X-efficiency is a very direct measure for productive efficiency. Griffith & Harrison, 2004; Van Ark, 2005).Besides the price-cost margin, four other measures are explored in this article: entry & exit, market concentration, market stability and the so-called profit elasticity. Market economy Price-cost margin Average of entry and exit rates Herfindahl- Hirschman Index (0-1000) Average absolute change of market shares 2 Sensitivity of profit to cost changes 3 Belgium 1.14 6.0% 267 1.3%-pt 1.26 Other European countries 1.08 9.2% 199 1.2%-pt 1.27 Neighbouring countries: 9.1% 204 1.5%-pt: of which: Germany 1.02 9.5% 197 2.0%-pt: France: 8.6% 185 0.8%-pt 1.15 Netherlands 1.10 8.7% 300 1.9%-pt: Normalised rank of Belgium (scale 0-10) 4 3.8 0.5 2.5 5.0 6.7 Manufacturing Belgium 1.15 4.1% 302 1.2%-pt 1.82 Other European countries 1.06 6.7% 206 1.0%-pt 1.78 Neighbouring countries: 6.1% 215 1.2%-pt: of which: Germany 1.03 5.8% 203 1.6%-pt: France: 6.4% 193 0.5%-pt 1.61 Netherlands 1.20 6.0% 350 1.6%-pt: Normalised rank of Belgium (scale 0-10) 4 5.0 0.5 1.5 5.8 6.7 Market services Belgium 1.14 6.3% 206 1.4%-pt 1.07 Other European countries 1.09 9.4% 186 1.3%-pt 1.10 Neighbouring countries: 9.4% 182 1.6%-pt: of which: Germany 1.01 10.1% 187 2.2%-pt: France: 8.5% 169 0.8%-pt 1.02 Netherlands 1.08 9.3% 204 1.9%-pt: Normalised rank of Belgium (scale 0-10) 4 3.8 0.5 3.0 5.0 6.7 Sources: Braila et al. Existing empirical evidence confirms the close linkages between innovation, value creation and economic growth, showing that intangible investments are important drivers of upgrading in GVCs.15 A key element which is necessary for countries to compete in high value added activities is the capability to produce sophisticated products, which is closely linked to the endowment of intangible capital. A final measure is import penetration. The strongest instability concerns 2002. Entry includes newly established firms, but also existing firms that diversify into other markets. Second, imported goods are of course not covered by domestic manufacturing industries. 11Entry & exit as a measure comes from the phenomenon that competition may attract new challengers to the market, whereas the least efficient producers are forced to withdraw. A database of company accounts can of course be filtered for such extreme cases. The outcomes should therefore be treated as proxies of what the indicators should really measure. find that investing in intangible assets fosters participation in GVCs and contributes to value appropriation along the chain.23. Price-cost margin Average of entry and exit rates Herfindahl- Hirschman Index (0-1000) Average absolute change of market shares (%-pt) 2 Sensitivity of profit to cost changes 3 Belgium EU Belgium EU Belgium EU Belgium EU Belgium EU Food, beverages & tobacco 1.14 1.10 3.3% 5.8% 106 231 0.4% 0.8% 1.39 1.79 Textile & leather 1.08 0.99 4.4% 9.0% 219 204 0.5% 0.7% 2.14 1.83 Wood & cork 1.04 1.01 4.6% 7.4% 760 249 2.0% 1.2% 2.21 2.18 Paper & printing 1.11 1.08 5.4% 7.7% 93 79 0.8% 0.6% 1.27 1.23 Cokes & petrochemical }: : 433 352 } 1.3% 1.3% } 1.49 1.60 Chemicals 1.33 1.14 3.2% 5.3% 223 143 Rubber & plastic: : 71 119 Other minerals 1.10 1.04 3.3% 6.3% 263 273 0.6% 1.3% 2.38 1.73 Basic & processed metals 1.03 1.01 4.3% 6.5% 630 138 1.5% 0.7% 1.33 1.87 Machinery 1.18 1.06 3.4% 5.7% 234 112 1.2% 0.7% 2.71 2.06 Elec. 8, No. This gives way to extremely high reported profits or losses. **) 22 Member States and Norway. Using data on intangible capital from INTAN-Invest, on participation in global value chains from the EUs World Input-Output Database and on productivity from EU KLEMS, we explored the linkages between intangible capital, GVC participation and productivity growth. Market concentration has fallen. It builds on the logic that a producers cost saving could lead to an increase in his total profits, not so much because of an increased markup, but more so because of increased sales. From such a source, however, only newly established firms and liquidations can be detected, no diversifying or divesting firms. Finally, there may be an impact of quality improvements, differences in capital and labour cost, and differences in sales volume (e.g. 25For three out of five measures, Belgium performs worse than other European countries, at first glance at least (see Table 2). The course of some of the time series is very erratic. Molnr (2010) estimated a parameter for returns to scale that could correct the markup. This is already illustrated by the relatively low scores of Germany and France. Hence, a domestic manufacturing industry does not cover the whole relevant market of its products. Is