Rubric

Fostering external dimension and productivity in

Eastern Europe:

Insights from firm level analysis

6th Annual NBP Conference on the Future of the European Economy

Warsaw, 14 October 2016

Filippo di Mauro

National University of Singapore

Chairman of CompNet

Rubric

Will draw from two main sources

• Since 2012 the Competitiveness

Research Network (CompNet)

collects firm-level based data to

study productivity-competitiveness

drivers

• A number of EU Eastern European

central banks teams participate

(including Poland, Ceck Republic,

Romania, Croatia, Slovakia, Latvia)

Background

2

• A Vox EU E-book recently

released – with CompNet

contributions – on mapping

EU value chains

Rubric Main ideas

• Will be more "methodological" than "normative", i.e. suggesting

better diagnostic before attempting therapies

• The global trade bonanza of the 2000 decade appears to be over

• Need to better understand supply side growth drivers

• Will draw from the CompNet firm level based dataset

• Two results of an application to Poland

…

3

Rubric

World Trade – Declining and expected to remain weak

4

RubricGlobal manufacturing trade growth much lower than 1991-2007

• 3m-on-3m percentage

change rate

• Even if (probably)

recovering, sensible gap in

growth with pre-crisis

average

5

Source: Markit.

Note: Latest data refers to August 2016 for PMI and to June 2016 for world trade.

p.p. contributions (lhs)

diffusion index (rhs))

Rubric

1) ….by telling us to what extent and under what conditions

exporters are "champions"

2) Let's have a look at 4 stylised facts related to exports

coming from the CompNet database including some 20

EU countries

3) and one Eastern European country case, Poland

How can firms level information help designing better policies?

6

Rubric

• Aggregate export performance largely driven by most productive firms

• Exporters are persistently more productive (about +20%) (e.g. Export

premium)

1. Export status and productivity are strictly related

7

40

45

50

55

60

Lab

or

Pro

ductivity

2001 2003 2005 2007 2009 2011 2013

Non Exporters Exporters

Labour productivity premium

Average across countries

Labor productivity

Exporters Productivity Premium

Source: CompNet and author’s own calculation

Rubric

• Price cost margins are LOWER for exporters and have been

decreasing over the last decade

8

.04

.06

.08

.1

.12

.14

Pri

ce

co

st m

arg

in

2001 2003 2005 2007 2009 2011 2013

Non

Exporters

Exporters

Average across countries

Price cost margin

Source: CompNet and author’s own calculation

2. Exporters generally face a higher degree of competition

Rubric

• Large (exporting) firms have important macro effects

• During the crisis, productivity dropped more for exporters

9

3. Exporters are more sensitive to international shocks

Source: CompNet and author’s own calculation

40

45

50

55

60

Lab

or

Pro

ductivity

2001 2003 2005 2007 2009 2011 2013

Non Exporters Exporters

Labour productivity premium

Average across countries

Labor productivity

Exporters Productivity Premium

Rubric

• The larger and the more productive is the firm, the less FX matters

10

Firm size Firm productivity (TFP)

Source: Berthou, A. and di Mauro, F. (2015): “Exchange rate devaluations: When they can work and why”, Vox.EU, 24

December

4. Exchange rate sensitiveness varies with size and productivity

Rubric

An application to Eastern Europe

11

RubricPoland appears to suffer from an export productivity gap

• Polish exporters report a

lower labour productivity

with respect to the average

of the 16 CompNet EU

countries (5th vintage)

• What could be the reason

for that?

• How they could catch up

with other EU countries?

12

01

02

03

04

0

Average CompNet countries against Poland

Exporters productivity

Other Countries Poland

Rubric...Poland export premium is also lower than for most EU-EE countries

13

Source: CompNet 4th Round and author’s own calculation

Rubric...Poland exports appear to be less highly concentrated than on average

• Top-10 exporters in the WHOLE SAMPLE account for ≈25% of

national exports

• Export concentration is rather high for some EU-EE countries -

rather low for Poland

• Can this be a factor of weakness?

14

0.2

.4.6

.81

MA

LT

A(a

ll)

SLO

VA

KIA

FIN

LA

ND

SP

AIN

(all)

LIT

HU

AN

IA

SLO

VE

NIA

CR

OA

TIA

BE

LG

IUM

PO

RT

UG

AL

RO

MA

NIA

ES

TO

NIA

FR

AN

CE

PO

LA

ND

ITA

LY

Top 10 exporters Top 5 exportersSource: Berthou et al. (2015)

Rubric

1) Measurement of resources reallocation

2) Cross EU-EE country evidence

15

Can this be related to frictions in resource reallocation?

Rubric Resource allocation indicator – the OP Gap

• We use a standard decomposition of Productivity, as proposed by

Olley and Pakes (OP Gap)

• The OP Gap is the within-sector covariance between relative firms’

size and productivity

Ω𝑡 = Ω𝑡 +

𝑖

Δ𝑠𝑖𝑡Δ𝜔𝑖𝑡

where: Ω𝑡 is the unweighted average productivity; Δ𝑠𝑖𝑡 = 𝑠𝑖𝑡 − 𝑠𝑖𝑡, where 𝑠 denotes firm’s size;

Δ𝜔𝑖𝑡 = 𝜔𝑖𝑡 − 𝜔𝑖𝑡, where 𝜔 denotes firm’s productivity

• Intuition the larger the Op gap the more resources are

allocated towards larger and more productive firms

16

RubricPoland - OP gap and labour productivity growth

17

Source: CompNet and author’s own calculation (2002 – 2013 period)

-.05 0 .05 .1

POLAND

OP Gap growth Labour productivity growth

Over the last decade, Poland has

experienced a period of rather considerable

growth in terms of labour productivity.

