Date post: | 22-Jan-2018 |
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Economy & Finance |
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Weak Productivity: The Role of Financial Factors and
Policies
Luigi Zingales
University of Chicago
Stagnant Productivity Growth
© Zingales
3
Labor Productivity Growth 1995-06
-10%
0%
10%
20%
30%
40%
50%
TFP ICT Capital
Non-ICT Capital Labor Composition
Labor Productivity
Possible causes
1. Lower employment to pop or # hours worked
2. Lower technological innovation – We have picked the low hanging fruits (Gordon,
2016)
– Aging affects innovativeness
3. Worse transmission/application of innovation
4. Lower capital investments
5. Worse misallocation of investments or resources in general
Labor Participation Declining
© Zingales
© Zingales
The Role of the Financial Sector
• Little to do with 1 and 2 (Bell Lab)
• A lot to do with 3- 5
Roles of the financial system:
1. Transfer funds
2. Allocate funds to firms
3. Help govern firms
Outline
1. How did the financial system perform?
2. What are possible causes of the slowdown?
3. Can this performance have lead to the
slowdown in productivity?
4. What can we do about it?
1
Performance of the financial system
Growth of Financial Services
10
Source: Greenwood and Scharfstein (2013)
Growth in Intermediation
Source: Greenwood and Scharfstein (2013)
Housing Investments
The Growth in The Securities Industry
Source: Greenwood and Scharfstein (2013)
$0
$50
$100
$150
$200
$250
$300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
$ B
illio
ns
Source: Private Equity Analyst, Steven N. Kaplan
Commitments to U.S. Private Equity Partnerships 1980 - 2014 (in $ billions)
Merger and Acquisitions
Source: Institute of Merger, Acquisitions and Alliances © Zingales
Conclusions So Far
• It is difficult to find a metric in which the financial
system did not do well
• This result leads to two possible conclusions
1. The financial system is not responsible for the
productivity slowdown
2. Our measures of “performance” are not appropriate
2
What are possible causes of the slowdown?
Lack of investments?
Gutiérrez and Philippon, 2016
Increase in Concentration - HHI Index
Source: Grullon, Larkin and Michaely (2017)
© Zingales
Evolution of Mark-Up
Loecker and Eeckhout (2017)
© Zingales
Effects of Mergers on Market Power
Blonigen and Pierce (2016) © Zingales
Blonigen and Pierce (2016) © Zingales
Investment and Concentration Global financings in SaaS
(value and volume)
Source: techcrunch.com
Decline in Entry
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
FirmsEntryandExitRates(in%)
EstablishmentEntryRate
EstablishmentExitRate
Source: Business Dynamics Statistics (US
Census) © Zingales
Number of U.S. IPOs Categorized by Pre-IPO Sales
Source: Gao, Ritter, and Zhu, 2013
Misallocation of Investments
• Gopinath et al (2017): Misallocation of capital in Southern Europe due to the euro
• Lenzu et al (2018): misallocation of capital and labor in Italy
• Blattner et al. (2018): misallocation of capital in Portugal due to bank capital requirements
Productivity and Management
• Bloom et al. (2012): American firms are better able to exploit ICT innovation than European firms
• Pellegrino and Zingales (2017): in countries where meritocratic management is more prevalent ICT investments have a stronger positive impact on TFP growth
ICT and Meritocracy
3
Has the financial system contributed to the slowdown in
productivity?
Credit Market
• The credit market moved from providing credit to firms to financing houses and consumption
• This Is not necessarily bad from a welfare perspective
• But it Is not conducive to growth
Favoring Collusion?
• Aryal et al. (2017): analysts’ communication favor capacity reduction in the airline industry
• Azar et al. (2017 a) : common ownership reduces competition in the airline industry
• Azar et al. (2017 b): common ownership reduces competition in the banking industry
• M&A favored concentration, higher prices, and lower investments
Source: Barkai (2017 © Zingales
Source: Barkai (2017 © Zingales
In Europe
• Combination of existing financial system + euro lead to large misallocation
• Euro banking + sovereign crisis had large additional costs in terms of lack of investments and growth in Southern Europe
• Lack of pressure for change of control
4
What Can Be Done?
What Can Be Done?
1. Antitrust enforcement
2. Redefinition of property rights on data
3. Ensuring that the flow of credit to small, new
firms, continues
4. Rethinking of corporate governance
5. Fixing the Euro