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1. Americans do I.T. Better: US Multinationals and the Productivity Miracle Nick Bloom, Stanford & NBER Raffaella Sadun, LSE John Van Reenen, LSE, NBER & CEPR March 2008

2. European productivity had been catching up with the US for 50 years…

3. … but since 1995 US productivity accelerated away again from Europe.

4. The “productivity miracle” occurred as quality adjusted computer prices began to fall very rapidly

5. Sources: Stiroh (2002, AER) See also: Oliner and Sichel (2000 JEP, 2002 Fed) & Jorgenson (2001, AER), In the US the “miracle” appears linked in to the “IT using” sectors…

6. … but no acceleration of productivity growth in Europe in the same “IT using” sectors. - 3 Change in annual growth in output per hour from 1990 – 95 to 1995 – 2001 % 3.5 1.9 ICT - using sectors ICT - producing sectors Non - ICT sectors U.S. -0.1 1.6 -1.1 EU Source: O’Mahony & Van Ark (2003, Gronnigen Data & European Commission) -0.5

11. Descriptive statistics already show US multinationals are particularly different in IT use Observations: 576 US; 2228 other MNE; 4770 Domestic UK % difference from 4 digit industry mean in 2001

15. TABLE 2: PRODUCTION FUNCTIONS Notes: Log (output/employees) is the dependent variable. C=‘IT Capital’, M=‘Materials’, K=‘Non-IT Capital’, L=‘Employees’, USA=‘USA Multinational’ and MNE=‘Non-US multinational’ (domestically owned is baseline). 0.015 0.176 0.011 0.023 0.021 USA=MNE 0.527 0.004 0.032 USA × ln(C/L)=MNE × ln(C/L) 13962 7784 2175 21746 21746 Obs 0.044*** 0.015 0.037*** 0.034*** 0.039*** MNE 0.089*** 0.044** 0.073*** 0.064*** 0.071*** USA -0.012*** -0.009** -0.011*** -0.011*** -0.005* Ln(L) 0.146*** 0.111*** 0.127*** 0.127*** 0.139*** Ln(K/L) 0.507*** 0.622*** 0.548*** 0.547*** 0.558*** Ln(M/L) 0.046*** 0.037*** 0.043*** 0.046*** Ln(C/L) 0.006 -0.001 0.004 MNE × ln(C/L) 0.012 0.038*** 0.020*** USA × ln(C/L) Others IT Using All All All Sectors Ln(Q/L) Ln(Q/L) Ln(Q/L) Ln(Q/L) Ln(Q/L) Depend Var

16. Stiroh (2002) “IT Intensive / Non-Intensive” and Services / Manufacturing split Industries (SIC-2) in blue are services and in black are manufacturing 700 Real estate 489 Professional business services 740 Supporting transport services (travel agencies) 639 Printing and publishing 993 Construction 736 Machinery and equipment 1012 Hotels & catering 1399 Retail trade 1116 Food, drink and tobacco 2620 Wholesale trade # obs IT non-intensive # obs IT Intensive

17. Table 2, Production Functions with Fixed Effects Note: C=‘IT Capital’, M=‘Materials’, K=‘Non-IT Capital’, L=‘Employees’, USA=‘USA Multinational’, MNE=‘Non-US multinational’ (domestic owned the baseline) 0.815 0.430 Test USA=MNE 0.521 0.009 USA × ln(C/L)=MNE × ln(C/L) 13,962 7,784 Observations -0.001 0.017 MNE -0.007 0.045 USA -0.247*** -0.128*** Ln(L) 0.067*** 0.106*** Ln(K/L) 0.361*** 0.502*** Ln(M/L) 0.016*** 0.012** Ln(C/L) 0.001 -0.003 MNE × ln(C/L) -0.006 0.037*** USA × ln(C/L) YES YES Fixed effects Others IT Using Sectors

