, Global Value Chains in a Postcrisis World: A Development Perspective, 2010, Washington D.C.: World Bank Publications. (Appeared earlier as World Bank Policy Research Working Paper No. 5330)
(A summary appeared in the World Bank Research Digest [Summer 2010, page 6])
- The Impact of Trade and Technology Adoption on Production Flexibility in Canadian Manufacturing
ABSTRACT:
We exploit data on productivity, scale of operation and product diversification for Canadian manufacturing plants to investigate scale and scope economies. We find that plants face the following trade-off in their choice of production technology: higher output is generally associated with increased productivity, but larger product variety with lower productivity. The nature of this trade-off is heterogeneous across plants. Situations that are characterized by a very pronounced trade-off, i.e., where both premiums are large in absolute value, we call mass production technologies; and situations where scale economies and the penalty for variety are low we call flexible production systems. Our estimates indicate that, following increased adoption of advanced technologies and in response to U.S. tariff declines, mass production technology has gained in importance. Foreign-owned plants are also found to be less flexible than Canadian-owned plants.
By Alla Lileeva & Johannes Van Biesebroeck
in D. Ciuriak (ed.) Trade Policy Research 2009, Ottawa: Foreign Affairs and International Trade Canada, 2010, pp. 63-94.
- Globalisation of the Automotive Industry: Main Features and Trends
ABSTRACT:
This paper lays out the main features of the global automotive industry and identifies several important trends. A boom in developing country sales and production has not yet overshadowed the importance of existing markets in developed regions. Regional integration is very strong at an operational level, yet the industry has recently developed a set of global-scale value chain linkages, and retains national and local elements as well. The paper highlights how global, regional, national and local value chains are nested to create a pattern of global integration that is distinctive to the industry. We use global value chain analysis to help explain the limits of build-to-order in the industry, the role of regional and global suppliers, the shifting geography of production and how the characteristics of value chain linkages in the industry favour tight integration and regional production. We describe how industry concentration focuses power in the hands of a few large lead firms and discuss the implications of this for value chain governance and the geography of production.
By Timothy J. Sturgeon, Olga Memedovic, Johannes Van Biesebroeck, & Gary Gereffi
International Journal of Technological Learning, Innovation, and Development, 2(1-2), 2009, pp. 7-24.
- The North American Automotive Value Chain: Canada's Role and Prospects
ABSTRACT:
This paper deals with the North American automotive value chain and analyses the prospects for Canadian automotive sector upgrading. The size and importance of the automotive industry in Canada's Ontario Province is a legacy of its historic ties to the 'Big 3' US automakers and its proximity to the traditional heartland of the US industry in Michigan. Canada continues to have marginally lower operating costs than the USA and a strong industrial culture that attracts investment. But Mexico's integration into the North American production system, the rise of new centres of automotive production in the southern USA and rapidly growing flow of automotive parts from China to North America have begun to erode this advantage. Because the North American market is saturated, consisting mainly of sales of replacement vehicles, locational shifts in production and employment within North America are essentially 'zero-sum games'. If the market share of the Big 3 continues to fall and the southward shift of the industry within the USA is maintained, the sustainability of the Canadian industry could be undermined. The paper concludes with a set of policy recommendations for Canada to maintain its comparative advantage in the industry.
By Timothy Sturgeon, Johannes Van Biesebroeck & Gary Gereffi
International Journal of Technological Learning, Innovation, and Development, 2(1-2), 2009, pp. 25-52.
- Crisis and Protection in the Automotive Industry: A Global Value Chain
Perspective
ABSTRACT:
In this paper the authors apply global value chain (GVC) analysis to recent trends in the global automotive industry, with special attention paid to government interventions triggered by the recent economic crisis. The authors first highlight some of the defining characteristics of GVCs in this important industry, especially the unusually strong regional structure of production and sales. National political institutions create pressure for local content, which drives production close to end markets, where it tends to be organized nationally or regionally. They then examine policy reactions to the recent economic crisis, and provide some discussion of the government interventions in the industry. The authors end with a number of policy conclusions that highlight the likely impact of the interventions on the evolution GVCs and the growth of the industry in developing countries.
By Timothy Sturgeon & Johannes Van Biesebroeck
in O. Cattaneo, S.J. Evenett, and B. Hoekman (eds.) Effective Crisis Response and Openness: Implications for the Trading System, 2009, CEPR and World Bank. (Appeared earlier as World Bank Policy Research Working Paper No. 5060)
- Governments at the Bidding Table
ABSTRACT:
The New Zealand government has recently indicated it will scale back its subsidy program for foreign firms investing in the country, except for screen productions, and divert the budgeted funds to an outward investment strategy. In sharp contrast, local governments have lately shown a much greater willingness to subsidize cultural or sporting events in order to boost local economic activity. I evaluate under what circumstances it makes sense for a government to subsidize private investments, paying particular attention to interjurisdictional competition. I show what factors determine equilibrium subsidy levels when governments enter a bidding war, and derive the expected welfare gain.
By Johannes Van Biesebroeck
New Zealand Economic Papers, 42(2), December 2008, pp. 213-232.
- Value Chains, Networks, and Clusters: Reframing the Global Automotive Industry
ABSTRACT:
In this article, we apply global value chain (GVC) analysis to recent trends in the global automotive industry, with special attention paid to the case of North America. We use the three main elements of the GVC framework--firm-level chain governance, power and institutions--to highlight some of the defining characteristics of this important industry. First, national political institutions create pressure for local content, which drives production close to end markets, where it tends to be organized nationally or regionally. Second, in terms of GVC governance, rising product complexity combined with low codifiability and a paucity of industry-level standards has driven buyer-supplier linkages toward the relational form, a governance mode that is more compatible with Japanese than American supplier relations. The outsourcing boom of the 1990s exacerbated this situation. As work shifted to the supply base, lead firms and suppliers were forced to develop relational linkages to support the exchange of complex uncodified information and tacit knowledge. Finally, the small number of hugely powerful lead firms that drive the automotive industry helps to explain why it has been so difficult to develop and set the industry-level standards that could underpin a more loosely articulated spatial architecture. This case study underlines the need for an open, scalable approach to the study of global industries.