Europes Productivity Glass Half Full or Half Empty. This could thus involve the same implications as the HHI has, making the measure a proxy of the true market stability. For international benchmarking a database is available at Eurostat. Although the same problems of continuity should hold, the course of the time series is relatively smooth. Data to examine a pattern of convergence or divergence was lacking. Considering the measures together, the outcomes could nevertheless provide an insight into the intensity of competition in Belgium with respect to other European countries, and the way it has evolved since the late nineties. There were many industries that did much better than their European counterpart for one measure, but much worse for another. How to end a lost decade of productivity growthTen years on from the global financial crisis, the world economy remains locked in a cycle of low or flat productivity growth despite the injection of more than $10 trillion by central banks. Comment reprer lessentiel ? Investments in intangible assets are widely recognised as major determinants of innovation, growth and employment in the knowledge economy.6 The literature on the sources of economic growth looks at the accumulation of intangible capital, expanding the core concept of business investment in national accounts by treating much business spending on intangibles computerised databases, R&D, design, brand equity, firm-specific training and organisational efficiency as investment.7 When this view is adopted, empirical evidence shows that business investments in intangible assets are fundamental drivers of growth and productivity. For most industries Belgium ranks between 19th and 22nd out of 23 countries. The reader less interested in that detail may mind the occurrence of measurement problems and skip the section. Hence, entry & exit rates derived from business registers give a proxy of the true entry & exit rates. We have also argued that while it can be easier than in the past to take part in global production processes, intangible assets determine which firms and countries benefit more from this participation. Table 4, however, shows that this happened at different paces, thus giving rise to patterns of convergence and divergence. The high markups that may then result could be necessary to cover the endogenous sunk cost (OECD, 2002). New intangibles account for 4.6% of GDP in the US and 4.1% in the EU14. According to the interpretation of the profit elasticity, this would imply an increasing intensity of competition, in particular in manufacturing industries. Corrado et al. Wage premiums, where workers manage to turn part of the economic rent into labour compensation, have an impact upon the share of the rent that remains to be measured. The evolution, or cross-border comparison, of price levels should indicate market efficiency, be it allocative, productive or dynamic. As already mentioned the time series of market stability walks an unsteady course. This could give rise to decreases in the HHI that are not due to falling market concentration. Some of the indicators are more reliable for services than for manufacturing. This is not unambiguous, and data sources are not tuned to such definitions. It may not only reflect economic rent, but all kinds of data biases and errors too. 1 ) The numbers give the differences between the Belgian and other Member States outcomes given in Table A2. No time series could thus be analysed. Since competition affects both price and cost, the markup could be a misleading measure (see e.g. (2011) covered competition conditions indirectly by market regulation, which could be one of its determinants. Even increasing concentration indicates that competition is at work. The remaining neighbour is France which seems to do worse for both profit elasticity and market stability. The TFP contribution measures how efficiently the main factors of production labour and capital - are combined in the production process and is linked to technical progress and organisational changes. Small countries typically have higher HHIs than large ones and are better represented in the applied data source. Valentina Meliciani, University LUISS Guido Carli, Rome, Italy. Nicoletti & Scarpetta, 2003; Conway & Nicoletti, 2006) as an indicator of competition. The average profit elasticity is 1.26. Besides the selection effect, market concentration thus involves a reallocation effect. & opt. This is in particular striking when compared to the neighbouring countries, which mostly show better competition conditions and positive TFP growth. Volumes/ As explained earlier, they do