The aim of this article is to determine whether increases in private and public indebtedness affect capital misallocation, which is measured as the dispersion in capital returns across firms in different industries. This aim is achieved by using a dataset containing industry- and firm-level information to evaluate how debt dynamics and financial frictions influence resource allocation and allocative efficiency across different economic sectors.

Spain's large GDP per capita gap with highest-income euro area economies and the US is primarily driven by a productivity shortfall. Spanish leading firms, particularly in the tech sector, trail leading global counterparts in productivity and innovation, partly reflecting much weaker R&D investment rooted in lesser reliance on equity. Looking beyond Spain's leading firms also uncovers a broader lack of dynamism. Firms enter the market small and fail to scale up, resulting in a much smaller economic footprint of young high-growth firms in Spain compared to European peers and—even more so—the US. This much rarer occurrence of “gazelles” in Spain partly reflects limited access to venture capital and adequate human capital, as well as tax and regulatory obstacles to firms' growth. Taken together, this comparative lack of dynamism of leading and young high-growth firms alike account for Spain's notoriously large share of small firms. Potential policy remedies include enhancing Spain's product market integration and young firms' access to long-term risk capital through both domestic and EU-level initiatives, and improving the innovation ecosystem including the quality of higher education.

Europe faces a well-known productivity malaise, with a large and widening aggregate productivity gap relative to the U.S. The paper provides a novel diagnosis of the firm-level roots of Europe's productivity growth slowdown through an analysis of data covering the universe of firms in Europe and the U.S over their life cycles. Compared to their U.S. counterparts, critical performance gaps are identified among both Europe's frontier firms and young high-growth firms. Smaller markets and limited market-based financing are key bottlenecks for frontier European firms. Skill shortages and insufficient risk capital, such as venture capital, hinder the formation and subsequent growth of young firms in Europe. Removing remaining intra-Europe barriers to accelerate factor and product markets integration, alongside national reforms to facilitate swifter resource reallocation and enhance human capital, could help revive Europe's productivity growth.

Italy has a significant and widening productivity gap compared to its peers. Using firm-level datasets, this study explores deep firm-level roots of Italy’s productivity malaise and unveils interconnected factors that play a key role in weakening business dynamism across firms’ lifecycle. The study finds that part of the productivity gap relates to Italy’s leading firms and young firms with high growth potentials—both widely considered as the engines of productivity and innovations—as they are falling behind their global counterparts. A combination of Italy-specific and regional factors, such as a shortage of high-skilled workers, lack of risk capital, and limited market size, appears to hamper these firms from unlocking their growth potentials. Additional policy actions, carefully coordinated both at domestic and regional levels, are urgently needed to lift productivity and revive Italy’s private sector.

Weak productivity growth poses a significant challenge for New Zealand’s long-term economic prospects. Low productivity growth partly reflects structural factors, including New Zealand’s remote geography and small markets, as well as the relatively large role of the tourism and agriculture sectors. However, it also reflects costs and incentives for investment and innovation, which in turn are shaped by features of the business environment and limited financing options. The current juncture, with price pressures normalizing and an incipient economic recovery underway, presents an opportunity for a multi-pronged reform agenda to address this productivity challenge.

This paper examines the state of innovation in Central, Eastern, and South-Eastern EU countries. Despite increased innovation capacity, the region faces significant challenges threatening its growth and competitiveness, including severe skills shortages, uneven productivity, and barriers to commercialising innovation. The paper highlights the role of foreign direct investment in driving innovation, noting that firms established through greenfield investments exhibit higher productivity than their domestic counterparts. Contributing to the skills shortage are low public R&D spending, insufficient corporate investment in continuing education, and emigration. Limited collaboration between universities and businesses and a shortage of risk capital are key obstacles to bringing innovative ideas to market. To address these challenges, the paper recommends various measures to improve the availability of skilled labour, secure risk capital, foster collaboration between academia and industry, and enhance the overall business environment. Dashboards illustrate how innovation capacity and outcomes vary between CESEE countries, combining data from the EIB’s Investment Survey with a range of firm-level public and private datasets.