By Timothy Sturgeon, Johannes Van Biesebroeck & Gary Gereffi
Journal of Economic Geography, 8(3), May 2008, pp. 297-321.
- Complementarities in Automobile Production
ABSTRACT:
The number of different car and light truck models produced in North America has increased enormously over the last decades. The data suggests that producing this increased variety of vehicles is associated with a productivity penalty. We show that manufacturers can adopt complementary activities to reduce this penalty. Flexible technology, defined as the ability to assemble models derived from different "platforms" on the same assembly line, and bringing previously outsourced activities in-house are two such activities that we identify. Both are costly themselves, in terms of lower productivity, but they reduce the cost of producing greater variety. The results are robust to controlling for the endogeneity of the adoption decisions using activity-specific instruments, as proposed by Athey and Stern (2003).
By Johannes Van Biesebroeck
Journal of Applied Econometrics, 22(7), December 2007, pp.1315-1345.
- The Cost of Flexibility
ABSTRACT:
Automobile production is a large scale affair. Assembly plants are sprawling industrial complexes and the logistics involved in piecing together a vehicle from thousands of individual components are daunting. It is no surprise then that firms incur a substantial productivity penalty for producing several different vehicles in the same plant. In a mature industry, firms increasingly compete by offering a wider range of differentiated products to temper price competition, but few of these models reach minimum efficient scale in production on their own. This paper looks at the actions firms are taking to control the productivity penalty associated with increasing variety. As one might expect from an economic study, it will show that increased flexibility does not come for free. Using a sample that includes almost all passenger car and light truck assembly plants in North America, evidence is presented for fixed costs associated with activities complementary to producing variety. At the same time, there is also evidence for a trade-off between scale economies and flexibility.
By Johannes Van Biesebroeck
Assembly Automation, 27(1), March 2007, pp. 55-64.
- Robustness of Productivity Estimates
ABSTRACT:
Researchers interested in estimating productivity can choose from an array of methodologies, each with its strengths and weaknesses. We compare the robustness of five widely used techniques, two non-parametric and three parametric: in order, (a) index numbers, (b) data envelopment analysis (DEA), (c) stochastic frontiers, (d) instrumental variables (GMM), and (e) semiparametric estimation. Using simulated samples of firms, we analyze the sensitivity of alternative methods to the way randomness is introduced in the data generating process. Three experiments---ways to introduce randomness---are considered: factor price heterogeneity, measurement error, and differences in production technology. When measurement error is small, index numbers are excellent for estimating productivity growth and are among the best for estimating productivity levels. DEA excels when technology is heterogeneous and returns to scale are not constant. When measurement or optimization errors are nonnegligible, parametric approaches are preferred. Ranked by the persistence of the productivity differentials between firms (in decreasing order), one should prefer the stochastic frontiers, GMM, or semiparametric estimation methods. The practical relevance of each experiment for applied researchers is discussed explicitly.
By Johannes Van Biesebroeck
Journal of Industrial Economics, 55(3), September 2007, pp. 529-569.
- The Canadian Automotive Market
ABSTRACT:
The automotive sector is Canada's largest manufacturing sector, accounting for 12% of its manufacturing GDP and 25% of its manufacturing trade. The principal objective of this study is to calculate the impact of changes in Canada's trade policy on the automotive sector. The study is organized in five sections: the first identifies current and future trends in the industry; the second contains an econometric model to analyse the market effects of four trade policy scenarios on automobile production; the third identifies the impact of trade policy on foreign direct investment; the fourth contains an analysis of the market effects of trade policy changes on the aftermarket auto parts sector; and the last section of the study discusses the future direction of the automotive industry.
By Johannes Van Biesebroeck
in D. Ciuriak (ed.) Trade Policy Research 2006, Ottawa: Foreign Affairs and International Trade Canada, 2007, pp. 187-340.
Includes a 2-page Executive Summary
- Outsourcing Multiple Parts to Many Countries: An Application to the Automotive Industry
ABSTRACT:
Existing models of outsourcing by and large assume that decisions are made for each product independently. Ignoring the fact that manufacturers have to make joint decisions on multiple inputs will be inconsequential for many applications, but such a feature is likely to be important in the automotive industry. We extend the incomplete contracting model of the life cycle of a product (Antras 2005) to a multicomponent, multicountry assembly process. Outsourcing decisions on components interact in two ways: (1) Marginal sourcing decisions toward low-wage countries reduce the cost of the final product, raising demand for all other parts and increasing the likelihood those will be sourced from low-wage countries as well. (2) We also allow for the possibility that the loss (in relationship-specific investments) incurred when a relationship breaks down decreases with the past volume of parts production in a country. This captures in a reduced form the way that the capacity for local institutions to deal with contractual disputes in a given sector increases with past investments. The evidence for U.S. automotive part imports -- exploiting the price variation when a country starts exporting a new part -- provides support for four predictions of the model.
By Johannes Van Biesebroeck & Lijun Zhang
Chapter 9 in Conference Proceedings: Offshore Outsourcing: Capitalizing on Lessons Learned, Industry Canada and Rotman School of Management. 2005.