not deny so either. Together they should give a comprehensive view. The next section gives an overview for the five measures of this article. [2] For the latter a five-year moving average has been taken to reflect the age structure of capital to a certain extent. This is not only induced by theoretical reasons, but maybe the more so from the applied data, which often do not fit the theoretical requirements. In services they had also fallen, but with Belgium clearly converging to the other countries average. This will also allow countries to benefit from the ongoing process of globalisation and participation in international value chains. Unfortunately, the measures were not available for years more recent than 2006. To construct Figure 1, the classifications have been normalised to 19 industries. Compared to the neighbouring countries this difference has become even more (0.29 points). This may either imply that TFP growth may improve during the years to come, or that the improvement of competition conditions did not favour productivity growth. CEC, 2004). For the price-cost margin there has in most cases been a divergence, in particular in the services industries and at the end of the analysed period (2003-2005). 22From the perspective of the relevant market, entry & exit should reflect all producers entering and leaving that market. 1The recent crisis in the Euro area has underlined unsustainable divergences in competitiveness evolutions between Member States. Market concentration dymanics include the reallocation of output among incumbent producers (Braila et al., 2010). A cost-cutting producer would in that case attract quite a few customers from its competitors. 27The outcomes for these three measures do not suggest vibrant competition. Comparison to the neighbouring countries could give rise to the same conclusion. Price-cost Margin Herfindahl-Hirschman Index (0-1000) Sensitivityof profit to cost changes Market economy Whole EU sample Ger & Neth only Whole EU sample Ger, Fra & Neth only Whole EU sample France only Beginning of time series + 0.04 + 0.06 + 75 + 82 - 0.08 + 0.12 End of time series + 0.18 + 0.23 + 68 + 57 + 0.06 + 0.11 Evolution of Belgium w.r.t. Therefore, more sophisticated analyses may help shed light on the possible mediating role of intangible assets in affecting the relationship between GVC participation and productivity growth. The profit elasticity can very well be estimated from a sample of companies, although the sample as given by AMADEUS may not be representative. This could indicate a turn for the better in intensity of competition. Like market stability the measure is taken from Braila et al. Intereconomics There may well be strong rivalry in a concentrated market and/or weak rivalry in a non-concentrated market. The contribution to total factor productivity growth ranges from 14% in the United Kingdom to three per cent in Finland over a similar period.12 Other country studies estimated only the contribution of all intangibles to total factor productivity growth 19% in Japan, 19% in France, 18% in Germany, nine per cent in Spain and zero per cent in Italy.13. using the newly constructed INTAN-Invest cross-country, cross-industry dataset for 18 European countries and the US, which is used to analyse the impact of tangible and intangible capital before and after the Great Recession in 2008-2009.14 They found that tangible investment fell dramatically during the Great Recession and has barely recovered, whereas intangible investment has been comparatively resilient; it recovered quite quickly in the US, though it lagged behind in the EU. The empirical results revealed that intangible capital has been the largest systematic driver of US business sector growth over the last 50 years,2 and that US businesses currently invest more in intangibles than they do in traditional fixed assets.3, At the same time, the digitalisation process and the drop in transmission costs favoured the globalisation of value chains. The classic example of the iPod supply chain discussed by Dedrick et al. In services industries, there has even been a convergence towards the EU average. The performance of this industry has been analysed in detail by Van der Linden (2010). Two grocery stores located in different towns may not be in the same relevant market. In this paper, after briefly reviewing these two fields of analysis, we suggest some lines along which they can be fruitfully linked in order to establish the basic framework with which to investigate the synergies between intangible capital and participation in global value chains (GVCs) as drivers of productivity growth in modern