Innovation, Productivity, and Economic Dynamics

The research group deals with the empirical analysis of the dynamics and determinants of economic development. Thereby, we recognize that these are individual heterogeneous firms with their specific capabilities to innovate and to efficiently allocate scarce resources that shape patterns at higher level of aggregation (e.g. cause structural change). While following a micro-level approach we aim at adding to the understanding of the actual mechanisms and dynamics in the development of economies as well as for the development of policy instruments. For instance, one of the current research projects deals with the effect of import competition on the productivity and innovating behaviour of firms as well as on the dynamic in and of industries

The research group works closely together with CompNet.

Research Cluster
Productivity and Innovation

Your contact

Dr Matthias Mertens
Dr Matthias Mertens
Mitglied - Department Structural Change and Productivity
Send Message +49 345 7753-707 Personal page

EXTERNAL FUNDING

09.2016 ‐

The Competitiveness Research Network (CompNet)

Funding institutions: European Central Bank (ECB), European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD), Tinbergen Institute, European Commission.

The Competitiveness Research Network (CompNet) provides a forum for high level research and policy analysis in the areas of competitiveness and productivity. Its main activities include the regular updating of its micro-based competitiveness database for European countries, unprecedented in terms of coverage and cross-country comparability.

Professor Reint E. Gropp, PhD

Refereed Publications

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The East-West German Gap in Revenue Productivity: Just a Tale of Output Prices?

Matthias Mertens Steffen Müller

in: Journal of Comparative Economics, forthcoming

Abstract

East German manufacturers’ revenue productivity is substantially below West German levels, even three decades after German unification. Using firm-product-level data with product quantities and prices, we analyze the role of product specialization and show that the prominent “extended work bench hypothesis” cannot explain these sustained productivity differences. Eastern firms specialize in simpler product varieties generating less consumer value and being manufactured with less or cheaper inputs. Yet, such specialization cannot explain the productivity gap because Eastern firms are physically less productive for given product prices. Hence, there is a genuine price-adjusted physical productivity disadvantage of Eastern compared to Western firms.

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Immigration and Entrepreneurship in the United States

Pierre Azoulay Benjamin Jones J. Daniel Kim Javier Miranda

in: American Economic Review: Insights, No. 1, 2022

Abstract

Immigration can expand labor supply and create greater competition for native-born workers. But immigrants may also start new firms, expanding labor demand. This paper uses U.S. administrative data and other data resources to study the role of immigrants in entrepreneurship. We ask how often immigrants start companies, how many jobs these firms create, and how these firms compare with those founded by U.S.-born individuals. A simple model provides a measurement framework for addressing the dual roles of immigrants as founders and workers. The findings suggest that immigrants act more as "job creators" than "job takers" and that non-U.S. born founders play outsized roles in U.S. high-growth entrepreneurship

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Changing Business Dynamism and Productivity: Shocks versus Responsiveness

Ryan A. Decker John Haltiwanger Ron S. Jarmin Javier Miranda

in: American Economic Review, No. 12, 2020

Abstract

The pace of job reallocation has declined in the United States in recent decades. We draw insight from canonical models of business dynamics in which reallocation can decline due to (i) lower dispersion of idiosyncratic shocks faced by businesses, or (ii) weaker marginal responsiveness of businesses to shocks. We show that shock dispersion has actually risen, while the responsiveness of business-level employment to productivity has weakened. Moreover, declining responsiveness can account for a significant fraction of the decline in the pace of job reallocation, and we find suggestive evidence this has been a drag on aggregate productivity.

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Age and High-Growth Entrepreneurship

Pierre Azoulay Benjamin Jones J. Daniel Kim Javier Miranda

in: American Economic Review: Insights, No. 1, 2020

Abstract

Many observers, and many investors, believe that young people are especially likely to produce the most successful new firms. Integrating administrative data on firms, workers, and owners, we study start-ups systematically in the United States and find that successful entrepreneurs are middle-aged, not young. The mean age at founding for the 1-in-1,000 fastest growing new ventures is 45.0. The findings are similar when considering high-technology sectors, entrepreneurial hubs, and successful firm exits. Prior experience in the specific industry predicts much greater rates of entrepreneurial success. These findings strongly reject common hypotheses that emphasize youth as a key trait of successful entrepreneurs.