- Capability Building in China's Auto Supply Chains
ABSTRACT:
We report on plant visits and data collection carried out in China and present our initial preliminary findings. Eight assembly plants with their respective seat, exhaust and brake suppliers were visited in 2006. Two ECU (engine control unit) suppliers were also interviewed. Where possible, we compare our findings with the situation in China in 2003 and with current best practice worldwide. Information collected pertains to productivity, quality, structure and evolution of the supply chain, engineering capabilities, and relationships with other firms. The outline of this preliminary report is as follows. First, we present our main findings. Second, we give some background information about our ongoing global supplier survey and the automobile industry. Third, we examine four key factors that are driving changes in China's auto sector. We present both aggregate data and detailed observations from our plant visits that formed the basis for our preliminary conclusions. Fourth, we discuss some of the implications of these developments in China for auto-parts suppliers in Canada.
By Loren Brandt & Johannes Van Biesebroeck
Chapter 3 in Conference Proceedings: Offshore Outsourcing: Capitalizing on Lessons Learned, Industry Canada and Rotman School of Management. 2005.
- Productivity Dynamics with Technology Choice: An Application to Automobile Assembly
ABSTRACT:
During the 1980s, all Japanese automobile producers opened assembly plants in North America. Industry analysts and previous research claim that these transplants are more productive than incumbent plants and that they produce with a substantially different production process. I compare the production processes by estimating a model that allows for heterogeneity in technology and productivity, both of which are intrinsically unobservable. The model is estimated on a panel of assembly plants, controlling for capacity utilization and price effects.
The results indicate that the more recent technology uses capital more intensively and it has a higher elasticity of substitution between labor and capital. Hicks-neutral productivity growth is estimated to be lower, while capital-biased (labor-saving) productivity growth is higher for the new technology. Using the estimation results, I decompose industry-wide productivity growth and find plant-level changes in lean plants to be the most important contributor. Plant-level productivity growth is further decomposed to reveal the importance of capital-biased productivity growth, increases in the capital-labor ratio, and returns to scale.
By Johannes Van Biesebroeck
Review of Economic Studies, 70(1), January 2003, pp. 167-198.
- The Effect of Technology Choice on Automobile Assembly Plant Productivity
ABSTRACT:
Productivity growth is usually represented by a continuous shift of the production or cost function. In the automobile industry, there is evidence of a more discrete change in the technology. I estimate a structural model of production and technology choice, using a panel of US automobile assembly plants from 1963 to 1996. New decomposition results suggest that plant-level changes, as opposed to compositional effects, are the most important determinant of aggregate productivity growth.
By Johannes Van Biesebroeck
The Economic and Social Review, 33(1), Spring, 2002, pp. 65-73.
2. International Trade . . . . . . . . . . . . . . . . . . . . . 1. IO 3. Prod 4. Develop
- Dissecting Intra-Industry Trade
ABSTRACT:
Manufacturing trade has become dominated by flows within industries. We show that intra-industry trade has gradually become a feature of the majority of U.S. industries, even at the finest level of aggregation. The pattern is similar for the E.U. and increasingly also for China. In contrast, Japanese trade remains to a remarkable extent inter-industry. Introducing a quality dimension to the industry classification reveals that trade is noticeably less balanced within each quality type for the E.U. and China. The pattern of specialization is consistent with their relative income levels, but it has emerged only recently and is much less pronounced for the U.S. and Japan.
By Johannes Van Biesebroeck
Economics Letters 110(2), February 2011, pp. 71-75.
This pdf file contains a slide-show that loops over all years: [ Loop ])
- Trade Growth Following the African Growth and Opportunity Act
ABSTRACT:
This paper investigates whether one of the most important U.S. policies towards Africa of the past few decades achieved its desired result. In 2000, the U.S. dropped trade restrictions on a broad list of products through the African Growth and Opportunity Act (AGOA). Since the Act was applied selectively to both countries and products, we can estimate the impact with a triple difference-in-differences estimation, controlling for both country and product-level import surges at the time of onset. This approach allows us to better address the 'endogeneity of policy' critique of standard difference-in-differences estimation than if either a country or a product-level analysis was performed separately. Despite the fact that the AGOA product list was chosen to not include 'import-sensitive' products, and despite the general challenges of transaction costs in African countries, we find that AGOA had a large and robust impact on apparel imports into the U.S., as well as on the agricultural and manufactured products covered by AGOA. These import responses grew over time and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the U.S.-AGOA imports were not merely diverted from elsewhere. We discuss how the effects vary across countries and the implications of these findings for aggregate export volumes.
By Garth Frazer & Johannes Van Biesebroeck
Review of Economics and Statistics, 92(1), February 2010, pp. 128-144.
- The impact of trade promotion services on Canadian Exporter Performance
ABSTRACT:
We evaluate the impact of the programs delivered by the Canadian Trade Commissioner Service (TCS) on export performance by Canadian firms. We draw on a unique set of microdata created by linking three separate firm-level databases: Statistics Canada's Exporter Register and its Business Register, which provide information on export activity and firm characteristics, and the TCS client management database maintained by Foreign Affairs and International Trade Canada, which contains details on trade promotion services provided to Canadian firms. We apply the treatment effects analytical framework to isolate the effects of public sector trade promotion. We find that TCS programs have a consistent and positive impact on Canadian exporter performance, both in terms of the value of exports and the growth of exports. In our preferred specification, exporters that access TCS services export, on average, 17.9 percent more than comparable exporters that do not. Furthermore, we also find that TCS assistance benefits exporters in terms of product and market diversification.
