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Product quality, productive efficiency, and international technology diffusion : evidence from plant-level panel data

Author

Listed:
  • Kraay, Aart
  • Soloaga, Isidro
  • Tybout, James
Abstract
What mechanisms most frequently transmit foreign technologies to developing country firms? Do these foreign technologies affect both productive efficiency and product quality in the recipient firms? Under what circumstances do firms pursue activities that give them access to foreign knowledge? To address these questions, the authors develop a new methodology and apply the framework to plant-level panel data from Colombia, Mexico, and Morocco. Their results point to several basic messages. First, by imposing enough structure on the production function and the demand system, it is possible to measure product quality and marginal costs at the plant level and to relate the evolution of these variables to firms'activity histories. Doing so, the authors find strong firm-level persistence in both quality and marginal costs. But in most industry or country panels that they study, past international activities help little in predicting current performance once past realizations on quality and marginal cost are controlled for. That is, activities do not typically Granger-cause performance. Interestingly, in the minority of cases where significant associations emerge, international activities appear to move costs and product quality in the same direction. So the net effect on profits in these cases is not immediately apparent. Second, several basic patterns emerge with respect to the determinants of international activities. Most fundamentally, activities are highly persistent, even after unobserved heterogeneity is controlled for. That suggests that firms incur sunk threshold costs when they initiate or cease activities, so temporary policy or macroeconomic shocks may have long-run effects on the patterns of activities observed in a particular country or industry. Also, activities tend to go together, so that studies that relate firms'performance to one international activity and ignore the others may generate misleading conclusions. But the bundling of activities seems to mainly reflect unobserved plant characteristics, such as managerial philosophy, contacts, product niche, and location. Once these are controlled for, there is little evidence that engaging in one international activity increases the probability that a firm will engage in others in the future.

Suggested Citation

  • Kraay, Aart & Soloaga, Isidro & Tybout, James, 2002. "Product quality, productive efficiency, and international technology diffusion : evidence from plant-level panel data," Policy Research Working Paper Series 2759, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2759
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Alessandra Tucci, 2005. "Trade, Foreign Networks and Performance: a Firm-Level Analysis for India," Development Working Papers 199, Centro Studi Luca d'Agliano, University of Milano.
    2. Katayama, Hajime & Lu, Shihua & Tybout, James R., 2009. "Firm-level productivity studies: Illusions and a solution," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 403-413, May.
    3. Wolfgang Keller & Stephen R. Yeaple, 2009. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 821-831, November.
    4. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
    5. Francesco Nucci & Filomena Pietrovito & Alberto Franco Pozzolo, 2021. "Imports and credit rationing: A firm‐level investigation," The World Economy, Wiley Blackwell, vol. 44(11), pages 3141-3167, November.
    6. Fisher-Vanden, Karen & Ho, Mun S., 2010. "Technology, development, and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 94-108, January.
    7. Marcel Fafchamps & Måns Söderbom, 2014. "Network Proximity and Business Practices in African Manufacturing," The World Bank Economic Review, World Bank, vol. 28(1), pages 99-129.
    8. Lumenga-Neso, Olivier & Olarreaga, Marcelo & Schiff, Maurice, 2001. "On"indirect"trade-related research and development spillovers," Policy Research Working Paper Series 2580, The World Bank.
    9. Haijime Katayama & Shihua Lu & James Tybout, 2003. "Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference," NBER Working Papers 9617, National Bureau of Economic Research, Inc.
    10. Lu Binghuan, 2022. "The Empirical Study of Quality Effect on Business Performance Based on the Manufacturing Enterprises in the Yangtze River Delta Region of China," International Journal of Science and Business, IJSAB International, vol. 6(1), pages 30-42.
    11. DeSouza, Sergio Aquino, 2006. "Combining Aggregate and Plant-Level Data to Estimate a Discrete-Choice Demand Model," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 26(2), November.
    12. Sule Ozler & Kamil Yilmaz, 2009. "Productivity response to reduction in trade barriers: evidence from Turkish manufacturing plants," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(2), pages 339-360, July.
    13. Wolfgang Keller, 2004. "International Technology Diffusion," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 752-782, September.
    14. Davide Castellani & Francesco Serti & Chiara Tomasi, 2010. "Firms in International Trade: Importers’ and Exporters’ Heterogeneity in Italian Manufacturing Industry," The World Economy, Wiley Blackwell, vol. 33(3), pages 424-457, March.
    15. Fafchamps, Marcel & Hamine, Said El, 2017. "Firm productivity, wages, and agglomeration externalities," Research in Economics, Elsevier, vol. 71(2), pages 291-305.
    16. Judit Rariga, 2017. "Service Traders in Hungary Evidence from Firm Level Data," MNB Occasional Papers 2017/130, Magyar Nemzeti Bank (Central Bank of Hungary).
    17. repec:lic:licosd:15605 is not listed on IDEAS
    18. Malick Souare, 2013. "Productivity growth, trade and FDI nexus: evidence from the Canadian manufacturing sector," The Journal of Technology Transfer, Springer, vol. 38(5), pages 675-698, October.
    19. Albornoz Facundo & Vanin Paolo, 2010. "Trade Protection and Industrial Structure," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-31, July.
    20. Damijan, Jože P. & Kostevc, Crt, 2007. "Knowledge Transfer, Innovation and Growth," Papers DYNREG06, Economic and Social Research Institute (ESRI).
    21. Gong, Guan & Keller, Wolfgang, 2003. "Convergence and polarization in global income levels: a review of recent results on the role of international technology diffusion," Research Policy, Elsevier, vol. 32(6), pages 1055-1079, June.
    22. Tulus Tambunnan, 2007. "Trade and Investment Liberalization Effects on SME Development: A Literature Review and a Case Study of Indonesia," Working Papers 4207, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    23. Keller, Wolfgang & Yeaple, Stephen, 2003. "Multinational Enterprises, International Trade and Productivity Growth: Firm-Level Evidence from the US," CEPR Discussion Papers 3805, C.E.P.R. Discussion Papers.

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