Ilke Van Beveren

Total Factor Productivity Estimation: A Practical Review

This paper aims to provide empirical researchers with an overview of the methodological issues that arise when estimating total factor productivity at the establishment level, as well as of the existing (parametric and semi�?parametric) techniques designed to overcome them. Apart from the well�?known simultaneity and selection bias, attention is given to methodological issues that have emerged more recently and that are related to the use of deflated values of inputs and outputs (as opposed to quantities) in estimating productivity at the firm level, as well as to the endogeneity of product choice. In discussing the estimation procedures applied in the literature, attention is given to recent developments in the field. Using data on single�?product firms active in the Belgian food and beverages sector, the most commonly applied estimators are illustrated, allowing for comparison of the obtained productivity estimates by way of a simple evaluation exercise.

Concording EU Trade and Production Data Over Time

This paper provides concordance procedures for product-level trade and production data in the EU and examines the implications of changing product classifications on measured product adding and dropping at Belgian firms. Using the algorithms developed by Pierce and Schott (2012a, 2012b), the paper develops concordance procedures that allow researchers to trace changes in coding systems over time and to translate product-level production and trade data into a common classification that is consistent both within a single year and over time. Separate procedures are created for the eightdigit Combined Nomenclature system used to classify international trade activities at the product level within the European Union as well as for the eight-digit Prodcom categories used to classify products in European domestic production data. The paper further highlights important differences in coverage between the Prodcom and Combined Nomenclature classifications which need to be taken into account when generating combined domestic production and international trade data at the product level. The use of consistent product codes over time results in less product adding and dropping at continuing firms in the Belgian export and production data.

Multi-Product Exporters, Carry-Along Trade and the Margins of Trade

New empirical and theoretical work has highlighted the importance of multi-product firms in international tradeflows. We examine multi-product exporters in the small open economy of Belgium, considering their importance and the relationship between the margins of trade and firm productivity, both across firms and within firms over time. In addition, we employ proxies for trade costs to quantify the extensive and intensive margin adjustments of trade. Linking production and export data at the firm-product level, we discover new and, heretofore, unknown facts about multi-product manufacturing exporters. The large majority of Belgian manufacturing firms export products that they do not produce. More than three quarters of the exported products and more than one quarter of export value from Belgian manufacturers are in goods that are not produced by the firm, so-called Carry-Along Trade (CAT). CAT exports are concentrated in the largest and most productive firms and the value of CAT exports responds differently to variation in firm productivity and trade costs than does the export value of goods that the firm produces.

Footloose Multinationals in Belgium

Using firm level panel data for the years 1996–2001, covering all sectors of the economy, the impact of multinational ownership on the exit decisions of firms located in Belgium is estimated. In this analysis, I clearly distinguish for nationality of ownership, allowing for differences between firms that are foreign-owned and multinationals rooted in the domestic economy. Controlling for various firm- and industry-specific factors, it is found that while foreign multinationals are more likely to shut down operations compared to national firms in both manufacturing and service sectors, domestic multinationals only exhibit significantly higher exit rates in the manufacturing industries. The analysis has important policy implications, especially in terms of the desirability of the large impact of multinational firms on employment and output generation in Belgium.

Human capital, firm capabilities and productivity growth

This paper determines the relative importance of technical efficiency and reallocation for aggregate productivity growth in a small open European economy. To this end we use a dataset containing all Belgian firms active in the private sector, both services and manufacturing. We observe at the firm level a number of factors that have been shown to be drivers of productivity differences across firms. More precisely, we have information on human capital such as the level of education and the amount of on-the-job training received by the employees. Moreover we observe the international activities of the firms such as imports and exports. This allows us to make a careful analysis of the micro foundations of aggregate productivity growth by applying the decomposition introduced by Petrin and Levinsohn (2012). The outcome of this exercise will not only provide us with a better understanding of the slowdown of productivity growth in Europe over the past decades, but also give an indication on the role of different productivity drivers in this process.

Product and Process Innovation and the Decision to Export: Firm-Level Evidence for Belgium

Using data from the Community Innovation Survey for Belgium in two consecutive periods, this paper explores the relationship between firm-level innovation activities and the propensity to start exporting. To measure innovation, we include indicators of both innovative effort (R&D activities) as well as innovative output (product and process innovation). Our results suggest that the combination of product and process innovation, rather than either of the two in isolation, increases a firm’s probability to enter the export market. After controlling for potential endogeneity of the innovation activities, only firms with a sufficiently high probability to start exporting engage in product and process innovation prior to their entry on the export market, pointing to the importance of self-selection into innovation.