By Johannes Van Biesebroeck, Emily Yu & Shenjie Chen
in D. Ciuriak (ed.) Trade Policy Research 2009, Ottawa: Foreign Affairs and International Trade Canada, 2010.
- The Impact of Trade and Technology Adoption on Production Flexibility in Canadian Manufacturing
ABSTRACT:
We exploit data on productivity, scale of operation and product diversification for Canadian manufacturing plants to investigate scale and scope economies. We find that plants face the following trade-off in their choice of production technology: higher output is generally associated with increased productivity, but larger product variety with lower productivity. The nature of this trade-off is heterogeneous across plants. Situations that are characterized by a very pronounced trade-off, i.e., where both premiums are large in absolute value, we call mass production technologies; and situations where scale economies and the penalty for variety are low we call flexible production systems. Our estimates indicate that, following increased adoption of advanced technologies and in response to U.S. tariff declines, mass production technology has gained in importance. Foreign-owned plants are also found to be less flexible than Canadian-owned plants.
By Alla Lileeva & Johannes Van Biesebroeck
in D. Ciuriak (ed.) Trade Policy Research 2009, Ottawa: Foreign Affairs and International Trade Canada, 2010, pp. 63-94.
- Globalisation of the Automotive Industry: Main Features and Trends
ABSTRACT:
This paper lays out the main features of the global automotive industry and identifies several important trends. A boom in developing country sales and production has not yet overshadowed the importance of existing markets in developed regions. Regional integration is very strong at an operational level, yet the industry has recently developed a set of global-scale value chain linkages, and retains national and local elements as well. The paper highlights how global, regional, national and local value chains are nested to create a pattern of global integration that is distinctive to the industry. We use global value chain analysis to help explain the limits of build-to-order in the industry, the role of regional and global suppliers, the shifting geography of production and how the characteristics of value chain linkages in the industry favour tight integration and regional production. We describe how industry concentration focuses power in the hands of a few large lead firms and discuss the implications of this for value chain governance and the geography of production.
By Timothy J. Sturgeon, Olga Memedovic, Johannes Van Biesebroeck, & Gary Gereffi
International Journal of Technological Learning, Innovation, and Development, 2(1-2), 2009, pp. 7-24.
- Crisis and Protection in the Automotive Industry: A Global Value Chain
Perspective
ABSTRACT:
In this paper the authors apply global value chain (GVC) analysis to recent trends in the global automotive industry, with special attention paid to government interventions triggered by the recent economic crisis. The authors first highlight some of the defining characteristics of GVCs in this important industry, especially the unusually strong regional structure of production and sales. National political institutions create pressure for local content, which drives production close to end markets, where it tends to be organized nationally or regionally. They then examine policy reactions to the recent economic crisis, and provide some discussion of the government interventions in the industry. The authors end with a number of policy conclusions that highlight the likely impact of the interventions on the evolution GVCs and the growth of the industry in developing countries.
By Timothy Sturgeon & Johannes Van Biesebroeck
in O. Cattaneo, S.J. Evenett, and B. Hoekman (eds.) Effective Crisis Response and Openness: Implications for the Trading System, 2009, CEPR and World Bank. (Appeared earlier as World Bank Policy Research Working Paper No. 5060)
- Understanding Cross-country Differences in Export Premia - Comparable Evidence for 14 Countries
ABSTRACT:
We use comparable micro level panel data for 14 countries and a set of identically specified empirical models to investigate the relationship between exports and productivity. Our overall results are in line with the big picture that is by now familiar from the literature: exporters are more productive than non-exporters when observed and unobserved heterogeneity is controlled for, and these exporter productivity premia tend to increase with the share of exports in total sales; there is evidence in favour of self-selection of more productive firms into export markets, but nearly no evidence in favour of the learning-by-exporting hypothesis. We document that the exporter premia differ considerably across countries in identically specified empirical models. In a meta-analysis of our results we find, consistent with theoretical predictions, that productivity premia are larger in countries with lower export participation rates, with more restrictive trade policies, lower per capita GDP, less effective government and worse regulatory quality, and in countries exporting to relatively more distant markets.
By International Study Group on Exports and Productivity
Review of World Economics, 144(4), December 2008, pp. 596-635.
- Value Chains, Networks, and Clusters: Reframing the Global Automotive Industry
ABSTRACT:
In this article, we apply global value chain (GVC) analysis to recent trends in the global automotive industry, with special attention paid to the case of North America. We use the three main elements of the GVC framework--firm-level chain governance, power and institutions--to highlight some of the defining characteristics of this important industry. First, national political institutions create pressure for local content, which drives production close to end markets, where it tends to be organized nationally or regionally. Second, in terms of GVC governance, rising product complexity combined with low codifiability and a paucity of industry-level standards has driven buyer-supplier linkages toward the relational form, a governance mode that is more compatible with Japanese than American supplier relations. The outsourcing boom of the 1990s exacerbated this situation. As work shifted to the supply base, lead firms and suppliers were forced to develop relational linkages to support the exchange of complex uncodified information and tacit knowledge. Finally, the small number of hugely powerful lead firms that drive the automotive industry helps to explain why it has been so difficult to develop and set the industry-level standards that could underpin a more loosely articulated spatial architecture. This case study underlines the need for an open, scalable approach to the study of global industries.
By Timothy Sturgeon, Johannes Van Biesebroeck & Gary Gereffi
Journal of Economic Geography, 8(3), May 2008, pp. 297-321.
- Protection for Sale with Imperfect Rent Capturing
ABSTRACT:
Grossman and Helpman (1994) explain tariffs as the outcome of a lobbying process. In most empirical implementations of this framework protection is instead measured using non-tariff barriers. Since tariffs allow the government to fully capture the rents from protection, while non-tariff barriers do not, the existing parameter estimates of the protection for sale model are likely to be biased. To address this problem, we augment the framework by considering instruments that allow partial capturing. Our specification is supported by the data, where we find that only 72-75% of the rent from protection is appropriated by the government.
