Published on July 12, 2016
1. PRODUCTIVITY GROWTH CHALLENGES: THE CASE OF SPAIN Mario Izquierdo Lisbon, 7-8 July 2016 2016 Conference of the Global Forum on Productivity DIRECTORATE GENERAL ECONOMICS AND STATISTICS
2. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH POTENTIAL GROWTH WEAKNESS 2 Productivity growth decreased notably during the expansion and despite a recent improvement its growth remains subdued. This is mostly related to a worsening in terms of the reallocation of resources among firms within sectors. Growth prospects constrained by lasting effects of the crisis and other structural factors. Productivity growth is the only long lasting factor that might compensate the existing limitations on the growth of employment and capital. 100 150 200 250 300 350 400 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25 POTENTIAL GDP OBSERVED GDP EXTRAPOLATION OF TREND GDP AND POTENTIAL GDP IN SPAIN 1982 = 100
3. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH 3 MISALLOCATION OF RESOURCES PLAYS A KEY ROLE Allocative efficiency (covariance between productivity and the market share) declined significantly during the expansion (García-Santana, et al (2015)) Although it has improved since 2008, allocative efficiency in Spain is low in international standards. 0,20 0,23 0,26 0,29 0,32 0,35 1,3 1,4 1,5 1,6 1,7 1,8 1995 1997 1999 2001 2003 2005 2007 2009 2011 ACCORDING TOTFP ACCORDING TOAPPARENT LABOUR PRODUCTIVITY YEAR-TO-YEAR EFFICIENCY OF THE ALLOCATION OF RESOURCES 0.0 0.5 1.0 1.5 2.0 2.5 Spain Italy Germany United Kingdom France AVERAGE EFFICIENCY OF THE ALLOCATION OF RESOURCES AMONG COMPANIES BASED ON TFP FROM 2004 TO 2012
4. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH EFFICIENT ALLOCATION OF RESOURCES 4 Productivity slowdown signal that the allocation of resources in the Spanish economy shows deficiencies which may be related to the pattern of business dynamics. We focus on two aspects of business dynamics: • Characterisation of business dynamics in Spain. • Evidence on the relationship between business dynamics and some factors that may be affecting it: finance, regulations and the low productivity growth at the firm level.
5. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH OUTLINE 5 • Characterisation of business dynamics in Spain in the international setting • Evidence on the relationship between business dynamics and factors • Finance • Regulations • Low productivity growth at the firm level • Concluding remarks
6. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH EMPIRICAL DIAGNOSIS: BUSINESS START-UPS AND EXITS 6 High cyclical component of start-up and exit rates. Once we discount this cyclicality: • During the upswing, Spain’s start-up rate was in line with the one observed in other European countries, whereas the exit rate was lower. • During the recession, the start-up rate fell disproportionately whereas the failure rate recovered to levels in keeping with international evidence. 0 2 4 6 8 10 12 14 16 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 START-UPS FAILURES % of active firms BUSINESS START-UP AND FAILURE RATES IN SPAIN -4 -3 -2 -1 0 1 2001 2003 2005 2007 2009 2011 2013 DIFFERENCE BETWEEN ACTUAL AND CYCLICALLY ADJUSTED FAILURE RATE % of active firms -4 -3 -2 -1 0 1 2001 2003 2005 2007 2009 2011 2013 DIFFERENCE BETWEEN ACTUAL AND CYCLICALLY ADJUSTED START- UP RATE % of active firms
7. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH EMPIRICAL DIAGNOSIS: BUSINESS START-UPS AND FAILURES 7 Business start-ups and exiting firms are less productive than established firms: • During the recession, the productivity of newly created firms improved, while the least productive firms disappeared. BUSINESS DEMOGRAPHY AND PRODUCTIVITY % Total 1998-2007 2008-2012 Relative levels of apparent labour productivity Total firms 100.0 100.0 Newly created firms 83.4 88.5 Incumbent firms 111.9 111.8 Exiting firms 73.1 57.2 Contributions to apparent labour productivity growth Newly created firms -- -- Incumbent firms -6.2 -2.2 Exiting firms 3.2 7.4
8. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH EMPIRICAL DIAGNOSIS: BUSINESS START-UPS AND FAILURES 8 Business start-ups in Spain are smaller and with a lower survival rate than their Euro area counterparts.
9. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH EMPIRICAL DIAGNOSIS: FEW HIGH-GROWTH FIRMS AND LOW PRODUCTIVITY 9 Moreover, the number of high-growth firms is low compared with other industrialised countries. 0 2 4 6 8 10 12 14 RO HU FI PL EE PT DE SK SI BE IT MT HR LT FR ES AT DURING THE CRISIS BEFORE THE CRISIS % of active firms PERCENTAGE OF HIGH-GROWTH FIRMS
10. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH EMPIRICAL DIAGNOSIS: PRODUCTIVE SYSTEM MADE UP OF SMALL LOW-PRODUCTIVITY FIRMS 10 Small and low productivity firms predominate in Spain.
11. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH OUTLINE 11 • Characterisation of business dynamics in Spain in the international setting • Evidence on the relationship between business dynamics and factors • Finance • Regulations • Low productivity growth idiosyncratic to corporations • Concluding remarks
12. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH DETERMINANTS (I): FINANCING 12 Bank loans are the main source of borrowed funds for Spanish firms. • Credit conditions in expansion/recession affected creation/destruction of firms. o Bentolila et al (2015), Alfaro, García-Santana and Moral (2016). • The link between access to credit at the firm level and productivity improved after the 2008 o The Spanish banking sector has undergone a substantial change as a result of its process of balance-sheet clean-up, recapitalisation and restructuring that might affect the allocation
13. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH DETERMINANTS (I): FINANCING 13 Spanish bankruptcy system was characterized as highly inefficient leading to large durations and a very high incidence of liquidations Recent reforms of bankruptcy procedures have increased the probability of a successful debt restructuring vis-à-vis liquidation by 5pp (something notable departing from a 9% of bankruptcy reorganisations, see García Posada and Vegas (2016)). This impact has been higher for firms with a lower liquidation value (less collateral), which implies higher ex-post efficiency. They also decreased substantially the duration of the procedures (17%). 1 2 3 Variable dependiente Prob.Convenio (b) Prob.Convenio (b) Duración (c) Reforma 2012 5,109** 12,305*** Reforma 2012*Inmovilizado material -0,216*** Reforma marzo 2014 -17,4** RECUADRO x.xIMPACTO MARGINAL (%) SOBRELAPROBABILIDAD DEALCANZAR UN CONVENIO YSOBRELA DURACIÓN DEL CONCURSO (a) FUENTE: Banco de España. a. (***) y (**) indican significatividad del coeficiente al nivel de confianza del 1% y del 5%, respectivamente.
14. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH DETERMINANTS (II): REGULATION 14 Entry costs for new firms have been reduced over the past years, but Spain still keeps a lagging position in international rankings (Doing Business indicators). Also a great dispersion of regional and municipal requirements to initiate a business is observed. The growing heterogeneity of regional administrative formalities constrains the growth of businesses through greater market fragmentation. • Lacuesta and Santaló (2016) found a decreasing presence of firms in other regions at the same time of increasing regional regulatory fragmentation.
15. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH DETERMINANTS (II): REGULATION 15 Tax and labour regulations based on size curb the growth of firms close to the thresholds (Almunia, López-Rodríguez (2015)).
16. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH DETERMINANTS (III): PRODUCTIVITY 16 Higher productivity is an essential determinant of the growth in firm size whereas growing in size is not a determinant of productivity (Moral (2016), and Guillamón, Moral, Puente (2016)). ESTIMATED EFFECTS ON EMPLOYMENT AND PRODUCTIVITY After the number of periods indicated 1 2 3 4 5 After a productivity shock: Employment growth 0.017*** (0.004) 0.012*** (0.004) 0.010** (0.005) 0.004 (0.007) 0. 003 (0.006) Cumulative employment growth 0.017*** (0.004) 0.037*** (0.005) 0.045*** (0.006) 0.075*** (0.007) 0.084*** (0.009) After an employment shock Productivity growth 0.017* (0.009) ´-0.005 (0.005) ´-0.014 (0.020) ´-0.008 (0.009) ´-0.010 (0.014) Cumulative productivity growth 0.017* (0.009) 0.012 (0.012) 0.006 (0.017) 0.012 (0.008) 0.007 (0.031) NOTE: * , ** and *** denote significance coefficients at 10%, 5% and 1%, respectively. Standard errors are in brackets. See E. Moral-Benito (2016), Growing by learning, Working Paper, forthcoming. For more details see note to Table 4.2.
17. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH DETERMINANTS (III): PRODUCTIVITY 17 The economic literature underlines three internal factors conditioning business productivity: human capital, business management and the ability to innovate.
18. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH OUTLINE 18 • Characterisation of business dynamics in Spain in the international setting • Micro evidence on the relationship between business dynamics and factors • Finance • Regulations • Low productivity growth idiosyncratic to corporations • Concluding remarks
19. DIRECTORATE GENERAL ECONOMICS, STATISTICS AND RESEARCH CONCLUSIONS 19 Business start-ups and deaths in Spain seem to occur in a similar way as in other countries. • Nevertheless, firms created in Spain are characterised by their smaller size, lower survival rate and lower productivity. Productivity gains are an essential determinant of growth. • However, the correlation between productivity and market share seems to be lower in Spain than in other European countries. These characteristics generate a distribution of firms biased towards the segment of smallest firms and with a negative productivity gap with European counterparts. This analysis emphasises the need to eliminate frictions and inefficiencies in several financial and regulatory areas but, above all, to promote genuine improvements in productivity at the firm level. See http://www.bde.es/bde/en/secciones/informes/Publicaciones_an/Informe_anual/ and references therein for addittional details
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