Management quality, firm organisation and international trade
Cheng Chen 15 December 2013
Management quality varies enormously across nations and these differences are associated with important outcomes such as firm-size distribution and aggregate productivity. Such facts, however, cannot be understood using existing trade theory. This JMP Vox column describes a new general equilibrium framework linking management technology, firms’ hierarchy choices, and international trade. Heightened import competition induces firms to flatten their hierarchies and rely more on incentive-based pay. Better management is also complementary with trade liberalisation, since nations with superior management technology experience larger gains from trade.
Management quality varies widely across countries and has important effects on firm performance (Bloom and Van Reenen 2007, 2010). Cross-nation differences in management quality are also associated with differences in the firm-size distribution, internal structure of firms, and aggregate productivity (Bloom et al. 2012, Hsieh and Klenow 2009, 2012). For example, firms are smaller, less decentralised, and less productive in India compared with firms in the US, which are better managed than Indian firms.
Development Institutions and economics International trade
gains from trade, firm organisation, management quality
Firm organisation: What we know and why we should care
Laura Alfaro, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew Newman 02 December 2012
Increasingly, people are pointing the finger of blame for economic woe at large firms. This column argues that organisation design is often affected by government trade policy. If firm organisation design has implications for consumer welfare (in terms of prices and quality of product), evidence suggests that governments should make sure that in future, trade policy and corporate governance policy are more complementary.
A series of corporate calamities in the 2000s has helped to arouse suspicion amongst policymakers and the public that corporate organisation matters. Internal organisation issues are blamed for lost jobs, lost pensions and lost fortunes (e.g. Enron, Worldcom); for plane crashes in the US, lead-painted toys from China1, and, most devastatingly of all, the global crisis. These outcomes are increasingly ascribed to unaccountable managers, misaligned ownership structures, outsourcing and other internal organisation issues.
Industrial organisation International trade
trade, protectionism, firms, firm organisation