economies. This could either imply the existence of vast changes in market shares for certain years, or reflect discontinuities in the data. (2010), EUKLEMS and own calculations. Overall, there is evidence that a great part of the value added of a final product is created in the first and last stages of the production process (R&D, design, marketing and sales), while firms involved in intermediate stages (such as the production of components and assembly) reap only a small part of the final value of the good or service produced.5. The last two measures, market stability and profit elasticity, seem to have no serious pitfalls, at least from a theoretical point of view. 2 ) Average of 1998-2001 and 2003-2005, since the data for 2002 seem too erratic. The measure is available from a database linked to EUKLEMS, where it has been calculated from AMADEUS. Intereconomics is a platform for the publication of policy relevant aspects of economic research. Cet article explore la mesure des conditions de concurrence en analysant cinq mthodes utilises dans la littrature conomique. ULC deterioration is observed and quasi equal in manufacturing (8.2%) and in market services (8.1%). The smaller the country, the better its companies seem to be represented in the data. Besides the averages of the whole samples, Table 2 gives the measures for the three neighbouring countries and their weighted average, serving as another relevant benchmark for competitiveness. Price stickyness, as explored by Vermeulen et al. The price-cost margin thus is a residual. Figure 2 shows a subset of results of the growth accounting analysis developed in a recent paper by Corrado et al. Source: R. Mudambi: Location, control and innovation in knowledge-intensive industries, in: Journal of Economic Geography, Vol. We can also expect a positive relationship between GVC participation and productivity. In particular the measure of profit elasticity improved, whereas on average it remained constant in the other analysed countries. The profit elasticity of the only neighbouring country in the sample, France, stayed below that of Belgium, but evolved at more or less the same pace. Sakakibara & Porter (2001) associate oligopolic collusion with stable market shares and competition with unstable ones. The focus is fully on the reallocation effect of competition. Griffith et al. (2007), shows the reluctance of prices to move up- or downwards. 6These two evolutions are particularly challenging for the Belgian economy as a strong growth of TPF-based productivity is the condition to promote both competitiveness and employment.Taking measures in favour of TFP growth requires that TFP determinants are better identified and analysed. Mme si larticle ntablit pas statistiquement de relation entre concurrence et PTF, les rsultats suggrent que la faible performance en termes de PTF pourrait tre due des conditions de concurrence dfavorables.Codes JEL: D24, L11. For example, the market-share stability of the Belgian software industry fell the most behind the other countries average of all Belgian industries, showing relatively weak dynamics in the industry. Tous droits rservs pour tous pays. The latest Global Competitiveness Report paints a gloomy picture, yet it also shows that those countries with a holistic approach to socio-economic challenges, look set to get ahead in the race to the frontier. Intereconomics represents over 50 years of economic policy oriented publishing. The measures indicate the evolutions in industries as assemblies of relevant markets. A lack of competition may then lead to the persistence of inefficient producers, keeping the industrys average price-cost margin relatively low. Mudambi observes that competition by emerging economies threatens the position of advanced countries along the value chain, prompting them to create new activities; additionally, emerging countries also have an incentive to invest in intangible assets: Firms controlling activities in the middle of the value chain have strong incentives to acquire the resources and competencies that will enable them to control higher value added activities. Although the evolutions should be determined by the rivalry between market players, it cannot be ruled out that in certain cases they are also determined by peculiarities of the data sample. 