Source: Ryota Nakatani, “Multifactor productivity growth enhancers across industries and countries: Firm-level evidence,” MPRA Paper, University Library of Munich, Germany, no. 120503 (March 2024).
Commentary: A recent working paper by Ryota Nakatani analyzed how different assets and investments contribute to multifactor productivity growth. Multifactor productivity (MFP) is one of multiple inputs for economic growth, and acts as a proxy measure for innovation. Historically, economists have treated MFP growth as exogenous; a sort of “residual” of economic growth that is not attributable to capital deepening and labor force growth. The study seeks to move beyond that framework, and attempts to internally develop MFP as a function of other variables. In particular, they look at the role of intangible assets and technological convergence in driving MFP growth. The authors looked at firm-level data from Bureau van Dijk’s Orbis database for 12 countries from 1996 to 2015. Those countries were China, Colombia, Hungary, Italy, Japan, Poland, Romania, South Korea, Spain, Thailand, Turkey, and the United Kingdom.
The authors found that MFP growth rates were closely related to the starting level of MFP. Specifically, firms that had low MFP to start with experienced higher MFP growth. The authors interpret this as indicative that low-productivity firms eventually catch up to wherever the technology frontier is. Firm size and firm age also played a role in MFP differences. With the exception of China, older firms in all other countries tended to have lower MFP growth. For instance, a 10 percent increase in firm age was associated with a 0.46 percent decrease in MFP growth in Thailand, a 0.43 percent decrease in MFP growth in Hungary, and a 0.33 percent decrease in MFP growth in Japan. In all countries, larger firms tended to have higher MFP growth. For instance, a 10 percent increase in firm size was associated with a 1.47 percent increase in MFP growth in Colombia, a 1.48 percent increase in MFP growth in Italy, and a 1.42 percent increase in MFP growth in the United Kingdom. Firms with more intangible assets also had higher MFP growth. For instance, a 10 percent increase in intangible assets was associated with a 0.25 percent increase in MFP in Italy, a 0.42 percent increase in Japan, and a 0.46 percent increase in MFP growth in the United Kingdom.
