Firm-level TFP convergence: an application to the German electricity and gas industry

ABSTRACT

This paper investigates the degree of total factor productivity (TFP) convergence for the German electricity and gas industry. We use different approaches to compute the productivity level and several classic and new second-generation panel unit root tests to check the existence of a convergence process. For robustness purposes, we compare the convergence between small- and medium-sized enterprises and large companies. Our findings show the existence of the TFP convergence process, a result confirmed by all categories of tests we use. Therefore, we show that an innovation transfer is recorded between German electricity and gas firms and it is slightly higher for small- and medium-sized enterprises.

KEYWORDS:

• Total factor productivity
• convergence
• panel unit root tests
• firm-level data
• German electricity and gas industry

JEL CLASSIFICATION:

• D24
• O33

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ ut of 7,500 firms we have retained in the analysis only 535 firms for which value-added data are available for at least five consecutive years over the timespan 2007 to 2015.

² ${\mathrm{K}}_{\mathrm{i}\mathrm{t}}=\left({\mathrm{K}}_{\mathrm{i}\mathrm{t}}^{\mathrm{B}\mathrm{V}}-{\mathrm{K}}_{\mathrm{i}\mathrm{t}-1}^{\mathrm{B}\mathrm{V}}+\mathrm{D}\mathrm{E}\mathrm{P}{\mathrm{R}}^{\mathrm{B}\mathrm{V}}\right)/EP{I}_{it}$, where K represents the tangible fixed assets, DEPR represents the depreciation and amortization (book value – BV) and EPI is the electricity price index for Germany (Eurostat database). This way, in line with Sari, Khalifah, and Suyanto (2016) and Yasin (2020), we also consider the role of energy prices in the TFP computation. If the stock of capital is negative (in 2.13% of cases), we proceed to the following transformation: ${\mathrm{K}}_{\mathrm{i}\mathrm{t}}^{\prime }=({\mathrm{K}}_{\mathrm{i}\mathrm{t}}-\mathrm{M}\mathrm{I}\mathrm{N}\left({\mathrm{K}}_{\mathrm{i}\mathrm{t}})\right)+1$.

³ The SME sample includes 432 firms, and the LARGE companies sample contains 103 firms.

⁴ For brevity issues, we do not present these well-known tests.

Additional information

Funding

This work was supported by a Grant of the Romanian National Authority for Scientific Research and Innovation, CNCS–UEFISCDI, Project Number PN-III-P1-1.1-TE-2019-0436.