Based on a sufficient statistics approach, we show how the state of technology of European industries relative to the rest of the world can be empirically assessed in a way that is simple in terms of computation, parsimonious in terms of data requirements, but still comprehensive in terms of information. The lack of systematic cross-industry correlation between export specialization and technological advantage suggests that standard measures of revealed comparative advantage only imperfectly capture a country’s technological prowess due to the concurrent influences of factor prices, market size, markups, firm selection and market share reallocation. These findings offer policy insights relevant to the EU’s external competitiveness debate, echoing several recommendations from the Draghi report. Achieving export specialization in key sectors requires more than just technological superiority.

The industrial strategy is a pillar of the UK government’s growth mission. This report by the Competition and Markets Authority’s Microeconomics Unit analyses past industrial policies (policies for shaping the industrial composition of the economy) to inform the design of a modern industrial strategy for the UK.

Danish companies participate in the international division of labour with significant production abroad under Danish ownership, along with products being produced by foreign subsidiaries. There are indications that these activities are largely made possible by the position of strength of the Danish companies and that part of the profits from foreign activities cover the cost of employees and intellectual property rights in Denmark. Overall, there are indications of good productivity and competitiveness in manufacturing, but these trends are best illustrated at industry level and there are industries where things look weaker.

Europe's large per capita income gap with the United States primarily reflects a rising productivity shortfall with deep firm-level roots. Compared to those in the United States, Europe's large leading firms innovate and grow less, while young high-growth firms have a smaller footprint in the economy. With these productivity growth engines being muted, Europe also suffers from an overabundance of stagnant mature firms. This note highlights the roles of smaller markets and limited equity financing as bottlenecks holding back Europe's large leading firms from scaling up and innovating. This is a particular concern in tech sectors, where Europe has been falling behind the most. As for young high-growth firms, the note underscores the importance of human capital in fostering their formation and the need for a greater availability of risk capital to realize their potential. Over and above long-documented policy priorities, such as improving the design and coordination of public support to research and development, tertiary education systems, and the corporate sector, the note's findings highlight the critical role of removing intra-Europe barriers to factor and product markets integration for improving business dynamism and reviving Europe's productivity growth.

This paper examines the macroeconomic implications of rising corporate market power across advanced economies. By combining granular firm-level and sectoral data methodologies, the study investigates how markup dispersion, profit shares, and allocative efficiency evolve over time and impact aggregate productivity, investment, and macroeconomic performance.

Based on the sufficient statistics approach developed by Huang and Ottaviano (2024), we show how the state of technology of European industries relative to the rest of the world can be empirically assessed in a way that is simple in terms of computation, parsimonious in terms of data requirements, but still comprehensive in terms of information. The lack of systematic cross-industry correlation between export specialization and technological advantage suggests that standard measures of revealed comparative advantage only imperfectly capture a country’s technological prowess due to the concurrent influences of factor prices, market size, markups, firm selection and market share reallocation.

This publication is the CMA’s third assessment of how well competition is working across the UK economy. It looks at trends in key cross-economy indicators of competition; the drivers of changes over time; and the broad implications for policy.

This study contributes to the growing body of research that examines how political capabilities affect firms’ financial performance. Although research has found mixed results for the state and local levels of the governance hierarchy, our study is the first that examines this important relationship at the supranational level. First, by building on the resource dependency theory and the capabilities-based view, we argue for a positive effect of the relationship. Second, considering that firms become politically active when their industry environment is uncertain, we argue environmental dynamism and munificence moderate this effect. Our findings support the hypothesis that political capabilities are positively related to firm profitability. This effect is magnified when firms operate in industries with high market dynamism. However, we find no effect whereby higher levels of munificence negatively moderate this link.

