Download technology and competitiveness of italian firms

BANCA D’ITALIA
EUROSYSTEM
TECHNOLOGY ADOPTION,
PRODUCTIVITY, AND FIRM
SIZE: THE CASE OF ITALY
Matteo Bugamelli, Federico Cingano and Salvatore
Rossi
Bank of Italy
Knowledge Economy Forum VII
Ancona 17-19 June 2008
Why talking about Italy here?
Not (just) because we are in Italy!
If we are interested in understanding what drives
economic growth in an advanced country…
… the Italian economy is an interesting case in point…
… since it has been growing much less than its
partners in the last decade
As we’ll see later, lessons can be drawn for emerging
countries too
The disappointing performance of
the Italian economy
Since the second half of the ’90s:
 GDP growth has dramatically slowed down in
absolute and comparative terms
Hours worked increased but labour productivity
stalled
TFP drove down labour productivity
What could explain Italy’s growth and
productivity crisis?
Two “revolutions” have shocked the world economy in
the last 20 years: ICT and globalization
The Italian economic structure shows a distinctive
anomaly in the advanced world: dimensional
fragmentation (firm dwarfism)
Industrial districts (clusters) were in the 70s and 80s an
original response to the trade-off between the need for
flexibility and that of scale economies
Since the mid-90s small size, even within clusters, is
delaying the adjustment of most firms to the new
technological and market environment
Empirical evidence (micro) on tech
adoption, innovation and R&D [1]


1.
2.
3.
4.
Pagano and Schivardi (2003) show that growth across
European countries is positively related to firm size, especially
in industries with economies of scale and high R&D intensity
Fabiani, Schivardi and Trento (2005) show that Italian firms
are more likely to innovate and invest in ICT:
when large
when share of skilled workers is high
when connected with a neighbouring, large firm
when adapt organization structure to ICT
Empirical evidence (micro) on tech
adoption, innovation and R&D [2]
Hall, Lotti and Mairesse (2008) show, based on a large
sample of Italian SMEs, that:
firm size and international competition have a positive
effect on R&D effort
R&D intensity has a positive and significant impact on
the likelihood of introducing both product and process
innovation
Empirical evidence (micro) on tech
adoption, innovation and R&D [3]
From 2007 Bank of Italy’s survey on manufacturing
firms:
25.5% of firms has an internal R&D department,
but…
…more than half of R&D dep. are very small (≤5
employees); only a fifth has more than 15 employees
Share of firms with R&D dep. increases with firm size
Has this situation recently
changed?
 In the last 3-4 years restructuring and market
repositioning by some Italian firms may have
started (Bank of Italy 2006, 2007)
 A great heterogeneity within each sector is
evident: specialization seems less relevant than
expected, there are winners in traditional
sectors and losers in high-tech ones
Evidence from Bank of Italy’s 2007
survey on manufacturing firms
Export and value added growth in recent years has
been higher for firms:
 more propense to ICT adoption and use
 that complemented ICT technology with highly skilled
workers (human capital), in particular white-collars
 that complemented ICT technology with reorganization, in particular toward more horizontal
structures
Firm size matters for all those activities: actually, it is
(slightly) growing
Industry “tertiarization” as a form of
competitive advantage
The “winners” are also those firms where innovation
takes the form of a “tertiary” supporting activity,
like marketing, branding, customer service
In a research at the Bank of Italy we have shown that
these factors have been increasingly important in
recent years (eg. branding)
 Devoting care and resources to these activities is
related to firm size
Innovation is crucial (private and
public R&D, patents)
 Italy’s R&D/GDP expenditure is slightly more than
1%, just as it was ten years ago, much lower than EU-25
average (1.8%), very far from the Lisbon target (3%)
The contribution of the private sector to R&D is low
(50%, as against 60-70% in main EU countries), due to
small firm size
Italy’s innovation output (47 patents per million
inhabitants) is largely below EU15 average (79)
Policy implications for Italy [1]
Whatever side of the problem one looks at, firm size
stands at the root of the Italian growth and productivity
crisis
Dynamics matters: one would want to see more small
firms, particularly start-ups in innovative sectors, but also
successful SMEs in traditional sectors, rapidly evolving
into medium and large firms…
…possibly shifting their sector specialization towards
the neighbouring one with a higher technological
intensity…
Policy implications for Italy [2]
Dimensional growth of firms is hampered by
many socio-political factors. Among others:
1. Traditional family-ownership model
2. Scarcity of financial intermediaries specialized in
3.
4.
promoting firm growth (venture capital, private
equity)
Diffused tax evasion and elusion in the presence of
high tax rates, favoured by small size
Very intrusive red tape: being small helps
No role for macroeconomic policies. Structural
policies are needed, in many areas
Lessons for emerging countries? [1]
As we have seen, insufficient firm size is crucial in
explaining the Italian productivity crisis
Italy inherited from the past a dimensional structure of
its productive system more similar to that of an
emerging country…
… which is delaying and making it difficult to adjust to
the the two world Revolutions (the change of
technological paradigm and the advent of globalization)
Prima facie such experience may seem irrelevant from the
point of view of a less advanced economy, which has
to adopt existing technologies and to develop its
internal market…
Lessons for emerging countries? [2]
… in particular, for countries emerging from transition
private SMEs are the necessary antidote to the old
model of large and inefficient state-owned firms
Yet, even those countries should be forward-looking
As soon as the private sector has consolidated, and the
economy has reached a middle-income level of
development, how to stimulate the endogenous
dimensional growth of firms should become a policy
priority
Otherwise, as the recent Italian experience shows, an
economy about to approach an advanced development
stage may enter a “smallness trap”
BANCA D’ITALIA
EUROSYSTEM
R&D expenditure (% GDP)
2000 2005
EU27
1.86
1.84
Germany
Spain
France
Italy
Netherlands
Sweden
United Kingdom
2,45
0.91
2.15
1.05
1.82
..
1.85
2,48
1.12
2.13
1.10
1.73
3.89
1.76
Branding
(as % share of sales)
2006
2000
Own brand No brand Other brand Own brand
products products
licence
products
Industry
20-49 employees
more than 50 employees
Total
63,3
74,3
72,1
25,3
20,7
21,6
10,8
5,0
6,2
64,3
77,9
75,2
No brand Other brand
products
licence
23,5
16,4
17,8
11,7
5,7
6,9
GDP and productivity, 1981-06
160
150
140
Labor productivity (hours worked)
TFP
130
120
110
100
90
80
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Average firm size, 2005
France
Germany
Italy
Netherlands
Spain
Sweden
UK
Wholesale and
retail trade
TOTAL
Manufacturing
Construction
14,30
34,35
3,48
6,63
4,33
9,58
5,97
11,41
7,39
1,85
1,42
2,63
15,91
11,21
11,75
20,45
5,05
5,56
3,26
5,42
7,14
3,12
4,05
11,98
8,48
4,36
4,34
10,57