By Giovanni Facchini, Johannes Van Biesebroeck & Gerald Willmann
Canadian Journal of Economics, 39(3), August 2006, pp. 845-873.
- Exporting Raises Productivity in sub-Saharan African Manufacturing Firms
ABSTRACT:
Proponents of trade liberalization argue that exporting helps firms to achieve higher productivity levels. This hypothesis is examined for a panel of manufacturing firms in nine African countries. The results indicate that exporters in these countries are more productive and, more importantly, exporters increase their productivity advantage after entry into the export market. While the first finding can be explained by selection--only the most productive firms engage in exporting--the latter cannot. The results are robust when unobserved productivity differences and self-selection into the export market are controlled for using different econometric methods. Scale economies are shown to be an important channel for the productivity advance. Credit constraints and contract enforcement problems prevent firms that only produce for the domestic market from fully exploiting scale economies.
By Johannes Van Biesebroeck
Journal of International Economics, 67(2), December 2005, pp. 373-391.
- Outsourcing Multiple Parts to Many Countries: An Application to the Automotive Industry
ABSTRACT:
Existing models of outsourcing by and large assume that decisions are made for each product independently. Ignoring the fact that manufacturers have to make joint decisions on multiple inputs will be inconsequential for many applications, but such a feature is likely to be important in the automotive industry. We extend the incomplete contracting model of the life cycle of a product (Antras 2005) to a multicomponent, multicountry assembly process. Outsourcing decisions on components interact in two ways: (1) Marginal sourcing decisions toward low-wage countries reduce the cost of the final product, raising demand for all other parts and increasing the likelihood those will be sourced from low-wage countries as well. (2) We also allow for the possibility that the loss (in relationship-specific investments) incurred when a relationship breaks down decreases with the past volume of parts production in a country. This captures in a reduced form the way that the capacity for local institutions to deal with contractual disputes in a given sector increases with past investments. The evidence for U.S. automotive part imports -- exploiting the price variation when a country starts exporting a new part -- provides support for four predictions of the model.
By Johannes Van Biesebroeck & Lijun Zhang
Chapter 9 in Conference Proceedings: Offshore Outsourcing: Capitalizing on Lessons Learned, Industry Canada and Rotman School of Management. 2005.
3. Productivity Analysis . . . . . . . . . . . . . . . . . . . 1. IO 2. Trade 4. Develop
- Wages Equal Productivity. Fact or Fiction?
ABSTRACT:
If labor markets operate with only minor frictions, productivity premiums associated with worker characteristics should equal the corresponding wage premiums. We evaluate this for labor market experience, schooling, job tenure, and training using matched employer-employee data from the manufacturing sector of three sub-Saharan countries. Equality holds remarkably well in Zimbabwe (the most developed country in the sample), but not at all in Tanzania (the least developed), while results are intermediate in Kenya. Where equality fails, the pattern is for more general human capital characteristics (such as experience) to receive a wage return that exceeds productivity, while the reverse applies to more firm-specific characteristics (such as tenure). Localized labor markets and imperfect substitutability of worker-types provide a partial explanation.
By Johannes Van Biesebroeck
World Development (forthcoming).
- Disaggregate Productivity Comparisons: Sectoral Convergence in OECD Countries
ABSTRACT:
International comparisons of productivity have used exchange rates or purchasing power parity (PPP) to make output comparable across countries. While aggregate PPP holds well in the long run, sectoral deviations are persistent. It raises the need for a currency conversion factor at the same level of aggregation as the output that is compared. Mapping prices from household expenditure surveys into the industrial classification of sectors and adjusting for taxes and international trade, I obtain an expenditure-based sector-specific PPP. Using detailed price data for up to 8 years between 1970 and 1999, I test whether the sectoral PPPs adequately capture differential changes in relative prices between countries. They work well for agriculture and the majority of industrial sectors, but not for most service sectors and for manufacturing sectors that produce differentiated products. Using the most appropriate conversion factor for each industry, productivity convergence is found to be taking place in all but a few industries for a group of 14 OECD countries. The latter results are robust to the base year used for the currency conversion.
By Johannes Van Biesebroeck
Journal of Productivity Analysis, 32, 2009, pp. 63-79.
- The Sensitivity of Productivity Estimates: Revisiting Three Important Debates
ABSTRACT:
Researchers interested in estimating productivity can choose from an array of methodologies, each with its strengths and weaknesses. This study compares productivity estimates and evaluates the extent to which the conclusions of three important productivity debates in the economic development literature are sensitive to the choice of estimation method. Five widely used techniques are considered, two nonparametric and three parametric: index numbers, data envelopment analysis, instrumental variables estimation, stochastic frontiers, and semiparametric estimation. Using data on manufacturing firms in two developing countries, Colombia and Zimbabwe, we find that the different methods produce surprisingly similar productivity estimates when the measures are compared directly, even though the estimated input elasticities vary widely. Furthermore, the methods reach the same conclusions on two of the debates, supporting endogenous growth effects and showing that firm-level productivity changes are an important contributor to aggregate productivity growth. On the third debate, only with the parametric productivity measures is there evidence of learning by exporting.
By Johannes Van Biesebroeck
Journal of Business and Economic Statistics, 26(3), July 2008, pp. 311-328.
