Mark J. Roberts

Patterns of Firm Entry and Exit in U.S. Manufacturing Industries

This article summarizes the patterns of firm entry, growth, and exit in the four-digit U.S. manufacturing industries over the period 1963-1982. Entrants are disaggregated into new firms, existing firms that diversify into an industry by opening new production facilities, and existing firms that enter by altering the mix of outputs they produce in their existing plants. We examine the relative importance of different types of entrants, the persistence of industry entry and exit patterns over time, the correlation between industry entry and exit rates, and the postentry performance of entrants.

The Growth and Failure of U. S. Manufacturing Plants

This paper examines the patterns of postentry employment growth and failure for over 200,000 plants that entered the U. S. manufacturing sector in the 1967–1977 period. The postentry patterns of growth and failure vary significantly with observable employer characteristics. Plant failure rates decline with size and age as do the growth rates of nonfailing plants. The expected growth rate of a plant, which depends on the net effect of these two forces, declines with size for plants owned by single-plant firms but increases with size for plants owned by multiplant firms.

Environmental Regulations and Productivity Growth: The Case of Fossil-fueled Electric Power Generation

This paper measures and analyzes the effect of sulfur dioxide emission restrictions on the rate of productivity growth in the electric power industry over the 1973-79 business cycle. A firm-specific measure of regulatory intensity is developed which depends on the severity of the emission standard, the extent of enforcement, and the unconstrained emission rate relevant to each utility. The results indicate that emission regulations result in significantly higher generating costs, primarily from the increased use of low-sulfur fuels. The average rate of productivity growth was reduced by 0.59 percentage points per year for constrained utilities.

Firm-level evidence on productivity differentials and turnover in Taiwanese manufacturing

Abstract High rates of firm entry and exit have accompanied the rapid and sustained growth of output in Taiwans manufacturing sector. A high rate of firm turnover can contribute to industry productivity growth if it reflects a transfer of resources from less efficient to more efficient producers. Using comprehensive firm-level panel data from the Taiwanese Census of Manufactures for 1981, 1986, and 1991, we measure total factor productivity for entering, exiting, and continuing cohorts of firms and quantify the contribution of firm turnover to industry productivity improvements. Across manufacturing firms, we find significant differences in productivity that are reflected in turnover patterns. Cohorts of new firms have lower average productivity than incumbents but are themselves a heterogeneous group. The more productive members of the group, on average, survive and, in many cases, their productivity converges to the productivity level of older incumbents. Exiting firms are less productive than survivors. The productivity differential between entering and exiting firms is an important source of industry-level productivity growth in Taiwanese manufacturing, accounting for as much as one-half of industry improvement in some industries and time periods.

The role of technology use in the survival and growth of manufacturing plants

This paper documents the relationship between capital intensity, the use of advanced manufacturing technology, growth rates, and exit probabilities for a sample of U.S. manufacturing plants. It utilizes data from a unique establishment survey of technology usage that allows us to control for both the quantity and heterogeneity of capital in the plant. The main findings are that capital-intensive plants and plants employing advanced technology have higher growth rates and are less likely to fail. The effects are present after controlling for plant productivity and age; however, the technology results are sensitive to the inclusion of size variables.

Export Market Participation, Investments in R&D and Worker Training, and the Evolution of Firm Productivity

This paper uses micro panel data for firms in the Taiwanese electronics industry in 1986, 1991 and 1996 to investigate a firms decision to invest in two sources of knowledge - participation in the export market and investments in R&D and/or worker training - and assess their effect on the firms future productivity. The firms decisions to export and invest in R&D and/or worker training are modelled with a bivariate probit model that recognises the interdependence of the decisions. The effect of these investments on the firms future productivity trajectory is then modelled while controlling for the selection bias introduced by endo-genous firm exit. The findings indicate a significant interaction effect between exporting and R&D investments and future productivity, after controlling for size, age and current productivity. Firms that undertake both investment activities have significantly higher future productivity than firms that do one or neither. In addition, these firms are more likely to continue investing in these activities leading to further productivity gains. These findings are consistent with the hypothesis that export experience is an important source of productivity growth for Taiwanese firms and that firm investments in R&D and worker training facilitate their ability to benefit from their exposure to the export market. Copyright 2007 The Authors Journal compilation Blackwell Publishing Ltd. 2007 .

Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector

This article quantifies the role of plant construction, expansion, contraction, and closing in generating net and gross changes in U.S. manufacturing employment over the 1963-82 period. A new longitudinal data set, constructed from the plant-level observations collected in the last five Census of Manufactures, is utilized. The reallocation of employment opportunities across and within sectoral, regional, and cohort boundaries is measured. Over 70% of the turnover in employment opportunities occurs across plants within the same two-digit industry and geographic region. Systematic differences in the employment fluctuations of plants of different ages are also found.

Firm-Level Evidence on Productivity Differentials, Turnover, and Exports in Taiwanese Manufacturing

The manufacturing sector in Taiwan has a market structure composed of large numbers of small firms, a focus on less capital-intensive industries, and a dense network of firms specializing in subcontracting and trading services. It has been argued that these features lower the start-up costs of new manufacturing firms. Recent theoretical models of market evolution show that low sunk entry and exit costs act to speed firm turnover by facilitating entry and increasing the pressure on inefficient firms to exit. As a result, low cost entry and exit may help improve aggregate productivity by allowing for the rapid transfer of resources from less to more efficient producers within an industry. Using comprehensive firm-level panel data from the Taiwanese Census of Manufactures for 1981, 1986, and 1991, we measure differences in total factor productivity among entering, exiting, and continuing firms, and quantify the contribution of firm turnover to industry productivity improvements. We find notable differences in productivity across manufacturing firms that are reflected in turnover patterns in both the domestic and export market. Cohorts of new firms have lower average productivity than incumbents but are also a heterogeneous group. The more productive members of the group survive and in many cases their productivity converges to the productivity level of incumbents. Exiting firms are less productive than survivors. Exporters, including firms that recently left the export market, are more productive than nonexporters. These patterns are consistent with the view that both the domestic and export market sort out high productivity from low productivity firms and that the export market is a tougher screen.

Firm interdependence in oligopolistic markets

Abstract This paper develops an econometric model capable of identifying the pattern of interdependent behavior among firms in an oligopolistic industry. The model is based on the necessary conditions for producer equilibrium which, for a firm in an oligopolistic market, include the firms conjectural variations. The conjectural variations are unknown parameters. The production model is based on the translog production function. The domestic coffee roasting industry is analyzed. Industry and size class specific Cournot and equality hypotheses are tested. Interdependent behavior cannot be rejected.

An Empirical Model of Sunk Costs and the Decision to Export

Exports respond unpredictably to a change in real exchange rates, suggests evidence from the 1980s. Recent theoretical work explains this as a consequence of the sunk costs associated with breaking into foreign markets. Sunk costs include the cost of packaging, upgrading product quality, establishing marketing channels, and accumulating information on demand sources. The authors use micro panel data to estimate a dynamic discrete-choice model of participation in export markets, a model derived from the Krugman-Baldwin sunk-cost hysteresis framework. Applying the model to data on manufacturing plants in Colombia (1981-89), they test for the presence of sunk entry costs and quantify the importance of those costs in explaining export patterns. The econometric results reject the hypothesis that sunk costs are zero. The results, which control for both observed and unobserved sources of plant heterogeneity, indicate that prior export market experience has a substantial effect on the probability of exporting, but its effect depreciates fairly quickly. The reentry costs of plants that have been out of the export market for a year are substantially lower than the costs of a first-time exporter. After a year out of the export market, however, the reentry costs are not significantly different from the entry costs. Plant characteristics are also associated with export behavior: large old plants owned by corporations are more likely to export than other plants. Variations in plant-level cost and demand conditions have much less effect on the profitability of exporting than variations in macroeconomic conditions and sunk costs do. It appears especially difficult to break into foreign markets during periods of world recession.