Corporates’ political activities have been identifies as important for affecting firm-level innovation outcomes. The present study examines the ways these corporate political activities may influence innovation inputs. We draw on the capability literature to theorize a positive relationship between political capabilities (i.e., firms’ organizational and strategic capacities to conduct political activities effectively) and firm-level R&D intensity. Moreover, we theorize on the contingencies of this relationship. Our hypotheses are tested by using a hand-collected data set in the context of the supranational European Union. The results of the regression technique confirm that political capabilities are positively related to R&D intensity. Market dynamism positively moderates the relationship between political capabilities and R&D intensity, whereas industry concentration negatively moderates the relationship. At a higher level of abstraction, our study makes important contributions to our understanding of how and under what conditions political activities relate to corporate innovation.

This paper studies the productivity effects of intangible assets using 9th vintage of the CompNet dataset. Descriptive work shows that there is dispersion in usage of intangibles; some firms invest heavily into intangible assets and many firms do not invest at all. In addition, preliminary evidence, using the joint distributions provided by CompNet, implies that intangible assets increase the productivity of the firms that already belong to the 90th productivity percentile. Furthermore, I estimate the output elasticity of intangible assets by a Cobb Douglas production function using data at the 2-digit industry (NACE rev 2) level of aggregation and find output elasticity of intangibles to be approximately between 0.08–0.10. A special emphasis is placed on development of intangibles in Finland. I find that concentration in intangibles, measured by the Herfindahl-Hirschman index, has increased in the past few years and that intangible assets are concentrated in ICT and manufacturing macro-sectors. In addition, I estimate a Cobb Douglas production function using only data from Finland and find that while output elasticity on intangible assets is approximately 0.05, the coefficient is not statistically significant, and hence, the evidence is inconclusive.

This paper derives a European Herfindahl–Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity toward large and concentrated industries. Over the same period, productivity gains from an increasing allocative efficiency of the European market accounted for 50% of European productivity growth while markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power. (JEL: D24, F15, L11, L25, O47)

Theoretical models and international evidence have established that foreign direct investment is associated with new technologies, productivity gains, higher wages, and wage inequality in the host countries. While most existing studies on foreign direct investment and wage inequality have examined relative wages across skills, occupations and sectors, recent contributions to the theoretical and empirical literature highlight the role of wage dispersion between firms as an important driver of overall income inequality. Against this background, this paper examines wage dispersion between firms across European regions and the role played by multinational firms with dominant market shares, the so-called “superstar firms”. Firstly, we document the evolution of wage dispersion between firms and the regional presence of foreign affiliates across European regions. Second, we empirically investigate the role of inward foreign direct investment as a driver of wage dispersion between firms across European regions. The analysis uses firm-level data from the ORBIS Europe data set over 2012-2021 combined with a range of data for European regions. Using a shift-share instrumental variables approach, we find that foreign direct investment, particularly international superstar firms, contributed to increased wage inequality between firms across European regions.

We study the changing patterns of business dynamism in Europe after 2000 using novel micro-aggregated data that we collect for 19 European countries. In all of them, we document a decline in job reallocation rates that concerns most economic sectors. This is mainly driven by dynamics within sectors, size classes, and age classes rather than by compositional changes. Large and mature firms show the strongest decline in job reallocation rates. Simultaneously, the shares of employment and sales of young firms decline. Consistent with US evidence, firms’ employment changes have become less responsive to productivity. However, the dispersion of firms’ productivity shocks has decreased too. To enhance our understanding of these patterns, we derive a firm-level framework that relates changes in firms’ productivity, market power, and technology to job reallocation and firms’ responsiveness.

I study how labor market power affects firm wage differences using German manufacturing sector firm-level data (1995-2016). In past decades, labor market power increasingly moderated rising between-firm wage differences. This is because high-paying firms possess high and increasing labor market power and pay wages below competitive levels, whereas low-wage firms pay competitive or even above competitive wages. Over time, large, high-wage, high-productivity firms generate increasingly large labor market rents while charging comparably low product markups. This provides novel insights on why such top firms are profitable and successful. Using micro-aggregated data covering most economic sectors, I validate key results for multiple European countries.

