Abstract:

We investigate the role of technological improvement and market share reallocation in determining global changes in sectoral labor productivity. Contrary to previous work that neglects dependencies between suppliers in global value chains, we account for input linkages that impact both channels of productivity improvement. Using sector-level data from the World Input–Output Database, we show that reallocation between countries has a larger effect on productivity change than innovation within countries.

Abstract: The cross-sectional variation in corporate profitability has occupied research across fields as diverse as strategic management, industrial organization, finance, and accounting. Prior work suggests that corporate idiosyncrasies are important determinants of profitability, but it disagrees on the quantitative importance of particular effects. This paper shows that corporate specificities become irrelevant in the long run because profitability is ergodic conditional on survival, leading to a uniform, time-invariant regularity in profitability that applies across firms. Conditional on survival, we cannot reject the hypothesis that corporations are on average equally profitable and also experience equally volatile fluctuations in their profitability, irrespective of their individual characteristics. Because the same is not true for shorter-lived firms, even for more than 20 years after entry, we can reconcile our findings with an extensive literature that studies profitability in heterogeneous samples of surviving and shorter-lived firms. Our findings provide a new benchmark for long-term performance in competitive environments and offer a novel perspective by highlighting a robust commonality instead of specificities.

Abstract 

The idea that market selection promotes survival and expansion of the “fittest” producers is a key principle underlying theories of competition. Yet, despite its intuitive appeal, the hypothesis that companies with superior productivity also exhibit higher growth lacks empirical support. One reason for this is that companies are not “islands” that produce goods and services in isolation but depend on their suppliers in value chains, implying that excessive growth can also originate in the superior productive performance of these value-chain partners. Neglecting these dependencies in empirical tests of the selection hypothesis leads to measurement errors and may impair the identification of competition for the market. In this paper, we use data from the World Input-Output Database to capture these global value-chain relationships in an empirical test for market selection, studying competition between country-sectors for a global market share in different economic activities. Compared to the conventional view that focuses on individual productivities, our value-chain perspective on the productivity-growth nexus provides stronger empirical support for market selection. This suggests that the scope of selection reaches beyond the level of individual producers and requires a systemic analysis of production networks. Our findings contribute to a better understanding of the determinants of selection in competitive environments and also represent a novel application of global value-chain data.

The paper "The formation of input-output architecture: evidence from the European Union“ by Philipp Mundt has been accepted for publication in the Journal of Economic Behavior and Organization 83, 89-104, 2021. (DOI)

Abstract:

Employing sector-level data on production input interlinkages within and across all countries of the European Union, I use a stochastic actor-oriented model to estimate the evolution of input-output architecture over the period 2001-2014. My behavioral model of network formation approaches these dynamics from the perspective of individual nodes and thus provides a framework to test alternative microfoundations of an endogenous production network. The proposed methodology resolves at least two fundamental problems of empirical investigations into the dynamics of production networks. First, it bypasses the endogeneity problem that arises when topological features of the network determine the formation or dissolution of network ties. Second, it accounts for the mutual dependence between the network and producers’ individual behaviors. Building on this model, I find that supplier heterogeneity in productivity, growth, and labor costs, the introduction of a common currency, and several structural network characteristics such as degree centrality (preferential attachment) as well as the tendencies to connect to indirect suppliers in the nearest network neighborhood (transitivity) and to form bilateral relationships (reciprocity) determine the evolution of the production network. At the same time, changes of the network structure feed back on productivity, growth, and labor costs as producers converge in behavior to their supply chain partners. My results, therefore, testify to additional dynamic network effects on aggregate outcomes that arise from the adjustment of the production network in response to idiosyncratic shocks. 

Professor Milaković addresses these questions in an introductory lecture on complexity economics at Free University of Berlin in front of the Kritische WirtschaftswissenschaftlerInnen Berlin, a student group dedicated to the advancement of pluralist economics. A recording of the lecture (held on Nov. 25, 2019 in English) can be found here: https://www.youtube.com/watch (unfortunately, the first 10 minutes of the talk are missing and the audio quality is rather poor).

The guest lecture takes place on 18.12. at 10 to 12 s.t. in room F301.