George van Leeuwen

On the contribution of innovation to multi-factor productivity growth

We embed the innovation production function in a model that analyzes the impact of innovation output on manufacturing multi-factor productivity (MFP) growth. We combine a market share model with a gross output production function. This revenue approach enables a ‘demand-shift’ interpretation of the contribution of innovation to MFP growth. We apply different sets of instrumental variables and different estimation methods to estimate simultaneously the returns from innovation investment to innovation output, the contribution of innovation output to productivity growth and the feedback link running from a firm’s overall sales performance to its innovation endeavor. We draw our empirical results from the second Community Innovation Survey (CIS-2) for the Netherlands. The estimation results from our model show that the impact of innovation differs between measures of firm performance, and that, in our data, the revenue function approach yields more sensible results for the contribution of innovation to MFP growth than the value-added production function framework. Furthermore, the results show that the estimation of return on innovation investment benefits from the inclusion of more information on the technological environment of the firm.

Product, Process and Organizational Innovation: Drivers, Complementarity and Productivity Effects

We propose a model where both R&D and ICT investment feed into a system of three innovation output equations (product, process and organizational innovation), which ultimately feeds into a productivity equation. We find that ICT investment and usage are important drivers of innovation in both manufacturing and services. Doing more R&D has a positive effect on product innovation in manufacturing. The strongest productivity effects are derived from organizational innovation. We find positive effects of product and process innovation when combined with an organizational innovation. There is evidence that organizational innovation is complementary to process innovation.

Ict, Innovation and Business Performance in Services: Evidence for Germany and the Netherlands

Using panel data for German and Dutch firms from the services sector, this paper analyses the importance of ICT capital deepening and innovation for productivity. We employ a model that takes into account that innovation and ICT use may be complementary. The results show that the contribution of ICT capital deepening is raised when firms combine ICT use and technological innovations on a more permanent basis. Moreover, the joint impact of ICT use and permanent technological innovation on productivity appears to be of the same order of magnitude in the two countries. However, the direct impacts of innovation on multi-factor productivity seems to be more robust for Germany than for the Netherlands.

Market dynamics in the Netherlands: Competition policy and the role of small firms

A recent literature analyzing the dynamics of firms and industries suggests that the contribution of new and small firms to the dynamics of competition is significantly greater than found in a static analysis. Policy makers have responded by implementing a wide range of programs to reduce barriers to new-firm startup. At the same time, a number of European countries have maintained systems of collective agreements imposing industry-wide standards on the deployment and remuneration of inputs, particularly labor. The purpose of this paper is to examine whether the ability to deviate from the industry standards practiced by the incumbent firms promotes the viability of small and new firms. We examine this using a longitudinal data base from the Netherlands, where a system of rigid industry-wide collective agreements was abandoned in favor of greater flexibility. Whether or not the ability of small firms to deviate from the standards and practices of the incumbent firms in the industry promotes their viability in the Dutch context is instructive to other European countries, such as Germany and France. The latter countries have identified the startup of new firms as a central policy goal, but have maintained systems of industry-wide collective agreements. The important finding emerging from this paper is that wage flexibility promotes the viability of small firms and thus can be considered to be an instrument of competition policy in a dynamic context

Revisiting the Porter hypothesis: an empirical analysis of Green innovation for the Netherlands

ABSTRACT Almost all empirical research that has attempted to assess the validity of the Porter hypothesis (PH) has started from reduced-form models, for example, single-equation models for estimating the contribution of environmental regulation to productivity. This paper follows a structural approach that allows testing what is known in the literature as the ‘weak’ and the ‘strong’ version of the PH. Our ‘Green Innovation’ model includes three types of eco-investments to explain differences in the incidence of two types of eco-innovation, which are allowed to affect labor productivity. We allow for complementarity between the two types of eco-innovations. Using a comprehensive panel of Dutch manufacturing firm-level data we estimate the relative importance of environmental regulations on eco-investment and eco-innovations. The results of our analysis show a strong corroboration of the weak and a nuanced corroboration of the strong version of the PH.

Adoption Of Advanced Manufacturing Technology And Firm Performance In The Netherlands

This paper presents characteristics of firms that employ advanced manufacturing technology (AMT), explores the pattern of adoption of such technology, and traces the effects of adoption on the evolution of employment and productivity. The study uses linked firm-level data on production, factor inputs and on advanced manufacturing technology. It is found that the percentage of firms that employ advanced technology increases with higher labor productivity, higher export-sales ratios, and especially larger firm sire. Corrected for interactions, however, only initial size and the initial capital-labor ratio aid in predicting adoption of AMT. Conditional on adoption of AMT it is seen that intensity of advanced technology inputs decrease with firm sire and with labar productivity. Finally, firms which employed AMT in 1992 show higher average growth rates of (toral factor) productivity and employment between 1985 and 1991.