Several models posit a positive cross-sectional correlation between markups and firm size, which, among others, characterizes misallocation, factor shares, and gains from trade. Yet, taking labor market power into account in markup estimation, we show that larger firms have lower markups. This correlation turns positive only after conditioning on wage markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias) and hold across 19 European countries. We discuss the resulting implications and highlight studying input and output market power within an integrated framework as an important next step for future research.

We study how monetary policy affects local market competition in a union of countries experiencing different economic conditions: the euro area. We find that when monetary conditions tighten (loosen), from the point of view of an individual economy, market concentration increases (declines). This effect is more pronounced when interest rates have been low-for-long, and it is stronger in sectors that are relatively more sensitive to changes in financing conditions. The underlying mechanism is a decline (increase) in short-term debt and investment by smaller and medium-size firms, relative to large firms, following monetary policy tightening (easing).

This study investigates the impact of hiring problems, industrial relations at the workplace and profitability on compensation and wage premia for nursing staff in Germany. Based on Mincer-type earnings functions and a large linked-employee dataset, regressions with unobserved individual and firm-specific fixed effects are estimated. The econometric analysis shows that firms with staffing problems pay a wage premium of about 4 to 5% for nurses. However, this only holds for firms that do not have a works council and/or are not profitable. Here, the wage premium for staffing is paid at the expense of previous premiums for co-determination at the workplace or rent sharing. These premiums are significantly reduced or eliminated due to better outside options. Overall, the pay increases for nurses in firms with staffing problems. Nevertheless, this does not apply to all skilled workers in Germany.

Background note for the 29th meeting of the OECD Network for Farm-Level Analysis: 14 March 2022, 12:00-15:30 (CET). The availability of high-quality microdata is essential for monitoring and assessing countries' performance towards achieving the SDGs. In line with the OECD's evidence-based principles for rural policy, the availability of environmental and social data at the micro-level, alongside economic data, is indispensable for monitoring economies' performance towards achieving sustainable and inclusive growth (OECD, 2019).

How can we evaluate the performance of the Japanese economy in terms of business activities? To answer this question, both the performances of the Japanese economy and that of other countries need to be measured under a common methodology and compared. Furthermore, such comparison should be done based not only on measures of productivity but also on the so-called "measures of business dynamism ". Those measures account for how numerous heterogeneous firms are growing and declining, how market concentrations change, how markups are evolving, and so on. Toward this end, we measure productivity and various determinants of business dynamism for Japanese firms using the "Basic Survey of Japanese Business Structure and Activities" and compare them with those of EU countries (CompNet 8th Vintage firm-level data), based on a common methodology. The comparison of those two sets of results for the period after 2000 reveals that while continuous productivity improvements were observed in several EU countries, productivity growth in Japan has been stagnating over the 2010s. Such improvement in EU countries is accompanied by the increase in allocative efficiency while the allocative efficiency in Japan has been deteriorating. We also find that the decline in capital intensity in Japan is pronounced.

We estimate aggregate and industry cost and profit shares for the corporate sectors of France Germany, Italy and Spain, in the period 1995–2018, and compare them with estimates for US corporations. The results indicate an upward trend in economic profits in the United States and Germany since the year 2000 that it is not evident in other euro area countries. There is supporting evidence that, in the United States, the rising economic profits are the result of increasing corporate market power resulting from increasing market concentration across industries and over time. However, the research of this paper shows that in the case of Germany the rising profits of the corporate sector are better explained by its cost competitive advantage, both in terms of labour and capital unit costs, over the rest of the euro area's corporate sectors within the single market of the monetary union.

