@techreport{IacovoneGonzaloAldazCarroll, type = {Working Paper}, author = {Iacovone, Leonardo and Gonzalo, Varela and Aldaz-Carroll, Enrique}, title = {Determinants of Market Integration and Price Transmission in Indonesia}, series = {Policy Research Working Paper}, journal = {Policy Research Working Paper}, edition = {No. 6098}, publisher = {World Bank}, address = {Washington, DC}, abstract = {This paper investigates the determinants of price differences and market integration among Indonesian provinces, using data from retail cooking oil, rice and sugar markets during the period 1993-2007, and from wholesale maize and soybean markets during the period 1992-2006. The authors measure the degree of integration using co-integration techniques, and calculate average price differences. They use regression analysis to understand the drivers of price differences and market integration. For rice and sugar, they find wide market integration and low price differences, in the range of 5-12 percent. For maize, soybeans and cooking oil, they find less integration and higher price differences (16-22 percent). Integration across provinces is explained by the remoteness and quality of transport infrastructure of a province. Price differences across provinces respond to differences in provincial characteristics such as remoteness, transport infrastructure, output of the commodity, land productivity and income per capita.}, language = {en} } @techreport{IacovoneJavorcik, type = {Working Paper}, author = {Iacovone, Leonardo and Javorcik, Beata Smarzynska}, title = {Getting ready: Preparation for exporting}, series = {Centre for Economic Policy Research}, journal = {Centre for Economic Policy Research}, edition = {DP8926}, abstract = {This study examines developments at the plant-product level preceding an expansion into foreign markets. It relies on very detailed Mexican data for 1994-2004, a period of liberalization in US trade policy vis a vis Mexico, mandated by the North American Free Trade Agreement. Our approach is novel in that we focus on quality, proxied by domestic price premium, of current and future export products. Our findings are consistent with quality upgrading taking place in preparation for entry into export markets. We show that manufacturers who export a particular product variety tend to obtain a price premium for their domestic sales of this variety. Consistently with the hypothesis of quality upgrading before exporting, we find evidence that this premium emerges exactly one year before a variety starts being exported. We find no evidence of upgrading after entering export markets. Our IV estimates suggest that the changes in the price premium are driven by the anticipated cuts in US tariffs and are particularly pronounced among producers exhibiting better performance in the initial period.}, language = {en} } @incollection{IacovoneBrownCrespietal., author = {Iacovone, Leonardo and Brown, J David and Crespi, Gustavo A and Marcolin, Luca}, title = {Productivity Convergence at the Firm Level: New Evidence from the Americas}, series = {Understanding the Income and Efficiency Gap in Latin America and the Caribbean}, booktitle = {Understanding the Income and Efficiency Gap in Latin America and the Caribbean}, isbn = {978-1-4648-0450-2}, doi = {10.1596/978-1-4648-0450-2_ch5}, publisher = {Hertie School}, pages = {117 -- 186}, abstract = {Uses firm-level data from the manufacturing sector in Colombia, Mexico, and the United States, in the past decade, to investigate the extent to which aggregate productivity growth in the manufacturing sector is driven by growth in productivity at the firm level or by reallocation of employment shares across firms. The evaluation produced results that stress a focus on firm-level productivity growth, as this has contributed the most to overall productivity growth. Reallocation between firms, within sectors, results in a weak force of productivity growth, and reallocation between sectors an even weaker source of growth. Although firms converge toward the domestic frontier with spillovers arising from the growth of the domestic frontier, no convergence occurs with respect to the global frontier. For all countries analyzed, the most important determinant of productivity convergence at the firm level remains innovation effort, measured as the firm-level expenditure shares in innovation and investment in capital equipment.}, language = {en} } @techreport{IacovoneSanchezBayardoSharma, type = {Working Paper}, author = {Iacovone, Leonardo and S{\´a}nchez-Bayardo, Luis F and Sharma, Siddharth}, title = {Regional productivity convergence in Peru}, series = {Policy Research working paper}, journal = {Policy Research working paper}, edition = {WPS 7499}, publisher = {World Bank Group}, address = {Washington, D. C.