Does recession drive convergence in firms’ productivity? Evidence from Spanish manufacturing firms
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This paper provides evidence on the effect of recessions and expansions on the productivity growth rate of productivity leaders and followers. We use data of a representative sample of the Spanish manufacturing sector for the period 1991 and 2005. These data allow us to estimate firm level productivity for a relatively long period of time and provide us with firm level perception of the business cycle. We find that productivity tends to converge in recessions because, in these periods, the productivity growth of followers is higher than the productivity growth of leaders. This fact is consistent with theoretical models of managerial incentives and competition. A recession can be seen as an exogenous increase in competition that reduces demand and poses a threat of liquidation. This threat is higher for followers and is high enough to create asymmetric incentives to become more productive. We test the robustness of our results to sample selection and different productivity measure.
KeywordsProductivity Business cycle Competition Convergence Recessions Spain
JEL ClassificationD22 D24 E32 L25 L60 M20
We thank César Alonso, Eric Bartelsman, Samuel Bentolila, Juan J. Dolado, José C. Fariñas, Jesús Gonzalo, Jordi Jaumandreu, Juan Jimeno, Jacques Mairesse, Ricardo Mora, Carlos Velasco, the associate editor, two anonymous referees, and participants in seminars and conferences at Universidad Carlos III de Madrid, Universidad de Oviedo, Sant’ Anna School of Advanced Studies, XXII Jornadas de Economía Industrial (Barcelona), workshop on “Entrepreneurship, Firm Demography and Industrial Location” (Vienna), and conference “Organization and Performance: Understanding the Diversity of Firms” (Tokyo) for helpful comments. Financial support from the Telefonica-UC3M Chair on Economics of Telecommunications (Escribano) and from Consejería de Educación de la Comunidad de Madrid (Stucchi) is gratefully acknowledged.
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