Why Do Management Practices Differ across Firms Countries.pdf

American Economic Association
Why Do Management Practices Differ across Firms and Countries?

Journal of Economic Perspectives?Volume 24, Number 1?Winter 2010?Pages 203-224
Why Do Management Practices Differ
across Firms and Countries?
Nicholas Bloom and John Van Reenen
Economists have long puzzled over the astounding differences in productiv
ity between firms and countries. For example, looking at disaggregated
data on U.S. manufacturing industries, Syverson (2004a) found that plants
at the 90th percentile produced four times as much as the plant in the 10th percentile
on a per-employee basis. Only half of this difference in labor productivity could
be accounted for by differential inputs, such as capital intensity. Syverson looked
at 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 productivity
even within very homogeneous goods industries such as boxes and block ice. Some
of these productivity differences across firms and plants are temporary, but in large
part they persist over time. At the country level, Hall and Jones (1999) and Jones
and Romer (2009) show how the stark differences in productivity across countries
account 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 are
typically calculated as a residual?that is, productivity is inferred as the gap between
output and inputs that cannot be accounted for by conventionally measured inputs.
Nicholas Bloom is an Associate Professor of Economics, Stanford University, Stanford, Cali
fornia. 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 of
the Center for Economic Performance, London School of Economics, London, United Kingdom.