Working Paper: CEPR ID: DP13001
Authors: Kalina Manova; Nicholas Bloom; Stephen Teng Sun; John Van Reenen; Zhihong Yu
Abstract: We present a heterogeneous-firm model in which management ability increases both production efficiency and product quality. Combining six micro-datasets on management practices, production and trade in Chinese and American firms, we find broad support for the model's predictions. First, better managed firms are more likely to export, sell more products to more destination countries, and earn higher export revenues and profits. Second, better managed exporters have higher prices, higher quality, and lower quality-adjusted prices. Finally, they also use a wider range of inputs, higher quality and more expensive inputs, and imported inputs from more advanced countries. The structural estimates indicate that management is important for improving production efficiency and product quality in both countries, but it matters more in China than in the US, especially for product quality. Panel analysis for the US and a randomized control trial in India suggest that management exerts causal effects on product quality, production efficiency, and exports. Poor management practices may thus hinder trade and growth, especially in developing countries.
Keywords: management; exports; product quality; productivity
JEL Codes: F10; F14; F23; L20; O19; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Better managed firms (L25) | more likely to export (F10) |
| Better managed firms (L25) | sell more products to more destination countries (F10) |
| Better managed firms (L25) | earn higher export revenues and profits (F10) |
| Better managed exporters (F10) | achieve higher prices (D44) |
| Better managed exporters (F10) | achieve higher quality (L15) |
| Better managed exporters (F10) | achieve lower quality-adjusted prices (L15) |
| Management (M11) | improving production efficiency (D24) |
| Management (M11) | improving product quality (L15) |
| Management practices (M54) | associated with a wider range of inputs (C67) |
| Management practices (M54) | higher quality and more expensive inputs sourced from advanced countries (F12) |