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Business Dynamics Statistics of High Tech Industries

Nathan Goldschlag Javier Miranda

in: Journal of Economics and Management Strategy, No. 1, 2020

Abstract

Modern market economies are characterized by the reallocation of resources from less productive, less valuable activities to more productive, more valuable ones. Businesses in the High Tech sector play a particularly important role in this reallocation by introducing new products and services that impact the entire economy. In this paper we describe an extension to the Census Bureau’s Business Dynamics Statistics that tracks job creation, job destruction, startups, and exits by firm and establishment characteristics, including sector, firm age, and firm size in the High Tech sector. We preview the resulting statistics, showing the structural shifts in the High Tech sector over the past 30 years, including the surge of entry and young firm activity in the 1990s that reversed abruptly in the early‐2000s.

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Working Papers

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Offshoring, Domestic Employment and Production. Evidence from the German International Sourcing Survey

Wolfhard Kaus Markus Zimmermann

in: IWH Discussion Papers, No. 14, 2022

Abstract

This paper analyses the effect of offshoring (i.e., the relocation of activities previously performed in-house to foreign countries) on various firm outcomes (domestic employment, production, and productivity). It uses data from the International Sourcing Survey (ISS) 2017 for Germany, linked to other firm level data such as business register and ITGS data. First, we find that offshoring is a rare event: In the sample of firms with 50 or more persons employed, only about 3% of manufacturing firms and 1% of business service firms have performed offshoring in the period 2014-2016. Second, difference-in-differences propensity score matching estimates reveal a negative effect of offshoring on domestic employment and production. Most of this negative effect is not because the offshoring firms shrink, but rather because they don’t grow as fast as the non-offshoring firms. We further decompose the underlying employment dynamics by using direct survey evidence on how many jobs the firms destroyed/created due to offshoring. Moreover, we do not find an effect on labour productivity, since the negative effect on domestic employment and production are more or less of the same size. Third, the German data confirm previous findings for Denmark that offshoring is associated with an increase in the share of ‘produced goods imports’, i.e. offshoring firms increase their imports for the same goods they continue to produce domestically. In contrast, it is not the case that offshoring firms increase the share of intermediate goods imports (a commonly used proxy for offshoring), as defined by the BEC Rev. 5 classification.

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The (Heterogenous) Economic Effects of Private Equity Buyouts

Steven J. Davis John Haltiwanger Kyle Handley Josh Lerner Ben Lipsius Javier Miranda

in: IWH Discussion Papers, No. 10, 2022

Abstract

The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 13% over two years after buyouts of publicly listed firms – on average, and relative to control firms – but expands 13% after buyouts of privately held firms. Post-buyout productivity gains at target firms are large on average and much larger yet for deals executed amidst tight credit conditions. A post-buyout tightening of credit conditions or slowing of GDP growth curtails employment growth and intra-firm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms.

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European Firm Concentration and Aggregate Productivity

Tommaso Bighelli Filippo di Mauro Marc Melitz Matthias Mertens

in: IWH Discussion Papers, No. 5, 2021

Abstract

This article 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 towards large and concentrated industries. Over the same period, productivity gains from reallocation accounted for 50% of European productivity growth and 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.

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Capital Misallocation and Innovation

Christian Schmidt Yannik Schneider Sascha Steffen Daniel Streitz

in: SSRN Solutions Research Paper Series, 2020

Abstract

This paper documents that "zombie" lending by undercapitalized banks distorts competition and impedes corporate innovation. This misallocation of capital prevents both the exit of zombie and entry of healthy firms in affected industries adversely impacting output and competition. Worse, capital misallocation depresses patent applications, particularly in high technology- and R&D-intensive sectors, and industries with neck- and-neck competition. We strengthen our results using an IV approach to address reverse causality and innovation survey data from the European Commission. Overall, our results are consistent with externalities imposed on healthy firms through the misallocation of capital.

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Labour Market Power and Between-Firm Wage (In)Equality

Matthias Mertens

in: IWH Discussion Papers, No. 13, 2020

Abstract

I study how labour market power affects firm wage differences using German manufacturing sector firm-level data (1995-2016). In past decades, labour market power increasingly moderated rising between-firm wage inequality. This is because high-paying firms possess high and increasing labour market power and pay wages below competitive levels, whereas low-wage firms pay competitive wages. Over time, large, high-wage, high-productivity firms generate increasingly large labour market rents while selling on competitive product markets. This provides novel insights on why such “superstar firms” are profitable and successful. Using micro-aggregated data covering most economic sectors, I validate my results for ten other European countries.

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