Market structure, productivity and scale in European business services

Using data from 11 EU countries, the paper investigates the impact of scale economies on labour productivity in European business services. Moreover, it analyses whether the incidence of scale sub-optimality is related to characteristics of the market or to national regulation characteristics. The econometric analysis is based on a production function model in combination with a distance-to-the-frontier model. We find evidence for the existence of increasing returns to scale in business services firms. A result is that throughout the EU, business-services firms with less than 20 employed persons have a significantly lower level of labour productivity than the rest of the business-services industry. Two factors explain the scale inefficiencies. The first is the level of policy-caused firm-entry costs; higher start-up costs for new firms go along with more scale inefficiency. Secondly, business-services markets tend to be segmented by firm size: firms tend to compete predominantly with firms in their own size segment of the markets. Scale-related inefficiencies are to some extent compensated by more competition within a firms own size segment. If a firm operates in a more “crowded” segment this has a significant and positive impact on its labour productivity. We derive some policy implications from our findings.

Parametric Estimation of Technical and Allocative Efficiencies and Productivity Changes: A Case Study

The increased availability of firm level data has led to a renewed interest in the components of productivity change in different sectors of the economy. Simultaneously, recent years have seen a rapid development of efficiency and productivity change measurement techniques. Nonparametric methods like DEA became increasingly popular, and parametric models became sufficiently elaborate to capture other sources of productivity change than technological change1. At present parametric models are able to distinguish between technological change (the movement of the technological frontier through time) and the change of allocative and technical efficiency. Allocative efficiency is related to sub-optimality of the input mix. A firm may improve its efficiency (reduce its cost) by adapting its input mix to prevailing market prices. Technical efficiency is related to slacks in inputs: the actual level of output can be achieved with less inputs. It is well known that both kinds of efficiency cannot be estimated simultaneously unless panel data are available. For this reason early studies that estimated allocative efficiencies had to assume that firms were fully technically efficient (see e.g. Atkinson and Halvorsen 1984, 1986 for examples of estimating allocative efficiencies from cross-sectional data and Oum and Zhang 1995 for a time series example). Furthermore, in the absence of panel data, estimates of technical efficiencies can only be obtained by imposing some structure on the disturbances of the model (the stochastic frontier approach).

CDM using a cross-country micro moments database†

ABSTRACT This note starts with a retrospective view of the CDM model [Crépon, Bruno, Emmanuel Duguet, and Jacques Mairesse. 1998. “Research, Innovation and Productivity: An Econometric Analysis at the Firm Level.” Economics of Innovation and New Technology 7 (2): 115–158.] as an econometric framework for studying innovation and growth. A narrative interpretation of CDM describes the chain from innovative activity at firms to increases in welfare and makes links to the policy environment. Filling in missing pieces of the innovation to productivity puzzle has a heavy data burden. The paper makes use of the micro moments database (MMD) that allows observing micro-level behavior and macro-level impacts of innovation and production in a large selection of European countries. Two examples are given of research using the MMD. First, we estimate a simplified system of innovation and production equations that can be applied to average firm choices and outcomes, as well as to industry or aggregate outcomes. We find that innovative activity contributes to aggregate productivity even while the average effect at the firm level is insignificant. Next, a cross-country exploration is made that shows heightened productivity effects of combined use by firms of various enterprise-level information and communications technologies.

Dynamic market selection in EU business services

European business services has witnessed about two decades of virtual productivity stagnation. The paper investigates whether this is caused by weak dynamic market selection. The time pattern of scale-related inefficiencies is used as an indicator for the effectiveness of market selection. We use a DEA method to construct the productivity frontier by sub-sector and size class, for business services in 13 EU countries. From this we derive scale economies and their development over time. Between 1999 and 2005 we observe a persistence of scale inefficiencies and X-inefficiencies , with scale efficiency falling rather than growing over time. This indicates malfunctioning competitive selection. The time pattern of inefficiencies is significantly explained by regulatory policies that hamper entry and exit dynamics and labour adjustment, and by a lack of import penetration. The results suggest that policy reform and more market openness will have positive productivity effects. This holds for business services itself, but also wider, because of business services’ products are widely used as intermediary inputs in other parts of the European economy.