}, abstract = {This paper examines whether labor productivity converged across Peru's regions ("departments") during 2002-12. Given the large differences in labor productivity across the regions of Peru, such convergence has the potential to raise aggregate productivity and incomes, and also reduce regional inequalities. The paper finds that labor productivity in the secondary sector (especially manufacturing) and the mining sector has converged across Peruvian departments. The paper does not find robust evidence for labor productivity convergence in agriculture and services. These patterns are consistent with recent cross-country evidence and with the hypothesis that productivity convergence is more likely in sectors with greater scope for market integration, because of the effects of competition and knowledge flows. The convergence in labor productivity within manufacturing and mining has been sufficient to lead to convergence in aggregate labor productivity across departments. But because services and agriculture continue to employ the majority of workers in Peru, aggregate convergence is slower than that within manufacturing. The paper also finds that poverty rates are not converging across departments. The limited impact of labor productivity convergence on poverty could be tied to the facts that not all sectors are experiencing productivity convergence, poorer people are employed in sectors where convergence has been slower (such as agriculture), and there is very little labor reallocation toward converging sectors (such as manufacturing).}, language = {en} } @article{IacovoneEckelJavorciketal., author = {Iacovone, Leonardo and Eckel, Carsten and Javorcik, Besta and Neary, J Peter}, title = {Multi-product firms at home and away: Cost- versus quality-based competence}, series = {Journal of International Economics}, volume = {95}, journal = {Journal of International Economics}, number = {2}, doi = {10.1016/j.jinteco.2014.12.012}, pages = {216 -- 232}, language = {en} } @article{IacovoneRauchWinters, author = {Iacovone, Leonardo and Rauch, Ferdinand and Winters, L Alan}, title = {Trade as an engine of creative destruction: Mexican experience with Chinese competition}, series = {Journal of International Economics}, volume = {89}, journal = {Journal of International Economics}, number = {2}, pages = {379 -- 392}, abstract = {This paper exploits the surge in Chinese exports from 1994 to 2004 to evaluate the effects of a competition shock from a low wage competitor for producers in an important middle-income country, Mexico. We find that this shock causes selection and reallocation at both firm and product levels and that its impact is highly heterogeneous at the intensive and extensive margins. Sales of smaller plants and more marginal products are compressed and are more likely to cease, whereas those of larger plants and core products seem relatively impervious to the shock. This implies a reallocation in terms of market shares within firms and between firms. We also show that the impact of expanded access to cheaper Chinese intermediate inputs has a similar effect, with larger plants benefiting more from the availability of cheaper imported inputs.}, language = {en} } @article{IacovoneJavorcikKelleretal., author = {Iacovone, Leonardo and Javorcik, Beata and Keller, Wolfgang and Tybout, James}, title = {Supplier responses to Walmart's invasion in Mexico}, series = {Journal of International Economics}, volume = {95}, journal = {Journal of International Economics}, number = {1}, doi = {10.1016/j.jinteco.2014.08.003}, pages = {1 -- 15}, abstract = {This paper examines the effect of Walmart's entry into Mexico on Mexican manufacturers of consumer goods. Guided by firm interviews that suggested substantial heterogeneity across firms in how they responded to Walmart's entry, we develop a dynamic industry model in which firms decide whether to sell their products through Walmex (short for Walmart de Mexico), or use traditional retailers. Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product's appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with lower appeal products do not. For the industry as a whole, the model predicts that the associated market share reallocations, adjustments in innovative effort, and exit patterns increase productivity and the rate of innovation. These predictions accord well with the results from our firm interviews. The model's predictions are also supported by establishment-level panel data that characterize Mexican producers' domestic sales, investments, and productivity gains in states with differing levels of Walmex presence during the years 1994 to 2002.}, language = {en} } @techreport{IacovoneJavorcikFitrani, type = {Working Paper}, author = {Iacovone, Leonardo and Javorcik, Beata and Fitrani, Fitria}, title = {Trade Integration, FDI, and Productivity}, publisher = {World Bank}, abstract = {Policy attitude towards trade integration and foreign direct investment (FDI) is often a controversial yet popular subject. This note presents evidences from recent policy researches that arguing that engaging in an open trade and investment regime have brought productivity gains which is key factor for sustaining increase in income per-capita. Evidence from Indonesia also suggests that foreign owned plants have become increasingly important, generating a significant share of exports and overall output, as well as more productive and more export intensive than domestic plants, and to spend more on RD and training. FDI also have positive impact on firms in the same sector, through competition and demonstration effects, and in upstream sectors, as suppliers to foreign-owned plants improve the quality of their own products to meet their clients more exacting needs. Evidence also suggests a positive impact from import competition in improving allocative efficiency across manufacturing plants which is a key element in driving productivity in manufacturing sector.