Decomposing Differences in Total Factor Productivity Across Firm Size

XREAP Working Paper No. 2007-1

29 Pages Posted: 25 May 2011

See all articles by Laia Castany

Laia Castany

University of Barcelona

Enrique López-Bazo

University of Barcelona, AQR

Rosina Moreno

University of Barcelona - Department of Econometrics

Date Written: March 1, 2007

Abstract

This paper investigates the extent to which the gap in total factor productivity between small and large firms is due to differences in the endowment of factors determining productivity and to the returns associated with these factors. We place particular emphasis on the contribution of differences in the propensity to innovate and in the use of skilled labor across firms of different size. Empirical evidence from a representative sample of Spanish manufacturing firms corroborates that both differences in endowments and returns to innovation and skilled labor significantly contribute to the productivity gap between small and large firms. In addition, it is observed that the contribution of innovation to this gap is caused only by differences in quantity, while differences in returns have no effect; in the case of human capital, however, most of the effect can be attributed to increasing differences in returns between small and large firms.

Keywords: Total Factor Productivity, skilled labor; innovation, firm size, Oaxaca decomposition

JEL Classification: D24, J24, L25

Suggested Citation

Castany, Laia and López-Bazo, Enrique and Moreno, Rosina, Decomposing Differences in Total Factor Productivity Across Firm Size (March 1, 2007). XREAP Working Paper No. 2007-1, Available at SSRN: https://ssrn.com/abstract=1850434 or http://dx.doi.org/10.2139/ssrn.1850434

Laia Castany (Contact Author)

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

Enrique López-Bazo

University of Barcelona, AQR ( email )

Av. Diagonal 690
Barcelona, E-08034
Spain

Rosina Moreno

University of Barcelona - Department of Econometrics ( email )

Analisi Quantitativa Regional Research Group
08007 Barcelona
Spain

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