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Cyclical behaviour of productivity growth and price-cost margins: asymmetry and market power effects

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  • Daniel Ryan

Abstract

A cross-sectional analysis was performed on the NBER Manufacturing Productivity database (450 four-digit industries) to investigate the behaviour of total factor productivity growth rates (PROD) and price-marginal cost ratios (PMC) in US manufacturing industries. This analysis allows for asymmetric behaviour and determines the effects of imperfect competition on cyclicality. Results indicate that PROD is procyclical, more so in contractions, and that market power is associated with an even greater increase in PROD during expansions; this suggests that variable input utilization (e.g. labour hoarding) is responsible for productivity growth fluctuations, and that firms in less competitive industries have more slack and can thus use inputs more intensively during booms. PMC decreases in both expansions and contractions, and the contractionary decrease is smaller in monopolistic industries; this can be attributed to capacity constraints in expansions and price cutting in contractions, with monopolistic industries less likely to engage in price competition.

Suggested Citation

  • Daniel Ryan, 2000. "Cyclical behaviour of productivity growth and price-cost margins: asymmetry and market power effects," Applied Economics Letters, Taylor & Francis Journals, vol. 7(5), pages 297-300.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:5:p:297-300
    DOI: 10.1080/135048500351429
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    Cited by:

    1. M. Ali Choudhary & Vasco Gabriel, 2009. "Is there really a gap between aggregate productivity and technology?," Applied Economics, Taylor & Francis Journals, vol. 41(27), pages 3499-3503.
    2. Andrea Vaona, 2016. "A nonparametric panel data approach to the cyclical dynamics of price-cost margins in the fourth Kondratieff wave," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 155-170, August.
    3. Emanuel Barnea & Moshe Kim, 2007. "Interest rate margins: a decomposition of dynamic oligopolistic conduct and market fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 17(6), pages 487-499.
    4. Vaona, Andrea, 2010. "A nonparametric panel data approach to the cyclical dynamics of price-cost margins," Kiel Working Papers 1580, Kiel Institute for the World Economy (IfW Kiel).

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