The sharing economy, intended as the creation of new markets for idle resources managed by digital intermediary platforms, is spreading in most economies. This paper offers new evidence on the geography of this phenomenon in the NUTS2 regions of the EU27 + UK by proposing a methodology to identify its stages and intensity of development. Results suggest that the sharing economy develops unevenly across countries and across regions, highlighting exceptional cases of mismatch between the intensity of the sharing economy and the most favourable socio-economic context conditions and warning against the possible detrimental effects of its development for wage inequalities.

In recent decades, market power has been on the rise, although its increase varies between sectors. We argue that this heterogeneity can be partially attributed to sector-specific differences in turbulence dynamics. Turbulence, a measure of firms’ churn over the revenue productivity distribution, reflects firms’ ability to sustain their productivity over time. In a dynamic oligopolistic competition model, an increase in turbulence accelerates the turnover of leaders, and triggers reallocation of market shares towards high-markup firms. The predictions of our model are consistent with empirical evidence from both the United States and Europe.

In this paper, I study the consequences of globalization, as measured by the involvement of firms in GVC, on the business environment. In particular, I focus on concentration and productivity, firstly by estimating robust elasticities and then isolating the exogenous component of the variation in the participation in GVC. To this aim, I exploit the distance between industries in terms of upstreamness and downstreamness along the supply chain. The evidences suggest that involvement in international supply chains is positively related to concentration at the sector level and positively associated with aggregate productivity, an effect that is driven by the firms at the top of the productivity distribution. Finally, I relate these findings to the current pandemic, going beyond the lack of official statistics and estimating GVC participation for 2020 at the country-level through real time world-seaborne trade data, providing evidences on the re-absorption of the Covid shock in several European economies.

European institutions have repeatedly represented the EU as an actor that can use the attractiveness of its market to promote human rights internationally. From this perspective, EU trade sanctions represent a hard power tool to push the government of states accused of major human rights violations to abide by international law. In its reaction to the Rohingya crisis in 2018, despite the European Parliament's call for the lifting of Myanmar's trade preferences, the Council of the EU stated that it would rather tackle the problem by taking a “constructive approach” based on dialogue. We provide a political-economy explanation of this choice, making a plausible case that the political pressures from European importers and exporters, not to jeopardise trade relations with Myanmar, prevailed over the demands of European protectionist groups and NGOs advocating a tougher position. The firms interested in maintaining preferential trade relations with Myanmar were primarily motivated by a desire to avoid a disruption of trade and investment links within global value chains (GVCs) so that they could continue competing with Chinese enterprises.

The study of market power has garnered interest from academia, policymakers, and industry in recent times. This paper investigates the evolution of market power in the European manufacturing industry between 2000 and 2014 using sectoral and micro-level data approaches. By examining markups across countries and manufacturing sectors, the study provides insights into competitive dynamics, industrial concentration, and structural performance within European markets over the period.

Climate change policies are often met with resistance due to fears over the loss of competitiveness and employment. This paper studies the effect of energy prices, which are a proxy for a carbon tax, on the labor share of income and industry concentration. We estimate the effect of energy price shocks on the labor share and industry concentration at the country-sector level for 15 European countries for the period 2000–2016. We obtain exogenous variation in the energy prices relevant for industry level outcomes by using a shift-share approach standard in the literature, where we interact the initial shares of different resources in energy production of country-industry pairs with the national or continent-wide resource prices over time.

We study whether technology gains in sectors related to Information and Communications Technology (ICT) increase productivity in the rest of the economy. To separate exogenous gains in ICT from other technological progress, we use the relative price of ICT goods and services in a structural VAR with medium-run restrictions. Using local projections to estimate the effect of ICT-related technology gains on sectoral technology (TFP), we find two sets of results. First, since the mid-2000s there have been positive and persistent technology spillovers to sectors intensively using ICT. Second, neglecting leasing activity leads to an overestimation of the TFP response for all sectors except the leasing sector, where it is strongly underestimated.

