CES-WP-04-20
IT and Beyond: The Contribution of Heterogenous Capital to Productivity
Daniel Wilson
December 01, 2004
This paper explores the relationship between capital composition and productivity using
a unique and remarkably detailed data set on firm-level, asset-specific investment in
the U.S. Using cross-sectional and longitudinal regressions, I find that among all types
of capital, only computers, communications equipment, software, and office building
are associated (positively) with current and subsequent years’ multifactor productivity.
The link between offices and productivity, however, is shown to be due to the correlation
between the use of offices and organizational capital. In contrast, the link between
ICT equipment and productivity is robust to a number of controls and appears to be
part causal effect and part reflection of the correlation between ICT and firm fixed (or
slow-moving) effects. The implied marginal products by capital type are derived and
compared to official data on rental prices; substantial differences exist for a number of
key capital types. Lastly, I provide evidence of complementaries and substitutabilities
among capital types — a rejection of the common assumption of perfect substitutability
— and between particular capital types and labor.
 View Paper 60 Pages 355281 Bytes
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CES-WP-04-19
Investment Behavior of U.S. Firms Over Heterogenous Capital Goods: A Snapshot
Daniel Wilson
December 01, 2004
Recent research has indicated that investment in certain capital types, such as computers,
has fostered accelerated productivity growth and enabled a fundamental reorganization
of the workplace. However, remarkably little is known about the composition
of investment at the micro level. This paper takes an important first step in filling
this knowledge gap by looking at the newly available micro data from the 1998 Annual
Capital Expenditure Survey (ACES), a sample of roughly 30,000 firms drawn from the
private, nonfarm economy. The paper establishes a number of stylized facts. Among
other things, I find that in contrast to aggregate data the typical firm tends to concentrate
its capital expenditures in a very limited number of capital types, though
which types are chosen varies greatly from firm to firm. In addition, computers account
for a significantly larger share of firms’ incremental investment than they do of
lumpy investment.
View Paper 21 Pages 143381 Bytes
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CES-WP-04-18
The Myth of Decline: A New Perspective on the Supply Chain and Changing Inventory-Sales Ratios
Adam Fein
October 01, 2004
UPDATED VERSION, FEBRUARY, 2005.
There is a widely held perception that improved supply chain practices and new technologies have led to declines in the inventory-sales ratio. Our empirical analyses of 87 inventory-sales ratios in 45 manufacturing, wholesale distribution, and retail trade industries casts doubt on assumptions of widespread declines in these ratios. We find that less than half of the ratios showed statistically significant declines during the 12 year period from January 1992 through December 2003. Information technology may indeed have improved inventory management, but this improvement is not reflected in inventory-sales ratio data for many U.S. industries. Our detailed case study of the pharmaceutical supply chain also offers additional insights by showing how relevant technological investments led to an extended period in which inventory-to-sales ratios increased.
View Paper 43 Pages 306683 Bytes
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CES-WP-04-17
Firm Entry and Exit in the U.S. Retail Sector, 1977-1997
Javier Miranda, Shawn Klimek, Ron Jarmin
October 01, 2004
The development of longitudinal micro datasets in recent years has helped economists develop a number of stylized facts about producer dynamics. However, most of the widely cited studies use only manufacturing
data. This paper uses the newly constructed Longitudinal
Business Database (LBD) to examine producer dynamics in the U.S.
the retail sector. The LBD is constructed by linking twenty-six years
(1975-2000) of the U.S. Census Bureau's Business Register at the establishment
level. The result is a dataset on the universe of employer
establishments in the U.S. on an annual basis with detailed geographic,
industry, firm ownership, and employment information.
We use the LBD to examine patterns of firm entry and exit in the
U.S. retail sector. We find that many of the patterns observed by
Dunne, Roberts, and Samuelson (1988) are also observed within the
retail sector, but interesting and important differences do exist.
View Paper 25 Pages 285987 Bytes
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CES-WP-04-16
Prices, Spatial Competition, and Heterogeneous Producers: An Empirical Test
Chad Syverson
August 01, 2004
In markets where spatial competition is important, many models predict that average prices are
lower in denser markets (i.e., those with more producers per unit area). Homogeneous-producer
models attribute this effect solely to lower optimal markups. However, when producers instead
differ in their production costs, a second mechanism also acts to lower equilibrium prices:
competition-driven selection on costs. Consumers’ greater substitution possibilities in denser
markets make it more difficult for high-cost firms to profitably operate, truncating the
equilibrium cost (and price) distributions from above. This selection process can be empirically
distinguished from the homogenous-producer case because it implies that not only do average
prices fall as density rises, but that upper-bound prices and price dispersion should also decline
as well. I find empirical support for this process using a rich set of price data from U.S. ready-mixed
concrete plants. Features of the industry offer an arguably exogenous source of producer
density variation with which to identify these effects. I also show that the findings do not simply
result from lower factor prices in dense markets, but rather because dense-market producers are
low-cost because they are more efficient.