Using Proxy Variables to Control for Unobservables When Estimating Productivity: A Sensitivity Analysis

The use of proxy variables to control for unobservables when estimating a production function has become increasingly popular in empirical works in recent years. The present paper aims to contribute to this literature in three important ways. First, we provide a structured review of the different estimators and their underlying assumptions. Second, we compare the results obtained using different estimators for a sample of Spanish manufacturing firms, using definitions and data comparable to those used in most empirical works. In comparing the performance of the different estimators, we rely on various proxy variables, apply different definitions of capital, use alternative moment conditions and allow for different timing assumptions of the inputs. Third, in the empirical analysis we propose a simple (non-graphical) test of the monotonicity assumption between productivity and the proxy variable. Our results suggest that productivity measures are more sensitive to the estimator choice rather than to the choice of proxy variables. Moreover, we find that the monotonicity assumption does not hold for a non-negligible proportion of the observations in our data. Importantly, results of a simple evaluation exercise where we compare productivity distributions of exporters versus non-exporters shows that different estimators yield different results, pointing to the importance of making suitable timing assumptions and choosing the appropriate estimator for the data at hand.

Does Firm Agglomeration Drive Product Innovation and Renewal

This paper uses data from the Community Innovation Survey for Belgium to evaluate to what extent firms located in sectors and regions characterized by high employment concentration (clusters) innovate more. We analyze the innovative performance of Belgian firms in the year 2004 and relate it to own-sector employment concentration, as well as to a number of control variables. Our findings show a positive impact of own-sector employment concentration on firm-level innovation output, lending support to the hypothesis that firms can benefit from their location within a cluster. This finding only holds for low-tech sectors and not for high-tech sectors, suggesting that congestion and competition effects have overcome localization economies, in particular for the medium high-tech industries in Belgium.

International rent sharing and takeovers

Purpose - – The purpose of this paper is to provide empirical evidence of international rent sharing in multinational enterprises. It looks at changes in rent sharing before and after the acquisition of a company by a foreign entity, and assesses the role of target and acquirer profitability in the wage setting process for the target firm. It therefore contributes to the evaluation of the impact of a form of globalization (inward foreign direct investment (FDI)) onto wages. Design/methodology/approach - – The authors use a unique firm level longitudinal dataset of M & - As in Belgium between 1998 and 2010. The authors construct a micro-level dataset containing takeover and accounting information for target and acquiring firms. The empirical set up permits to net the estimates from selection effects in the choice of target firm, using propensity score matching and a difference-in-difference approach. Findings - – The authors find evidence that the deal does not significantly affect the degree of domestic rent sharing, but it enables international rent sharing. The authors qualify the results in terms of the acquirer’s location, industry link with the target and controlling stake. Further robustness specifications include different profits and controls, and a comparison with a sample of domestic acquisitions. Research limitations/implications - – The sample of matches for acquired firms is constructed using propensity scores, which may not perfectly capture the differences between targeted and non-targeted companies. Although estimates should be net of selection effects, other sources of endogeneity may still make the estimates inconsistent. Practical implications - – Updating the discussion on the labor market consequences of globalization, and on foreign takeovers in particular. Social implications - – The discussion on international takeover should take into account not only the extensive margin (i.e. labor adjustments) but also salaries. The authors argue that through a precise channel (rent sharing) international takeovers of domestic companies may benefit the domestic labor force. Originality/value - – The dataset was constructed for the purposes of this analysis; rent sharing is tested in a takeover scenario for the first time, thus avoiding selection biases.

Multinational Ownership and R&D Intensity: The Role of External Knowledge Sources and Spillovers

This paper analyzes the drivers of multinational affiliates’ R&D intensity, using a unique dataset based on the fourth Community Innovation Survey for Belgium. Specifically, we investigate the role of foreign affiliates’ local (host country) embeddedness and of host country spillovers on foreign affiliates’ research efforts. Our findings show that foreign affiliates who are able to tap into local knowledge sources demonstrate a higher research intensity, compared to firms lacking such access. Links to clients and public research institutions, in particular, have a powerful impetus on the research effort by foreign subsidiaries. Our findings suggest a complementary relationship between foreign firms’ R&D intensity and the internal research efforts of their competitors as a result of demonstration effects, while the use of external R&D by competitors has a negative impact on the research effort of foreign affiliates as a result of technological spillovers. Our findings have important policy implications, especially in terms of the high dependency of the Belgian economy on foreign R&D. One way to attain the R&D intensity put forward by the Lisbon agenda would be to increase public expenditure on research and development, which would also indirectly increase the research intensity of (foreign) firms.