- Aggregating and Decomposing Productivity
ABSTRACT:
We illustrate how the aggregate level of total factor productivity, as obtained from aggregate input and output statistics, can be replicated by summing appropriately weighted firm-level measures. This exact aggregation has a number of advantages over existing practices. First, the contribution of different sub-samples to a well-defined aggregate is easily identified. Second, the importance of patterns at the micro level, such as larger size or higher capital intensity for more productive firms, for the aggregate can be calculated. Third, it allows the exact decomposition of aggregate output growth into the contribution of several factors, among which firm-level total factor productivity growth, an inherently relative concept. A sample of all Chinese manufacturing firms with annual sales above five million RMB is used to illustrate the usefulness of the different decompositions.
By Johannes Van Biesebroeck
Review of Business and Economics, 53(2), April-June 2008, pp. 122-146.
- Wage and Productivity Premiums in Sub-Saharan Africa
ABSTRACT:
Using a matched employer-employee data set of manufacturing plants in three sub-Saharan countries, I compare the marginal productivity of different categories of workers with the wages they earn. A methodological contribution is to estimate the firm level production function jointly with the individual level wage equation using a feasible GLS estimator. The additional information of individual workers leads to more precise estimates, especially of the wage premiums, and to a more accurate test. The results indicate that equality holds strongly for the most developed country in the sample (Zimbabwe), but not at all for the least developed country (Tanzania). Moreover, the breakdown in correct remuneration in the two least developed countries follows a distinct pattern. On the one hand, wage premiums exceed productivity premiums for general human capital characteristics (experience and schooling). On the other hand, salaries hardly increase for more firm-specific human capital characteristics (tenure and training), even though these have a clear productivity effect.
By Johannes Van Biesebroeck
in S. Bender, J. Lane, K. Shaw, F. Andersson, and T. von Wachter (eds.) The Analysis of Firms and Employees: Quantitative and Qualitative Approaches, University of Chicago Press. 2008.
- Robustness of Productivity Estimates
ABSTRACT:
Researchers interested in estimating productivity can choose from an array of methodologies, each with its strengths and weaknesses. We compare the robustness of five widely used techniques, two non-parametric and three parametric: in order, (a) index numbers, (b) data envelopment analysis (DEA), (c) stochastic frontiers, (d) instrumental variables (GMM), and (e) semiparametric estimation. Using simulated samples of firms, we analyze the sensitivity of alternative methods to the way randomness is introduced in the data generating process. Three experiments---ways to introduce randomness---are considered: factor price heterogeneity, measurement error, and differences in production technology. When measurement error is small, index numbers are excellent for estimating productivity growth and are among the best for estimating productivity levels. DEA excels when technology is heterogeneous and returns to scale are not constant. When measurement or optimization errors are nonnegligible, parametric approaches are preferred. Ranked by the persistence of the productivity differentials between firms (in decreasing order), one should prefer the stochastic frontiers, GMM, or semiparametric estimation methods. The practical relevance of each experiment for applied researchers is discussed explicitly.
By Johannes Van Biesebroeck
Journal of Industrial Economics, 55(3), September 2007, pp. 529-569.
- Exporting Raises Productivity in sub-Saharan African Manufacturing Firms
ABSTRACT:
Proponents of trade liberalization argue that exporting helps firms to achieve higher productivity levels. This hypothesis is examined for a panel of manufacturing firms in nine African countries. The results indicate that exporters in these countries are more productive and, more importantly, exporters increase their productivity advantage after entry into the export market. While the first finding can be explained by selection--only the most productive firms engage in exporting--the latter cannot. The results are robust when unobserved productivity differences and self-selection into the export market are controlled for using different econometric methods. Scale economies are shown to be an important channel for the productivity advance. Credit constraints and contract enforcement problems prevent firms that only produce for the domestic market from fully exploiting scale economies.
By Johannes Van Biesebroeck
Journal of International Economics, 67(2), December 2005, pp. 373-391.
- Firm Size Matters: Growth and Productivity Growth in African Manufacturing
ABSTRACT:
The recent availability of firm- and plant-level panel data sets has greatly improved our understanding of the life cycle of firms. Several stylized facts have been established and confirmed in a number of developed countries. With time, the patterns discovered are certain to spawn new theories explaining why and how firms enter an industry, expand, and eventually are forced to exit. Most of the research has focused on the experience of firms in mature economies, with a particular emphasis on the United States. Caves (1998) summarizes the findings on turnover and mobility, and Bartelsman and Doms (2000) summarize what has been learned about the distribution and evolution of productivity.
A question remains to what extent the U.S. experience generalizes to other, especially less developed, economies. A recent survey on manufacturing firms in developing countries, Tybout (2000), summarizes the current state of knowledge. A major contribution is to dispel four pervasive myths. Relative to more developed economies, (a) there is no reason to expect less competition, (b) firm turnover is equally important, (c) the scope for realizing scale economies is limited, and (d) dispersion of productivity is similar in developing countries. Although Tybout can draw only occasionally on evidence from sub-Saharan Africa, the findings suggest where not to look for differences between developed and developing countries.
Using a rich panel data set of manufacturing firms in nine sub-Saharan African countries, I document important differences in the evolution of the size and productivity distribution between firms in Africa and those in the United States and other more developed countries.1 American firms follow a life cycle. Firms enter, on average, at a smaller scale and with lower productivity. Many exit shortly after entering, while the survivors quickly converge to the industry average size and productivity level. Exit from the industry by mature firms is generally preceded by a period of declining size and productivity. In Africa, however, the largest and most productive firms also display the highest growth rates and contribute disproportionately to aggregate growth. This leads to divergence between firms at the top and bottom of the distribution. Small firms rarely reach the top of the size and productivity distribution.
