CAREER: A Micro to Macro Analysis of Productivity and Growth

Stanford University, Stanford CA

Investigators

Abstract

The aim of this grant is to provide fundng for a proposal that analyzes why productivity and growth vary so spectacularly across countries, firms and time. The proposal will apply empirical and simulation analysis to try to understand the causes of these differences, focusing in particular on three key factors:The first looks at the potential role of increased uncertainty in driving recessions by reducing hiring, investment and productivity-enhancing reallocation. The idea is that the rise in uncertainty during recessions will make firms cautious about hiring and investment, cutting the aggregate labor force and capital stock. However this will also reduce the reallocation of factors of production across firms, since productive firms will be more cautious about expanding and unproductive firms more cautious about contracting. Since the reallocation of factors appears to drive the majority of aggregate productivity growth, uncertainty could play a large role in driving business cycles. The second will look at explaining variations in management practices across firms and countries. Business people, policymakers and the media have long claimed that management practices play a key role in shaping firm productivity. But empirical economists have had relatively little to say because of the absence of good management data. The proposal will use a new double-blind survey tool to help to build a systematic evidence base on management practices, and use this to investigate which factors and policies help explain variations in management across firms and countries. The third will look at the role of increasing trade competition from developing countries in driving productivity growth through innovation and IT investment. The rise of Chinese exports in particular has been generating intense debate over its impact on employment and growth. Many commentators have also linked this to the rapid increase in wage-inequality. But these effects are difficult to evaluate because of the lack of internationally comparable micro-data. This proposal will build a new US and European database on employment, innovation and IT to help evaluate the impact of import competition from China and other developing countries. Broader Impacts: Three of the many potentially important broader impacts of the proposed research are the following. First, the work has the potential to identify concrete interventions at the firm level that could significantly increase productivity, particularly in developing countries. Second, the proposed research will create important new databases that are likely to be valuable to both scholars and policymakers. Third, the proposal makes a compelling case that the proposed research will have unusually large spillovers to teaching and mentorship.