Working Paper: CEPR ID: DP17352
Authors: Xiang Ding; Teresa Fort; Stephen J. Redding; Peter Schott
Abstract: We document the role of intangible capital in manufacturing firms' substantial contribution to non-manufacturing employment growth from 1977-2019. Exploiting data on firms' "auxiliary" establishments, we develop a novel measure of proprietary in-house knowledge and show that it is associated with increased growth and industry switching. We rationalize this reallocation in a model where firms combine physical and knowledge inputs as complements, and where producing the latter in-house confers a sector-neutral productivity advantage facilitating within-firm structural transformation. Consistent with the model, manufacturing firms with auxiliary employment pivot towards services in response to a plausibly exogenous decline in their physical input prices.
Keywords: structural transformation; professional services; intangible knowledge; economic growth
JEL Codes: D24; L16; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| physical input price reductions (L11) | non-manufacturing employment (L69) |
| auxiliary establishments (I29) | growth in non-manufacturing employment (O49) |
| in-house knowledge workers (O36) | ability to pivot towards new sectors (O14) |
| in-house knowledge production (O36) | structural transformation (L16) |
| auxiliary employment (J68) | firm growth rates (L25) |