Firm-level productivity in New Zealand, 2001-16

At this roundtable Professor Richard Harris from Durham University will present some early results on differences in firm-level total factor productivity (TFP), using 2001-2016 data. Production functions (that also take into account competition effects) have been estimated for some 37 industry sub-groups, which include covariates representing city/region-effects, and most importantly include a measure of spatial agglomeration based on the distance between plants within the industry in which it operates.

Early results are provided on whether there are productivity-enhancing agglomeration externalities from co-location, with results presented across industries.

A second set of results, relating to levels of TFP, identify firms that occupy the ‘frontier’ (in terms of productivity distributions), and looks at issues such as (i) which firms comprise this sub-group; (ii) is there stability in terms of who comprise the frontier; (iii) do firms below the frontier ‘catch-up’ over time (and is ‘catch-up’ dependent on distance from the frontier) – i.e., is there diffusion over time whereby ‘best practice’ technology spreads to less efficient firms, as a result of learning from those at the frontier of the (global) productivity distribution?

Lastly, as well as considering the spatial drivers of TFP, other determinants of TFP growth are also considered. Specifically, by dividing firms into different sub-groups (e.g., foreign-owned; those that are involved in R&D/export; etc.), and a Haltiwanger-type decomposition is applied to discover which attributes contribute most to overall higher 2001-2016 TFP growth.

This approach directly considers the importance of reallocation where ‘churn’ (opening and closures – what Schumpeter called ‘creative destruction’) and reallocation of market shares from continuing low to higher productivity firms, can increase aggregate productivity in terms of a ‘batting average’ effect. This helps to provide information for policy makers as to whether allocations of scare resources (factor inputs) are optimal to underpin the growth of higher-performing firms.

Professor Richard Harris, Department of Economics & Finance, Durham University

Richard Harris is a professor of Economics and Deputy Executive Dean (Research) in the Faculty of Business, Durham University, UK, and since 2016 a Research Affiliate at the New Zealand Productivity Commission. Before returning to Durham in 2012, he was the Director of the Centre for Public Policy in the Regions, Universities of Glasgow and Strathclyde. Earlier in his career (1989-93) he was Associate Professor in Economics at the University of Waikato. During his 39 years as an academic, he has published 116 publications in internationally refereed journals; 39 book chapters or other articles; and 6 books. In terms of citations (Google Scholar, October 2019), since 2014: 3,090 citations; h-index (h publications have at least h citations) and i10-index (the number of publications with at least 10 citations) are 25 and 60 respectively (over his career he has h- and i10-indices of 41 and 111, respectively). He has generated around £3.98m (in current prices) in research income over his career (comprising: research council funding of just over £1.76 million; and UK Trade & Investment, BIS, Scottish, Welsh & NI Governments of just over £2.2m).