We construct a new dataset of 1.3 million European startups. Cluster analysis identifies five startup types present across countries, industries, and cohorts. Initial differences across types persist, and each displays a characteristic life cycle in productivity, employment, and survival. We embed these startup types in a firm dynamics model with heterogeneous entry, investment, and financing, and quantify how policy can shift cohort composition. Differentiated corporate tax reforms favoring high-performance types yield substantial productivity gains. Uniform fiscal instruments differ sharply: capital subsidies raise output and productivity through composition effects, labor subsidies reduce them, and interest subsidies are roughly neutral.

We study the consequences of the COVID-19 pandemic on productivity by matching firm performance outcomes with corresponding firm-level information on government support. Our cross-country evidence for five EU countries shows that the pandemic led to a significant short-term decline in productivity predominantly driven by the within-firm growth component. A thorough comparative analysis of the distribution of employment and overall direct subsidies, considering separately also relative firm-level support and the probability of being supported, reveals several common characteristics. In general, the pandemic support was distributed rather efficiently, i.e. towards “deserving” firms and only marginally towards “zombie” and non-viable firms. However, government subsidies appear to have had a limited effect on aggregate productivity developments.

The stability of the labour share of income is a fundamental feature of many macroeconomic models. Empirically however, the labour share varies considerably across countries and across sectors within countries. In addition, gradual declines in the labour share have been documented in many countries leading to much debate on the causes of the reduction. This paper examines several of the potential drivers of variation in the labour share across countries and sectors in Europe. Beginning with a simple shift-share analysis, we demonstrate that observed changes has been primarily driven by changes within rather than between sectors. We then use aggregated microdata to investigate the strength of correlation between sectoral distributions of labour shares and measures of productivity and market power. Our main findings are that the advance of globalisation and a widening productivity gap from the rise of “superstar firms” are negatively related to the labour share, and that this negative relationship is stronger for the reallocation margin within sectors compared to its link to between sector reallocation.

Over the past twenty years, Europe has deregulated many industries, protected consumer welfare, and created strongly independent regulators. These policies represent a stark departure from historical traditions in continental Europe. How and why did this turnaround happen? We build a political economy model of market regulation and we compare the design of national and supra-national regulators. We show that countries in a single market willingly promote a supranational regulator that enforces free markets beyond the preferences of any individual country. We test and confirm the predictions of the model. European institutions are indeed more independent and enforce competition more strongly than any individual country ever did. Countries with ex-ante weaker institutions benefit more from the delegation of competition policy to the EU level.

The paper provides an ex-post analysis of the determinants of within-country regional heterogeneity of the labour market impact of COVID-19. By focussing on the first wave of the pandemic in the four largest euro area economies, it finds that the propagation of the economic impact across regions cannot be explained by the spread of infections only. Instead, a region’s economic structure is a significant driver of the observed heterogeneity. Moreover, our results suggest that a region’s trade relations, both within and across countries, represent a relevant indirect channel through which COVID-19 related disruptions affect regional economic activity. In this regard, the analysis depicts vulnerabilities arising from potential disruptions of the highly integrated EU supply chains.

This paper reviews the data quality of the EIB Group Survey on Investment and Investment Finance (EIBIS). It finds that the chosen sampling framework (the Bureau van Dijk ORBIS database) captures the business population of interest well and that there is little evidence of selection bias during fieldwork, suggesting that EIBIS is a reliable data source to study the corporate investment situation in the EU. This result is predicated on the following observations: 1) the ORBIS database has sufficient coverage relative to the actual population; 2) a benchmarking exercise of the final survey sample against randomly drawn samples from the sampling frame shows there is no systematic sampling bias in EIBIS. Efforts to create firm panel do not jeopardize randomness. 3) A comparison of the final sample with two other databases: the Eurostat Structural Business Statistics as well as the CompNet database shows that EIBIS portrays both cross-country differences and dynamics of key variables in a satisfactory way.