Given the large literature on the informal sector in developing countries, this might not come as a surprise,2 were it not that most firms in the sample, even the smaller ones, are in the formal sector. They are set up outside the household, pay taxes, invest frequently, are officially in the manufacturing sector, and have already survived for several years. Even in the formal sector firms tend to fall into two classes. Some stay small and remain vulnerable to exit. Others prosper. They invest, start exporting, and adopt new technologies. It is often assumed that a major obstacle to expansion for firms at the bottom of the size and productivity distribution is the limited availability of credit (see Kochar [1997] for a critical assessment). While larger firms are much more likely to report having access to formal credit, credit availability is also strongly correlated with productivity. The correlation remains after controlling for firm size. Productivity growth decompositions demonstrate further that the labor market improves aggregate productivity in the economy by relocating workers from below to above average productive firms.
By Johannes Van Biesebroeck
Economic Development and Cultural Change, 53(3), April 2005, pp. 545-584.
- Productivity Dynamics with Technology Choice: An Application to Automobile Assembly
ABSTRACT:
During the 1980s, all Japanese automobile producers opened assembly plants in North America. Industry analysts and previous research claim that these transplants are more productive than incumbent plants and that they produce with a substantially different production process. I compare the production processes by estimating a model that allows for heterogeneity in technology and productivity, both of which are intrinsically unobservable. The model is estimated on a panel of assembly plants, controlling for capacity utilization and price effects.
The results indicate that the more recent technology uses capital more intensively and it has a higher elasticity of substitution between labor and capital. Hicks-neutral productivity growth is estimated to be lower, while capital-biased (labor-saving) productivity growth is higher for the new technology. Using the estimation results, I decompose industry-wide productivity growth and find plant-level changes in lean plants to be the most important contributor. Plant-level productivity growth is further decomposed to reveal the importance of capital-biased productivity growth, increases in the capital-labor ratio, and returns to scale.
By Johannes Van Biesebroeck
Review of Economic Studies, 70(1), January 2003, pp. 167-198.
- The Effect of Technology Choice on Automobile Assembly Plant Productivity
ABSTRACT:
Productivity growth is usually represented by a continuous shift of the production or cost function. In the automobile industry, there is evidence of a more discrete change in the technology. I estimate a structural model of production and technology choice, using a panel of US automobile assembly plants from 1963 to 1996. New decomposition results suggest that plant-level changes, as opposed to compositional effects, are the most important determinant of aggregate productivity growth.
By Johannes Van Biesebroeck
The Economic and Social Review, 33(1), Spring, 2002, pp. 65-73.
4. Development Economics . . . . . . . . . . . . . . . . . . . . . 1. IO 2. Trade 3. Prod
- Wages Equal Productivity. Fact or Fiction?
ABSTRACT:
If labor markets operate with only minor frictions, productivity premiums associated with worker characteristics should equal the corresponding wage premiums. We evaluate this for labor market experience, schooling, job tenure, and training using matched employer-employee data from the manufacturing sector of three sub-Saharan countries. Equality holds remarkably well in Zimbabwe (the most developed country in the sample), but not at all in Tanzania (the least developed), while results are intermediate in Kenya. Where equality fails, the pattern is for more general human capital characteristics (such as experience) to receive a wage return that exceeds productivity, while the reverse applies to more firm-specific characteristics (such as tenure). Localized labor markets and imperfect substitutability of worker-types provide a partial explanation.
By Johannes Van Biesebroeck
World Development (forthcoming).
- Trade Growth Following the African Growth and Opportunity Act
ABSTRACT:
This paper investigates whether one of the most important U.S. policies towards Africa of the past few decades achieved its desired result. In 2000, the U.S. dropped trade restrictions on a broad list of products through the African Growth and Opportunity Act (AGOA). Since the Act was applied selectively to both countries and products, we can estimate the impact with a triple difference-in-differences estimation, controlling for both country and product-level import surges at the time of onset. This approach allows us to better address the 'endogeneity of policy' critique of standard difference-in-differences estimation than if either a country or a product-level analysis was performed separately. Despite the fact that the AGOA product list was chosen to not include 'import-sensitive' products, and despite the general challenges of transaction costs in African countries, we find that AGOA had a large and robust impact on apparel imports into the U.S., as well as on the agricultural and manufactured products covered by AGOA. These import responses grew over time and were the largest in product categories where the tariffs removed were large. AGOA did not result in a decrease in exports to Europe in these product categories, suggesting that the U.S.-AGOA imports were not merely diverted from elsewhere. We discuss how the effects vary across countries and the implications of these findings for aggregate export volumes.
By Garth Frazer & Johannes Van Biesebroeck
Review of Economics and Statistics, 92(1), February 2010, pp. 128-144.
- Effects of the 2008-09 Crisis on the Automotive Industry in Developing Countries: A Global Value Chain Perspective
ABSTRACT:
This chapter examines the impact of the 2008-09 economic crisis on global value chains (GVCs) in the automotive industry. The goal is to provide an overview of GVCs in this important industry, examine government responses to the recent economic crisis, and discuss where the industry is headed, particularly in light of the increasing importance of both production and consumption in large developing countries such as China and India.