30From the measures of market concentration (services only) and profit elasticity, one could prudently conclude that the intensity of competition has evolved more favourably in Belgium than in other Member States. In the next section, the markup has been calculated as value added divided by the sum of labour and capital compensation. other European countries Divergence Weak convergence Convergence Overtaken Constant Manufacturing Beginning of time series + 0.08 + 0.13 + 103 + 102 - 0.10 + 0.17 End of time series + 0.12 + 0.05 + 101 + 86 + 0.13 + 0.24 Evolution of Belgium w.r.t. In the long run, however, there should still be a tendency towards elimination of the economic rent (ECB, 2006). Entry includes domestic and foreign firms, the latter either investing in a production unit (FDI) or selling finished products (imports). There is, however, no guarantee this will happen in the real world. Source: C. Corrado J. Haskel, C. Jona-Lasinio, M. Iommi: Intangible investment in the EU and US before and since the Great Recession and its contribution to productivity growth, in: Journal of Infrastructure, Policy and Development, forthcoming. KEGELS Chantal, VAN DER LINDEN Jan, Competitiveness, productivity, competition and structural reforms: the Belgian case, Composition, level and evolution compared to neighbouring countries. For many industries there are discrepancies between the total turnover of the sample and the official production value of the industry as given in the EUKLEMS database. La croissance de la Productivit totale des facteurs (PTF) a t particulirement moins soutenue que dans les pays voisins. Germany and the Netherlands are not among the seven. It would therefore be best to apply more than one measure when analysing competition. ****) Austria from 1999; Denmark from 2000. (2010), which used AMADEUS for the calculation. The less perfect competition is, the higher the markup would be. 14The last measure to be applied also tries to capture the extent of rivalry among market players. In fact the scores for Belgium have been quite constant during the seven-year period. The ambiguity may stem from the geographical dimension or from diversification. Boone, J., J.C. van Ours & H. van der Wiel, Braila, C., R. Dekker, A. Kleinknecht, M. Micevska, G. Rayp, S. Sanyal & J. van der Linden, CPB Netherlands Bureau for Economic Policy Analysis, Creusen, H., B. Vroomen, H. van der Wiel & F. Kuypers, Organisation for Economic Co-Operation and Development, Vermeulen, P., D. Dias, M. Dossche, E. Gautier, I. Hernando, R. Sabbatini & H. Stahl, Dernire publication diffuse sur Cairn.info ou sur un portail partenaire, Reflets et perspectives de la vie conomique. For Belgium, a time series of entry & exit can be calculated from data provided by the statistical institute (ADSEI/DBRIS). Belgium ranks among the lower half, but not too deeply (score of 3.8 on a scale of 10). Competition might even result in increasing markups, since it may work in the advantage of efficient producers who may have higher markups at given prices than their inefficient counterparts (see e.g. When the sample were narrowed to the mid-sized countries, Belgium would still have a higher average HHI. A high elasticity (in absolute value) would thus indicate vigorous competition. Price-cost margin Herfindahl- Hirschman Index (0-1000) Average absolute change of market shares Sensitivity of profit to cost changes Market economy + 0.25 - 35 + 0.3%-pt + 0.15 - Manufacturing + 0.07 - 22 - 1.0%-pt + 0.30 - Market services + 0.30 - 57 + 0.7%-pt + 0.14 Sources: Braila et al. Hence, such a market is in equilibrium when the markup or economic rent has reached zero. The samples are summarised in Annex Table A1, which also indicates the differences in time series and samples of industries. To the best of our knowledge, there are few empirical analyses which aim at disentangling the underlying determinants. Competition is a complex phenomenon that cannot be measured directly. The market mechanism may be at work without entry occurring. While there is a growing body of literature looking at the relationship between investment in intangible assets and productivity growth, the linkage between intangible capital and GVC participation is largely unexplored. It builds on the statement put forward earlier, that competition may work in the advantage of efficient producers above their inefficient counterparts. Given the explorative nature of the analysis, one should be prudent taking policy conclusions. For all five measures the United Kingdom, Sweden, Finland and Italy are in the sample. The former measures the instability of market shares of entering and incumbent firms. Empirical analyses by Creusen et al. Given the gradual evolution of most of the measures, however, they might be vital to the present image. time series) 25% 10% 64% 24% 25% - sample (NACE Rev.1) 15-35 15-37*** 15-37 15-35 15-35 Market services - weight (avg.
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