OECD Economic Studies No. 38, 2004/1

Business dynamics and policies

Nicola Brandt

This study presents evidence on firm entry and exit, growth and survival derived with new data from Eurostat, covering nine European Union member countries. Cross-country and cross-industry patterns in firm entry rates are analysed with a special emphasis on detailed information and communication technology (ICT) related sectors, which has not been possible with previously available cross-country data. Firm entry rates turn out to be rather moderate in more mature industries, especially in the manufacturing sector, while they are exceptionally high in younger ICT-related sectors. As these industries have been associated with rapid technological change in recent years, this result lends some support to the hypothesis present in creative destruction models of economic growth that young firms play an important role for innovation and productivity growth. After controlling for some basic factors, such as countries' industry composition, cross-country differences in aggregate entry and exit rates turn out to be negligible. However, differences in entry and exit rates in the younger ICT-related industries across countries are much larger, as are differences in hazard rates. To explore whether policies and institutions are important for cross-country differences in firm entry and survival, OECD indicators measuring the stringency of regulation in different fields are related to firm entry and hazard rates. Some, although not all of them turn out to have a statistically significant relationship with firm entry rates, suggesting a negative impact of overly stringent regulation on firm creation.

The ICT productivity paradox: insights from micro data

Dirk Pilat

Empirical analysis of the economic impacts of information and communications technology (ICT) has followed three main tracks, namely analysis with aggregate data on ICT investment, with data on ICT-producing and ICT-using industries, and with firm-level data. Firm-level data point to factors influencing the impacts of ICT that can not be observed at the aggregate level, e.g. organisational factors or the availability of skills. Firm-level data can also point to competitive effects that may accompany the spread of ICT, such as the entry of new firms, the exit of firms, and changes in market share of existing firms. This paper summarises some of the findings on the impacts of ICT that emerge from firm-level studies, primarily pointing to evidence that has been extracted from firm-level data in recent OECD work on ICT, productivity and economic growth. The paper also briefly discusses why firm-level evidence may lead to different findings from evidence extracted at a more aggregate level.

International production relocation and exports of services

Nigel Pain and Desirée van Welsum

This paper explores the relationship between the relocation of international production and exports of services from the United States using a number of different panel data estimators for six different categories of services. A conventional export demand relationship is augmented by three different measures of the extent of international production relocation by US-based parent companies in service and non-service industries. Our results reveal considerable heterogeneity in the relationship between trade and production relocation across different categories of services and across the sector in which production relocation takes place. We find a significant positive relationship between exports and international production relocation in the majority of non-service sectors, but a significant negative relationship with relocation in service sectors. Intra-firm exports of affiliate services is the only category of trade raised by additional outward investment in all sectors.

Explaining waiting-time variations for elective surgery across OECD countries

Luigi Siciliani and Jeremy Hurst

Waiting times for publicly-funded elective surgery are a major health policy concern in many OECD countries (like Australia, Canada, Denmark, Finland, Ireland, Italy, the Netherlands, New Zealand, Norway, Spain, Sweden, and the United Kingdom), but are not a concern in others (like Austria, Belgium, France, Germany, Japan, Luxembourg, Switzerland, and the United States). This paper contains a comparative analysis of these two groups of countries. It is found that countries which do not report waiting times, spend on average more on health care, have higher capacity (measured in terms of acute care beds and doctors), and have adopted more frequently activity-based funding for hospitals and fee-for-service systems for doctors (as opposed to global budgets and salary). On the demand side, the two groups of countries do not differ markedly in need, as measured through the proportion of elderly in the total population or mortality rates, or in the degree of cost sharing (co-payments for surgery).

The contribution of housing markets to cyclical resilience

Pietro Catte, Nathalie Girouard, Robert Price and Christophe André

This paper examines the linkages between housing markets and the business cycle in OECD countries, focusing on how differences in the degree of resilience to economic shocks can be affected by the structural characteristics of housing and mortgage markets. The paper focuses specifically on: the transmission channel from housing wealth to consumption and on the factors behind house price variability, which help to determine whether the housing sector plays a stabilising role or not. Estimates of the marginal propensity to consume out of housing wealth are presented for ten OECD countries, where it is found that the strongest impact on consumption is in countries that have large, efficient and responsive mortgage markets. Particularly important in this regard is the degree of mortgage market "completeness" - i.e. the extent to which the market is able to offer a variety of products and to serve a broad range of potential borrowers - in particular, the extent to which they provide opportunities for housing equity withdrawal. With regard to house price variability, the significant differences found among OECD countries appear to be connected both to macro-economic factors (such as inflation variability) and to structural ones. House prices seem to be subject to larger oscillations in countries where housing supply is relatively inelastic (due, for example, to unnecessarily restrictive zoning regulations) and where a favourable tax treatment of mortgage interest encourages the leveraging of housing equity. A tentative conclusion is that structural policy settings that are desirable for the sake of efficient resource allocation also tend to be conducive to greater macro-economic resilience to shocks.

The challenges of narrowing the US current-account deficit and implications for other economies

Anne-Marie Brook, Franck Sédillot and Patrice Ollivaud

This article uses the OECD's interlink model to explore several possible channels through which a narrowing of the US current account deficit could occur. The shocks considered include dollar depreciation, fiscal consolidation, and an improvement in the non-price competitiveness of US producers. A key conclusion is that shocks would have to be very large in order to materially reduce the US external deficit, largely because of the offsetting impact of second-round effects. In addition, it is clear that each of the channels for narrowing the deficit involves risks to growth in the rest of the world. However, the costs of adjustment can be limited in economies with sound domestic fundamentals where the authorities can use monetary or fiscal policy to offset any contractionary pressures. The article also shows that if the adjustment were to occur through the exchange rate channel, then greater exchange rate flexibility in Asia would enable the burden of adjustment to be spread more evenly across US trading partners. Finally, it is estimated that higher growth rates in US trading partners would improve the US current account balance only slightly.

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