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 ClusterProductivity and Innovation
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.
Labor Market Power and the Distorting Effects of International Trade
in: International Journal of Industrial Organization, January 2020
This article examines how final product trade with China shapes and interacts with labor market imperfections that create market power in labor markets and prevent an efficient market outcome. I develop a framework for measuring such labor market power distortions in monetary terms and document large degrees of these distortions in Germany's manufacturing sector. Import competition only exerts labor market disciplining effects if firms, rather than employees, possess labor market power. Otherwise, increasing export demand and import competition both fortify existing distortions, which decreases labor market efficiency. This widens the gap between potential and realized output and thus diminishes classical gains from trade.
Criminal Network Formation and Optimal Detection Policy: The Role of Cascade of Detection
in: Journal of Economic Behavior & Organization, September 2017
This paper investigates the effect of cascade of detection, how detection of a criminal triggers detection of his network neighbors, on criminal network formation. We develop a model in which criminals choose both links and actions. We show that the degree of cascade of detection plays an important role in shaping equilibrium criminal networks. Surprisingly, greater cascade of detection could reduce ex ante social welfare. In particular, we prove that full cascade of detection yields a weakly denser criminal network than that under partial cascade of detection. We further characterize the optimal allocation of the detection resource and demonstrate that it should be highly asymmetric among ex ante identical agents.
The Effects of Local Elections on National Military Spending: A Cross-country Study
in: Defence and Peace Economics, No. 3, 2017
In this paper, we study the domestic political determinants of military spending. Our conceptual framework suggests that power distribution over local and central governments influences the government provision of national public goods, in our context, military expenditure. Drawing on a large cross-country panel, we demonstrate that having local elections will decrease a country’s military expenditure markedly, controlling for other political and economic variables. According to our preferred estimates, a country’s military expenditure is on average 20% lower if its state government officials are locally elected, which is consistent with our theoretical prediction.
Support for Public Research Spin-offs by the Parent Organizations and the Speed of Commercialization
in: The Journal of Technology Transfer, No. 6, 2016
We empirically analyze whether support by the parent organization in the early (nascent and seed) stage speeds up the process of commercialization and helps spin-offs from public research organizations generate first revenues sooner. To identify the impact of support by the parent organization, we apply multivariate regression techniques as well as an instrumental variable approach. Our results show that support in the early stage by the parent organization can speed up commercialization. Moreover, we identify two distinct channels—the help in developing a business plan and in acquiring external capital—through which support by the parent organization can enable spin-offs to generate first revenues sooner.
Regional Capital Flows and Economic Regimes: Evidence from China
in: Economics Letters, April 2016
Using provincial data from China, this paper examines the pattern of capital flows in relation to the transition of economic regimes. We show that fast-growing provinces experienced less capital inflows before the large-scale market reform, contrary to the prediction of the neoclassical growth theory. As China transitioned from the central-planning economy to the market economy, the negative correlation between productivity growth and capital inflows became much less pronounced. From a regional perspective, this finding suggests domestic institutional factors play an important role in shaping the pattern of capital flows.
The East-West German Gap in Revenue Productivity: Just a Tale of Output Prices?
in: IWH Discussion Papers, No. 14, 2020
East German manufacturers’ revenue productivity (value-added per worker) is some 8 (25) percent below West German levels, even three decades after German unification. Using firm-product-level data containing information on product quantities and prices, we analyse the role of product specialisation and reject the prominent ‚extended work bench hypothesis‘, stating a specialisation of Eastern firms in the intermediate input production as explanation for these sustained productivity differences. We decompose the East’s revenue productivity disadvantage into Eastern firms selling at lower prices and producing more physical output for given amounts of inputs within ten-digit product industries. This suggests that Eastern firms specialise vertically in simpler product varieties generating less consumer value but being manufactured with less or cheaper inputs. Vertical specialisation, however, does not explain the productivity gap as Eastern firms are physically less productive for given product prices, implying a genuine physical productivity disadvantage of Eastern compared to Western firms.