By Johannes Van Biesebroeck & Timothy Sturgeon
in Olivier Cattaneo, Gary Gereffi and Cornelia Staritz, Global Value Chains in a Postcrisis World: A Development Perspective, 2010, Washington D.C.: World Bank Publications. (Appeared earlier as World Bank Policy Research Working Paper No. 5330)
(A summary appeared in the World Bank Research Digest [Summer 2010, page 6])
- Wage and Productivity Premiums in Sub-Saharan Africa
ABSTRACT:
Using a matched employer-employee data set of manufacturing plants in three sub-Saharan countries, I compare the marginal productivity of different categories of workers with the wages they earn. A methodological contribution is to estimate the firm level production function jointly with the individual level wage equation using a feasible GLS estimator. The additional information of individual workers leads to more precise estimates, especially of the wage premiums, and to a more accurate test. The results indicate that equality holds strongly for the most developed country in the sample (Zimbabwe), but not at all for the least developed country (Tanzania). Moreover, the breakdown in correct remuneration in the two least developed countries follows a distinct pattern. On the one hand, wage premiums exceed productivity premiums for general human capital characteristics (experience and schooling). On the other hand, salaries hardly increase for more firm-specific human capital characteristics (tenure and training), even though these have a clear productivity effect.
By Johannes Van Biesebroeck
in S. Bender, J. Lane, K. Shaw, F. Andersson, and T. von Wachter (eds.) The Analysis of Firms and Employees: Quantitative and Qualitative Approaches, University of Chicago Press. 2008.
- Exporting Raises Productivity in sub-Saharan African Manufacturing Firms
ABSTRACT:
Proponents of trade liberalization argue that exporting helps firms to achieve higher productivity levels. This hypothesis is examined for a panel of manufacturing firms in nine African countries. The results indicate that exporters in these countries are more productive and, more importantly, exporters increase their productivity advantage after entry into the export market. While the first finding can be explained by selection--only the most productive firms engage in exporting--the latter cannot. The results are robust when unobserved productivity differences and self-selection into the export market are controlled for using different econometric methods. Scale economies are shown to be an important channel for the productivity advance. Credit constraints and contract enforcement problems prevent firms that only produce for the domestic market from fully exploiting scale economies.
By Johannes Van Biesebroeck
Journal of International Economics, 67(2), December 2005, pp. 373-391.
- Firm Size Matters: Growth and Productivity Growth in African Manufacturing
ABSTRACT:
The recent availability of firm- and plant-level panel data sets has greatly improved our understanding of the life cycle of firms. Several stylized facts have been established and confirmed in a number of developed countries. With time, the patterns discovered are certain to spawn new theories explaining why and how firms enter an industry, expand, and eventually are forced to exit. Most of the research has focused on the experience of firms in mature economies, with a particular emphasis on the United States. Caves (1998) summarizes the findings on turnover and mobility, and Bartelsman and Doms (2000) summarize what has been learned about the distribution and evolution of productivity.
A question remains to what extent the U.S. experience generalizes to other, especially less developed, economies. A recent survey on manufacturing firms in developing countries, Tybout (2000), summarizes the current state of knowledge. A major contribution is to dispel four pervasive myths. Relative to more developed economies, (a) there is no reason to expect less competition, (b) firm turnover is equally important, (c) the scope for realizing scale economies is limited, and (d) dispersion of productivity is similar in developing countries. Although Tybout can draw only occasionally on evidence from sub-Saharan Africa, the findings suggest where not to look for differences between developed and developing countries.
Using a rich panel data set of manufacturing firms in nine sub-Saharan African countries, I document important differences in the evolution of the size and productivity distribution between firms in Africa and those in the United States and other more developed countries.1 American firms follow a life cycle. Firms enter, on average, at a smaller scale and with lower productivity. Many exit shortly after entering, while the survivors quickly converge to the industry average size and productivity level. Exit from the industry by mature firms is generally preceded by a period of declining size and productivity. In Africa, however, the largest and most productive firms also display the highest growth rates and contribute disproportionately to aggregate growth. This leads to divergence between firms at the top and bottom of the distribution. Small firms rarely reach the top of the size and productivity distribution.
Given the large literature on the informal sector in developing countries, this might not come as a surprise,2 were it not that most firms in the sample, even the smaller ones, are in the formal sector. They are set up outside the household, pay taxes, invest frequently, are officially in the manufacturing sector, and have already survived for several years. Even in the formal sector firms tend to fall into two classes. Some stay small and remain vulnerable to exit. Others prosper. They invest, start exporting, and adopt new technologies. It is often assumed that a major obstacle to expansion for firms at the bottom of the size and productivity distribution is the limited availability of credit (see Kochar [1997] for a critical assessment). While larger firms are much more likely to report having access to formal credit, credit availability is also strongly correlated with productivity. The correlation remains after controlling for firm size. Productivity growth decompositions demonstrate further that the labor market improves aggregate productivity in the economy by relocating workers from below to above average productive firms.
By Johannes Van Biesebroeck
Economic Development and Cultural Change, 53(3), April 2005, pp. 545-584.
- Capability Building in China's Auto Supply Chains
ABSTRACT:
We report on plant visits and data collection carried out in China and present our initial preliminary findings. Eight assembly plants with their respective seat, exhaust and brake suppliers were visited in 2006. Two ECU (engine control unit) suppliers were also interviewed. Where possible, we compare our findings with the situation in China in 2003 and with current best practice worldwide. Information collected pertains to productivity, quality, structure and evolution of the supply chain, engineering capabilities, and relationships with other firms. The outline of this preliminary report is as follows. First, we present our main findings. Second, we give some background information about our ongoing global supplier survey and the automobile industry. Third, we examine four key factors that are driving changes in China's auto sector. We present both aggregate data and detailed observations from our plant visits that formed the basis for our preliminary conclusions. Fourth, we discuss some of the implications of these developments in China for auto-parts suppliers in Canada.
By Loren Brandt & Johannes Van Biesebroeck
Chapter 3 in Conference Proceedings: Offshore Outsourcing: Capitalizing on Lessons Learned, Industry Canada and Rotman School of Management. 2005.
CHINA
AUTOMOTIVE
Centre of Excellence