The role of resource reallocation to boost

growth has been modest but positive

….with the exception of some specific sectors in which

productivity has not gone hand in hand with higher firm size

metals

beverages

Rubric

• Productivity gains came

MOSTLY from better

productive environment

(Infrastructure, education),

including GVCs

• The role of reallocation

remained modest

• Improved during the

crisis … cleansing effect

• But reversed thereafter

• Are the appropriate policy

in place (i.e. Product/labour

market reform)?

18

-.02

0

.02

.04

.06

.08

Pre-crisis Crisis Recovery

POLAND

OP_gap and Labour Productivity Y-to-Y average growth

Resource reallocation OVERTIME

Rubric

• Sluggish world trade calls for much deeper analysis of supply side drivers

• CompNet firm level analysis provides insights and permits

"benchmarking" best cases in the country/sector comparison

• Export status is critical to boost productivity, but relative firm size and

export concentration has a role to play

• Resource reallocation towards the most productive firms can boost

significantly overall productivity of the economies (up to 20-30 percent in

our sample)

• Evidence provided for Poland suggests a much lower contribution

• Worth to investigate why (e.g. frictions of institutional or other nature),

including investing further to gather additional firm level information

Attempting a synthesis

19

Rubric

Thanks for your attention!

20

RubricLabour productivity vs. Unit Labour Cost

21

.51

1.5

2

Inde

x (

200

2 =

1)

2002 2004 2006 2008 2010 2012

ULC for high prod ULC for low prod

LC for high prod LC for low prod

LP for high prod LP for low prod

Manufacturing sector

CZECHREPUBLIC

.51

1.5

2

Inde

x (

200

6 =

1)

2006 2008 2010 2012

ULC for high prod ULC for low prod

LC for high prod LC for low prod

LP for high prod LP for low prod

Manufacturing sector

LATVIA

.81

1.2

1.4

1.6

Inde

x (

200

5 =

1)

2005 2007 2009 2011 2013

ULC for high prod ULC for low prod

LC for high prod LC for low prod

LP for high prod LP for low prod

Manufacturing sector

POLAND

.91

1.1

1.2

1.3

1.4

Inde

x (

200

1 =

1)

2001 2003 2005 2007 2009 2011 2013

ULC for high prod ULC for low prod

LC for high prod LC for low prod

LP for high prod LP for low prod

Manufacturing sector

FRANCE

Rubric

22

-.05 0 .05 .1

Wood And Of Products Of Wood And CorkWearing Apparel

TextilesRubber And Plastic Products

Repair And Installation Of Machinery And EquipmentPrinting And Reproduction Of Recorded Media

Paper And Paper ProductsOther Transport Equipment

Other Nonmetallic Mineral ProductsOther Manufacturing

Motor Vehicles, Trailers And SemitrailersMachinery And Equipment

FurnitureFood Products

Fabricated Metal Products, Except Machinery And EquipmentElectrical Equipment

Computer, Electronic And Optical ProductsChemicals And Chemical Products

BeveragesBasic Pharmaceutical Products And Pharmaceutical Preparations

Basic Metals Leather And Related Products

POLAND

OP_changes Lprod_changes

Rubric

-.1 -.05 0 .05 .1Sectors

Repair and installation of machiOther manufacturing

Manufacture of furnitureManufacture of other transport eManufacture of motor vehicles, t

Manufacture of machinery and equManufacture of electrical equipmManufacture of computer, electro

Manufacture of fabricated metalManufacture of basic metals

Manufacture of other nonmetallicManufacture of rubber and plasti

Manufacture of chemicals and chePrinting and reproduction of rec

Manufacture of paper and paper pManufacture of wood and of produ

Manufacture of leather and relaManufacture of wearing apparel

Manufacture of textilesManufacture of beverages

Manufacture of food products

Source: CompNet 20e sample

CROATIA

Total and between firms gains in productiviy

OP_gap changes Lprod changes

Rubric

-.1 0 .1 .2 .3Sectors

Repair and installation of machiOther manufacturing

Manufacture of furnitureManufacture of other transport eManufacture of motor vehicles, t

Manufacture of machinery and equManufacture of electrical equipmManufacture of computer, electro

Manufacture of fabricated metalManufacture of basic metals

Manufacture of other nonmetallicManufacture of rubber and plasti

Manufacture of chemicals and chePrinting and reproduction of rec

Manufacture of paper and paper pManufacture of wood and of produ

Manufacture of leather and relaManufacture of wearing apparel

Manufacture of textilesManufacture of beverages

Manufacture of food products

Source: CompNet 20e sample

SLOVAKIA

Total and between firms gains in productiviy

OP_gap changes Lprod changes