Why is Productivity Correlated with Competition? / Matthew Backus.

Format:

Book

Author/Creator:

Backus, Matthew.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25748.

NBER working paper series no. w25748

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

The correlation between productivity and competition is an oft-observed but ill-understood result. Some suggest that there is a treatment effect of competition on measured productivity, e.g. through a reduction of managerial slack. Others argue that greater competition makes unproductive establishments exit by reallocating demand to their productive rivals, raising observed average productivity via selection. I study the ready-mix concrete industry and offer three perspectives on this ambivalence. First, using a standard decomposition approach, I find no evidence of greater reallocation of demand to productive plants in more competitive markets. Second, I model the establishment exit decision and construct a semi-parametric selection correction to quantify the empirical significance of treatment and selection. Finally, I use a grouped IV quantile regression to test the distributional predictions of the selection hypothesis. I find no evidence for greater selection or reallocation in more competitive markets; instead, all three results suggest that measured productivity responds directly to competition. Potential channels include specialization and managerial inputs.

Notes:

Print version record

April 2019.