What drives external performance of countries? This is a recurring question in academia and policy. The factors underlying export growth are receiving great attention, as countries struggle to grow out of the crisis by increasing exports and as protectionist discourses take foot again. Despite decades of debates, it is still unclear what the drivers of external performance are and, importantly, which ones policy makers can influence. We use Bayesian Model Averaging in a panel setting to investigate the drivers of export market shares of 25 EU countries, considering a wide range of traditional indicators along with novel ones developed within the CompNet Competitiveness Research Network. We find that export market share growth is linked to different factors in the old and in the new Member States, with one exception: for both groups, competitive pressures from China have strongly affected export performance since the early 2000s. In the case of old EU Member States, investment, quality of institutions and available liquidity to firms also appear to play a role. For the new EU Member States, labour and total factor productivity are particularly important, while inward FDI matters rather than domestic investment. Price competitiveness does not seem to play a very important role in either set of countries: relative export prices do show correlation with export performance for the new Member States, but only when they are adjusted for quality. Our results point to the importance of considering the "exporting stage" of a country when discussing export-enhancing policies.

Wage inequality has risen in many countries over recent decades. At the same time, production has become increasingly concentrated in a small number of firms. In this paper, we show that these two phenomena are linked. Theoretically, we show that an increase in consumer price sensitivity will lead to an increase in the sectoral concentration of revenues and employment, as well as an increase in wage dispersion between firms within industries. Empirically, we use industry-level data from 14 European countries over the period 1999–2016 and show robust evidence of a positive and statistically significant correlation between concentration and between-firm wage inequality. We show that this is driven by higher market shares and higher wages in high-productivity firms within more concentrated sectors.

We examine the gains from globalization in the presence of firm heterogeneity and potential resource misallocation. We show theoretically that without distortions, bilateral and export liberalizations increase aggregate welfare and productivity, while import liberalization has ambiguous effects. Resource misallocation can either amplify, dampen or reverse the gains from trade. Using model-consistent measures and unique new data on 14 European countries and 20 industries in 1998-2011, we empirically establish that exogenous shocks to export demand and import competition both generate large aggregate productivity gains. Guided by theory, we provide evidence consistent with these effects operating through reallocations across firms in the presence of distortions: (i) Both export and import expansion increase average firm productivity, but the former also shifts activity towards more productive firms, while the latter acts in reverse. (ii) Both export and import exposure raise the productivity threshold for survival, but this cut-off is not a sufficient statistic for aggregate productivity. (iii) Efficient institutions, factor and product markets amplify the gains from import competition but dampen those from export access.

The fall of labor’s share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain. Existing empirical assessments typically rely on industry or macro data, obscuring heterogeneity among firms. In this article, we analyze micro panel data from the U.S. Economic Census since 1982 and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes push sales toward the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value added. We empirically assess seven predictions of this hypothesis: (i) industry sales will increasingly concentrate in a small number of firms; (ii) industries where concentration rises most will have the largest declines in the labor share; (iii) the fall in the labor share will be driven largely by reallocation rather than a fall in the unweighted mean labor share across all firms; (iv) the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; (v) the industries that are becoming more concentrated will exhibit faster growth of productivity; (vi) the aggregate markup will rise more than the typical firm’s markup; and (vii) these patterns should be observed not only in U.S. firms but also internationally. We find support for all of these predictions.

In terms of economic development, Slovenia ranks around the middle among the EU Member States; most of its lag behind the EU average is explained by the productivity gap. Slovenia’s convergence with more advanced countries in terms of productivity was interrupted during the crisis and continued only slowly as economic growth picked up again. The relatively high GDP growth rates since 2015 have mainly been achieved through increased employment, while productivity growth remained moderate.

Since the beginning of the financial crisis, market concentration has been growing in most EU member states. Many service and manufacturing industries are supplied by a handful of firms and market concentration is getting worse year on year. But rising market concentration is just one of the symptoms of a less competitive Europe. Markets show signs of a decline in business churn and a high and persistent level of market power. Tourism, legal and accounting, and advertising show some of the highest margins across countries. Over time, the auto, chemicals, and construction industries have experienced the fastest growth in markups.

