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CHAPTER 7
GLOBAL PRODUCTIVITY
EMDEs than in advanced economies. Furthermore, the distortions in the finance sector in LICs are particularly large. These findings are in line with the literature.22
ANNEX 7C Firm TFP data, estimates, and methodology Data. The World Bank Enterprise Surveys (ES) collect firm-level data from surveys conducted with more than 129,000 firms in 127 countries, including 71,000 manufacturing firms, over a period spanning 2007 to 2017. This annex uses revenue TFP constructed for 15,181 manufacturing firms for which output, input, and firm characteristics data are available (Cusolito et al. 2018). The sample covers 108 EMDEs. TFP estimates. The underlying assumption is that sector-specific elasticities of output with respect to inputs are the same across economies in a given income group.23 Firmlevel revenue TFP estimates are computed in each sector s by pooling all firms i across economies c.24 The weighted regressions, using survey weights, exploit the log transform of a Cobb-Douglas production function and, therefore, TFP estimates can assume negative and positive values. The ES data set provides two estimates of firm-level TFP, output TFP and value added TFP. Output TFP is estimated as
α s ,K ln( K sci ) + α s ,N ln( N sci ) + α s ,M ln( M sci ) . + interaction & quadratic terms
YKNM = ln( Ysci ) − TFPRsci
Value added TFP is estimated as
α s ,K ln( K sci ) + α s ,N ln( N sci ) + interaction & quadratic terms ,
VAKN TFPRsci = ln( VAsci ) −
where Y is the firm’s output, K is the input capital, N is the input labor, M is intermediate materials, and VA is the firm’s value added (Cusolito et al. 2018).25 Two22 Vollrath (2009) shows that the ratio of marginal product of labor in industry to that of agriculture ranges from a low of a low of 1.67 in Australia to a high of 16.84 in Kenya. Moreover, Dennis and Işcan (2011) find that the rate of structural change (that is, the reallocation of labor from low- to high-productivity sectors) is slow in countries with large distortions in agriculture; and Restuccia, Yang, and Zhu (2008) find that wage wedges, measured as differences in average wage across sectors, significantly slow the process of structural change. 23 This assumption implies that firm-level TFP are not directly comparable to aggregate TFP from macro panel data. 24 Firms are grouped in two-digit ISIC code industries for the estimation. To allow for comparison, values (collected in local currency units) are converted to U.S. dollars using the corresponding exchange rate and then US deflated using the 2009 gross domestic product deflator for the United States [LCU/(FX x defl 2009 )]. 25 The value of (log) intermediate inputs (materials, electricity) is subtracted from the (log) output to obtain the (log) value added. Thus, output and value added TFP are the same when elasticities of intermediate inputs with respect to output (αs,M in equation 1) is equal to one, but different otherwise. Interaction and quadratic terms are included to control for possible nonlinearities. Because of the lack of information on self-reported inputs in the World Bank ES data set, TFP values are not available for some firms in the manufacturing sector. Extreme observations are also removed in the upper tail of the firm-level TFP distribution in Sub-Saharan Africa.
