Productivity and trade orientation in UK manufacturing

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Title: Productivity and trade orientation in UK manufacturing
Authors: Rizov, Marian
Walsh, Patrick P.
Permanent link: http://hdl.handle.net/10197/986
Date: May-2007
Abstract: Within a structural model we explicitly allow for the trade orientation of companies to estimate productivity dynamics within 4-digit UK manufacturing industries. We use the FAME data on UK companies over the period 1994-2003. Following Ackerberg et al. (2005) we adjust the algorithm in Olley and Pakes (1996) by augmenting investment and exit decisions to allow for exogenous demand shocks by trade orientation, assuming that labour and capital are state variables, and productivity follows a first-order Markov process. We extend the framework further by allowing exporting to be an additional control variable that is driven by lagged productivity as in Melitz (2003), leading productivity to follow a second-order Markov process. We find that over the period of introduction of the Euro improvements in aggregate productivity were driven by exporters - mainly by market share reallocations away from inefficient and towards efficient export companies. Aggregate productivity also benefited from improvements in productivity of non-exporters but was driven by improvements within companies rather than by market share reallocations. In a period of sustained real exchange rate appreciation both export cleansing and competitive pressure on non-exporters seem to have contributed to improvements of productivity in the UK manufacturing.
Type of material: Working Paper
Publisher: Institute for the Study of Labor
Series/Report no.: IZA Discussion Paper; No. 2808
Copyright (published version): 2007 The Institute for the Study of Labor
Keywords: Productivity dynamicsStructural modelTrade orientationManufacturing companies
Subject LCSH: Industrial productivity--Great Britain
Great Britain--Commerce
Manufacturing industries--Great Britain
Other versions: ftp://repec.iza.org/RePEc/Discussionpaper/dp2808.pdf
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Politics and International Relations Research Collection
Geary Institute Research Collection

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