Labour Market Power and Between-Firm Wage (In)Equality
in: IWH Discussion Papers, No. 13, 2020
This study investigates how labour market power shapes between-firm wage differences using German manufacturing sector data from 1995 to 2016. Over time, firm- and employee-side labour market power, defined as the difference between wages and marginal revenue products of labour (MRPL), increasingly moderated rising between-firm wage inequality. This is because small, low-wage, low-MRPL firms possess no labour market power and pay wages equal to or even above their MRPL, whereas large, high-wage, high-MRPL firms possess high labour market power and pay wages below their MRPL. These wage-MRPL differences grow over time and compress the firm wage distribution compared to the counterfactual competitive labour market scenario. Particularly for the largest, highest-paying, and highest-MRPL firms, wage-MRPL differences strongly increase over time. This allows these firms to generate increasingly large labour market rents while being active on competitive product markets, providing novel insights on why such “superstar firms” are profitable and successful.
Intangible Capital and Productivity. Firm-level Evidence from German Manufacturing
in: IWH Discussion Papers, No. 1, 2020
We study the importance of intangible capital (R&D, software, patents) for the measurement of productivity using firm-level panel data from German manufacturing. We first document a number of facts on the evolution of intangible investment over time, and its distribution across firms. Aggregate intangible investment increased over time. However, the distribution of intangible investment, even more so than that of physical investment, is heavily right-skewed, with many firms investing nothing or little, and a few firms having very large intensities. Intangible investment is also lumpy. Firms that invest more intensively in intangibles (per capita or as sales share) also tend to be more productive. In a second step, we estimate production functions with and without intangible capital using recent control function approaches to account for the simultaneity of input choice and unobserved productivity shocks. We find a positive output elasticity for research and development (R&D) and, to a lesser extent, software and patent investment. Moreover, the production function estimates show substantial heterogeneity in the output elasticities across industries and firms. While intangible capital has small effects for firms with low intangible intensity, there are strong positive effects for high-intensity firms. Finally, including intangibles in a gross output production function reduces productivity dispersion (measured by the 90-10 decile range) on average by 3%, in some industries as much as nearly 9%.
Import Competition and Firm Productivity: Evidence from German Manufacturing
in: IWH Discussion Papers, No. 20, 2019
This study analyses empirically the effects of import competition on firm productivity (TFPQ) using administrative firm-level panel data from German manufacturing. We find that only import competition from high-income countries is associated with positive incentives for firms to invest in productivity improvement, whereas import competition from middle- and low-income countries is not. To rationalise these findings, we further look at the characteristics of imports from the two types of countries and the effects on R&D, employment and sales. We provide evidence that imports from high-income countries are relatively capital-intensive and technologically more sophisticated goods, at which German firms tend to be relatively good. Costly investment in productivity appears feasible reaction to such type of competition and we find no evidence for downscaling. Imports from middle- and low-wage countries are relatively labour-intensive and technologically less sophisticated goods, at which German firms tend to generally be at disadvantage. In this case, there are no incentives to invest in innovation and productivity and firms tend to decline in sales and employment.
TV and Entrepreneurship
in: IWH Discussion Papers, No. 17, 2017
We empirically analyse whether television (TV) can influence entrepreneurial identity and incidence. To identify causal effects, we utilise a quasi-natural experiment setting. During the division of Germany after WWII into West Germany with a free-market economy and the socialistic East Germany with centrally-planned economy, some East German regions had access to West German public TV that – differently from the East German TV – transmitted images, values, attitudes and view of life compatible with the free-market economy principles and supportive of entrepreneurship. We show that during the 40 years of socialistic regime in East Germany entrepreneurship was highly regulated and virtually impossible and that the prevalent formal and informal institutions broke the traditional ties linking entrepreneurship to the characteristics of individuals so that there were hardly any differences in the levels and development of entrepreneurship between East German regions with and without West German TV signal. Using both, regional and individual level data, we show then that, for the period after the Unification in 1990 which made starting an own business in East Germany, possible again, entrepreneurship incidence is higher among the residents of East German regions that had access to West German public TV, indicating that TV can, while transmitting specific images, values, attitudes and view of life, directly impact on the entrepreneurial mindset of individuals. Moreover, we find that young individuals born after 1980 in East German households that had access to West German TV are also more entrepreneurial. These findings point to second-order effects due to inter-personal and inter-generational transmission, a mechanism that can cause persistent differences in the entrepreneurship incidence across (geographically defined) population groups.