}, language = {en} } @article{IacovoneZahlerMattoo, author = {Iacovone, Leonardo and Zahler, Andr{\´e}s and Mattoo, Aaditya}, title = {Trade and innovation in services: Evidence from a developing economy}, series = {The World Economy}, volume = {37}, journal = {The World Economy}, number = {7}, pages = {953 -- 979}, abstract = {Studies on innovation and international trade have traditionally focused on manufacturing because neither was seen as important for services. Moreover, the few existing studies on services focus only on industrial countries, although in many developing countries services are already the largest sector in the economy and an important determinant of overall productivity growth. Using a recent firm-level innovation survey for Chile to compare the manufacturing and "tradable" services sector, this paper reveals some novel patterns. First, although services firms have on average a much lower propensity to export than manufacturing firms, services exports are less dominated by large firms and tend to be more skill intensive than manufacturing exports. Second, services firms appear to be as innovative as -- and in some cases more innovative than -- manufacturing firms, in terms of both inputs and outputs of "technological" innovative activity, although services innovations more often take a "non-technological" form. Third, services exporters (like manufacturing exporters) tend to be significantly more innovative than non-exporters, with a wider gap for innovations close to the global technological frontier. These findings suggest that the growing faith in services as a source of both trade and innovative dynamism may not be misplaced.}, language = {en} } @techreport{IacovoneRamachandranSchmidt, type = {Working Paper}, author = {Iacovone, Leonardo and Ramachandran, Vijaya and Schmidt, Martin}, title = {Stunted growth: why don't African firms create more jobs?}, series = {Policy Research Working Papers}, journal = {Policy Research Working Papers}, edition = {6727}, publisher = {World Bank Group}, abstract = {Many countries in Africa suffer high rates of underemployment or low rates of productive employment; many also anticipate large numbers of people to enter the workforce in the near future. This paper asks the question: Are African firms creating fewer jobs than those located elsewhere? And, if so, why? One reason may be that weak business environments slow the growth of firms and distort the allocation of resources away from better-performing firms, hence reducing their potential for job creation. The paper uses data from 41,000 firms across 119 countries to examine the drivers of firm growth, with a special focus on African firms. African firms, at any age, tend to be 20-24 percent smaller than firms in other regions of the world. The poor business environment, driven by limited access to finance, and the lack of availability of electricity, land, and unskilled labor have some value in explaining this difference. Foreign ownership, the export status of the firm, and the size of the market are also significant determinants of firm size. However, even after controlling for the business environment and for characteristics of firms and markets, about 60 percent of the size gap between African and non-African firms remains unexplained.}, language = {en} } @techreport{IacovoneGonzalezSubhash, type = {Working Paper}, author = {Iacovone, Leonardo and Gonz{\´a}lez, Alvaro S. and Subhash, Hari}, title = {Russian volatility: Obstacle to firm survival and diversification}, series = {Policy Research Working Paper}, journal = {Policy Research Working Paper}, edition = {6605}, publisher = {World Bank Group}, address = {Washington, D. C.}, abstract = {The need for economic diversification receives a great deal of attention in Russia. This paper looks at a way to improve it that is essential but largely ignored: how to help diversifying firms better survive economic cycles. By definition, economic diversification means doing new things in new sectors and/or in new markets. The fate of emerging firms, therefore, should be of great concern to policy makers. This paper indicates that the ups and downs -- the volatility -- of Russian economic growth are key to that fate. Volatility of growth is higher in Russia than in comparable economies because its slumps are both longer and deeper. They go beyond the cleansing effects of eliminating the least efficient firms; relatively efficient ones get swept away as well. In fact, an incumbency advantage improves a firm's chances of weathering the ups and downs of the economy, regardless of a firm's relative efficiency. Finally, firms in sectors where competition is less intense are less likely to exit the market, regardless of their relative efficiency. Two policy conclusions emerge from these findings -- one macroeconomic and one microeconomic. First, the importance of countercyclical policies is heightened to include efficiency elements. Second, strengthening competition and other factors that support the survival of new, emerging and efficient firms will promote economic diversification. Efforts to help small and medium enterprises may be better spent on removing the obstacles that young, infant firms face as they attempt to enter, survive and grow.}, language = {en} }