American Economic AssociationWhy Do Management Practices Differ across Firms and Countries?
Journal of Economic Perspectives?Volume 24, Number 1?Winter 2010?Pages 203-224Why Do Management Practices Differacross Firms and Countries?Nicholas Bloom and John Van ReenenEconomists have long puzzled over the astounding differences in productivity between firms and countries. For example, looking at disaggregateddata on U.S. manufacturing industries, Syverson (2004a) found that plantsat the 90th percentile produced four times as much as the plant in the 10th percentileon a per-employee basis. Only half of this difference in labor productivity couldbe accounted for by differential inputs, such as capital intensity. Syverson lookedat industries defined at the four-digit level in the Standard Industrial Classification(SIC) system (now the North American Industry Classification System or NAICS) like"Bakeries and Tortilla Manufacturing" or "Plastics Product Manufacturing." Foster,Haltiwanger, and Syverson (2008) show large differences in total factor productivityeven within very homogeneous goods industries such as boxes and block ice. Someof these productivity differences across firms and plants are temporary, but in largepart they persist over time. At the country level, Hall and Jones (1999) and Jonesand Romer (2009) show how the stark differences in productivity across countriesaccount for a substantial fraction of the differences in average per capita income.Both at the plant level and at the national level, differences in productivity aretypically calculated as a residual?that is, productivity is inferred as the gap betweenoutput and inputs that cannot be accounted for by conventionally measured inputs.Nicholas Bloom is an Associate Professor of Economics, Stanford University, Stanford, California. John Van Reenen is a Professor of Economics, London School of Economics, London,United Kingdom. Bloom is an International Research Fellow and Van Reenen is Director ofthe Center for Economic Performance, London School of Economics, London, United Kingdom.