Firms are heterogeneous, even within narrowly defined sectors. This paper surveys the relevant theoretical and empirical literature on firm heterogeneity and external trade. By innovatively exploiting rich cross-country micro-aggregated data sourced from the ECB Competitiveness Research Network (CompNet), this study then investigates the main implications of firm heterogeneity for trade of EU countries, showing a set of stylised facts. On the one hand, exporting firms are larger, more productive and pay higher wages than non-exporting firms. Only these firms are able to bear export costs, related to various factors, such as tariff and non-tariff trade barriers, the quality of the legal system or access to finance. Hence, only few enterprises actually export, and the intensity of aggregate export concentration within few large firms varies across countries and sectors. On the other hand, opening to trade boosts individual firms’ productivity growth, via a number of channels, and also enhances allocative efficiency across firms, in turn increasing aggregate productivity growth. One of the main standard determinants of export growth, namely changes in the real effective exchange rate, impacts aggregate performance differently across countries and sectors, depending on sectoral composition and on firm characteristics within a given sector.

This paper builds upon Bartelsman, Lopez-Garcia, and Presidente (2018) and provides empirical evidence on the cyclical features of labour reallocation in a sample of European Union (EU) countries over the Great Recession and the slow recovery. The analysis makes use of cross-country micro-aggregated data on firm dynamics and productivity from release 6 of the ECB CompNet database. While productivity-enhancing reallocation generally is counter-cyclical, with a stronger effect providing a silver lining in downturns, it was weaker during the Great Recession in the EU, but reverted back to more normal patters in the most recent years.

We show that cross-country comparisons of corporate labor shares are affected by differences in the delineation of corporate sectors. While the US excludes all self-employed and most dwellings from the corporate sector, other countries include large amounts of both — biasing labor shares downwards. We propose two methods to control for these differences and obtain ‘harmonized’ non-housing labor share series. Contrary to common wisdom, the harmonized series remain stable across all major economies except the US, where the labor share still declines, primarily due to manufacturing. These new facts cast doubts on most technological explanations for the labor share decline.

Structural policies in the euro area are of great interest for the Eurosystem, particularly as they can support the smooth functioning of the Economic and Monetary Union (EMU) and the effectiveness of monetary policy. This paper adopts a broad definition of structural policies, analysing not only the benefits of efficient labour, product and financial market regulations, but also emphasising the importance of good governance and efficient institutions that ensure high quality and impartial public services, the rule of law and the control of rent-seeking. The paper concludes that there are many opportunities for enhanced structural policies in EU and euro area countries which can yield substantial gains by boosting long-term income and employment growth and supporting social fairness, also via better and more equal opportunities. It provides empirical and model-based analyses on the impacts and the interactions of structural policies, highlighting synergies between growth and inclusiveness, while acknowledging that structural policy changes need to be country-specific to reflect national conditions and social preferences. Well-designed structural policies would also strengthen economic resilience and convergence of Member States, bringing the euro area closer to the requirements of an optimal currency area and improving the transmission of monetary policy. The paper also discusses the political economy causes of the sluggish implementation of socially beneficial structural policies and assesses ways to deal with possible short-term costs of reforms.

This paper uses cross-country micro-aggregated data on firm dynamics and productivity from the ECB CompNet database to provide empirical evidence on factor reallocation in the European Union (EU). The analysis finds that reallocation is towards more productive firms although the magnitude varies across countries and over time. Variation in reallocation is related to structural differences in firm size distribution across countries as well as to variation in labor and product market institutions. Productivity-enhancing reallocation generally rises in downturns but, similar to findings for the US, it did not pick up in the Great Recession. The sharp drop in exports and tightness in credit markets are seen to provide a partial explanation for this lack of a silver lining.