View Paper 31 Pages 583080 Bytes
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CES-WP-04-15
Agglomeration, Enterprise Size, and Productivity
Edward Feser
August 01, 2004
Much research on agglomeration economies, and particularly recent work that builds on
Marshall’s concept of the industrial district, postulates that benefits derived from proximity
between businesses are strongest for small enterprises (Humphrey 1995, Sweeney and Feser
1998). With internal economies a function of the shape of the average cost curve and level of
production, and external economies in shifts of that curve, a small firm enjoying external
economies characteristic of industrial districts (or complexes or simply urbanized areas) may face
the same average costs as the larger firm producing a higher volume of output (Oughton and
Whittam 1997; Carlsson 1996; Humphrey 1995). Thus we observe the seeming paradox of large
firms that enjoy internal economies of scale co-existing with smaller enterprises that should, by all
accounts, be operating below minimum efficient scale. With the Birch-inspired debate on the
relative job- and innovation-generating capacity of small and large firms abating (Ettlinger 1997),
research on the small firm sector has shifted to an examination of the business strategies and
sources of competitiveness of small enterprises (e.g., Pratten 1991, Nooteboom 1993).
Technological external scale economies are a key feature of this research (Oughton and Whittam
1997).
View Paper 26 Pages 245529 Bytes
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CES-WP-04-14
A Flexible Test for Agglomeration Economies in Two U.S. Manufacturing Industries
Edward Feser
August 01, 2004
This paper uses the inverse input demand function framework of Kim (1992) to test for
economies of industry and urban size in two U.S. manufacturing sectors of differing technology
intensity: farm and garden machinery (SIC 352) and measuring and controlling devices (SIC 382).
The inverse input demand framework permits the estimation of the production function jointly
with a set of cost shares without the imposition of prior economic restrictions. Tests using plant-level
data suggest the presence of population scale (urbanization) economies in the moderate- to
low-technology farm and garden machinery sector and industry scale (localization) economies in
the higher technology measuring and controlling devices sector. The efficiency and generality of
the inverse input demand approach are particularly appropriate for micro-level studies of
agglomeration economies where prior assumptions regarding homogeneity and homotheticity are
less appropriate.
View Paper 32 Pages 197766 Bytes
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CES-WP-04-13
Tracing the Sources of Local External Economies
Edward Feser
August 01, 2004
In a cross-sectional establishment-level analysis using confidential secondary data, I
evaluate the influence of commonly postulated sources of localized external economies–supplier
access, labor pools, and knowledge spillovers–on the productivity of two U.S. manufacturing
sectors (farm and garden machinery and measuring and controlling devices). Measures
incorporating different distance decay specifications provide evidence of the spatial extent of the
various externality sources. Chinitz’s (1961) hypothesis of the link between local industrial
organization and agglomeration economies is also investigated. The results show evidence of
labor pooling economies and university-linked knowledge spillovers in the case of the higher
technology measuring and controlling devices sector, while access to input supplies and location
near centers of applied innovation positively influence efficiency in the farm and garden
machinery industry. Both sectors benefit from proximity to producer services, though primarily
at a regional rather than highly localized scale.
View Paper 44 Pages 213372 Bytes
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CES-WP-04-12
Entrant Experience and Plant Exit
Mark Roberts, Shawn Klimek, Timothy Dunne
August 01, 2004
Producers entering a market can differ widely in their prior production experience, ranging
from none to extensive experience in related geographic or product markets. In this paper, we quantify
the nature of prior plant and firm experience for entrants into a market and measure its effect on the
plant’s decision to exit the market. Using plant-level data for seven regional manufacturing industries in
the U.S., we find that a producer’s experience at the time it enters a market plays an important role in the
subsequent exit decision, affecting both the overall probability of exit and the method of exit. After
controlling for observable plant and market profit determinants, there remain systematic differences in
failure patterns across three groups of plants distinguished by their prior experience: de novo entrants,
experienced plants that enter by diversifying their product mix, and new plants owned by experienced
firms. The results indicate that the exit decision cannot be treated as determined solely by current and
future plant, firm, and market conditions, but that the plant’s history plays an important independent role
in conditioning the likelihood of survival.
View Paper 41 Pages 186465 Bytes
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CES-WP-04-11
The Effects of Low-Valued Transactions on the Quality of U.S. International Export Estimates: 1994-1998
Charles Ian Mead
August 01, 2004
This paper uses data from the U.S. Census Bureau Annual Survey of Manufactures (ASM) to examine the
effects that a growth of low-valued transactions likely has on the quality of export estimates provided in the U.S.
International Trade in Goods and Services (FT-990) series. These transactions, valued at less than $2,500, do not
legally require the filing of export declarations. As a result, they are often not captured in the administrative records
data used to construct FT-990 estimates. By comparing industry-level estimates created from the ASM to related
FT-990 estimates, this paper estimates that the undercounting of low-valued transactions in the FT-990 export series
increases by roughly $30 billion over the period of 1994-1997. It also finds that regression analysis provides little
insight into the undercounting issue as results are primarily driven by industries whose contributions to total
manufacturing exports are small.
View Paper 34 Pages 83147 Bytes
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