20. Table 3, Runs Some Robustness Tests ‘ All inputs interacted’ allows labor, capital and materials to interact with ownership – these are individually and joint insignificant. ‘Another IT measure’ is “% of employees using a computer” 7,784 7,780 7,784 2,196 7,784 Obs 0.046 0.058 0.024 0.012 0.022 USA × ln(C)= MNE × ln(C) -0.014 Non-EU × ln(C/L) 0.002 EU × ln(C/L) 0.012* Ln(Wage) × Ln(C/L) 0.280*** Ln(Wage) 0.012** -0.025 0.033 0.029*** 0.013** Ln(C/L) -0.005 -0.001 0.003 0.000 MNE × ln(C/L) 0.038** 0.028** 0.033** 0.065** 0.033** USA × ln(C/L) Split out EU MNEs Skills (wages) Trans log Another IT measure All inputs interact Experiment

22. TABLE 4, IT INTENSITY EQUATION Notes: All columns include SIC3 * time dummies & ln(Q). Additional controls = age, region & multi-plant. SE clustered by establishment. 0.251 0.097 0.053 0.211 0.076 0.031 Test USA=MNE 13,962 7,784 21,746 13,962 7,784 21,746 Observations YES YES YES NO NO NO Extra controls 0.123*** 0.194*** 0.151*** 0.133*** 0.212*** 0.163*** MNE 0.193*** 0.313*** 0.241*** 0.209*** 0.339*** 0.263*** USA Other IT Using All Others IT Using All Sectors ln(C/L) ln(C/L) ln(C/L) ln(C/L) ln(C/L) ln(C/L) Dependent var: (6) (5) (4) (3) (2) (1)

24. Table 5, Before and After Takeovers 0.495 USA × ln(C)=MNE*ln(C) , 1 year after 0.097 USA × ln(C)=MNE*ln(C) 0.704 261 261 0.073 USA × ln(C)=MNE*ln(C), 2+ years 1,066 1,066 Obs 0.012 MNE × ln(C), 2+ years -0.009 MNE × ln(C), 1 year after 0.066** USA × ln(C), 2+years 0.019 USA × ln(C), 1 year after 0.029*** 0.029*** 0.094** 0.074*** Ln(C) 0.021 -0.001 0.032 MNE 0.062 -0.106 -0.066 USA 0.007 -0.043 MNE × ln(C) 0.054*** -0.067 USA × ln(C) After After Before Before Takeover timing:

29. Example Management Question on Promotions See Appendix and Bloom and Van Reenen (2007) for details

30. People Management by Country of Location Note: Uses 4,003 firms. Z-score of 4 people management questions (hiring, firing, promotion and rewards).

31. People Management by Country of Origin Note: Uses 631 multinational subsidiaries in Europe. Z-score of 4 people management questions (hiring, firing, promotion and rewards)

34. TABLE 6 : EU PANEL PRODUCTION FUNCTIONS Ln(Q/L) Ln(Q/L) Ln(Q/L) Ln(Q/L) Ln(Q/L) Dependent Var: 719 719 719 719 1633 Firms 2555 2555 2555 2555 7420 Observations YES NO NO NO NO Fixed Effects 0.631 0.235 0.019 (USA=MNE) × ln(C/L) 0.037** 0.037** 0.043** Log(Degree) 0.162*** 0.160*** 0.160*** 0.193*** MNE 0.084* 0.111** 0.078 0.270*** USA -0.049 0.146*** 0.143*** 0.126*** Log(C/L) 0.235** 0.179*** 0.178*** 0.184*** 0.236*** Log (K/L) 0.128* 0.140*** 0.145*** Manag. × Log(C/L) 0.019 0.019 Management 0.022 -0.024 -0.026 MNE × Log(C/L) 0.052 0.078 0.179** USA × Log(C/L)

35. TABLE 6 CONTINUED: EU PANEL PRODUCTION FUNCTIONS AND IT INTENSITY 719 719 719 Firms 2555 2555 2555 Observations NO NO YES Fixed Effects 0.027 0.001 0.955 (USA=MNE) × ln(C/L) 0.070 Log(Degree) × Log(PC/L) 0.037 0.049 MNE 0.215*** 0.260*** USA -0.228 Log(PC/L) 0.232*** Log (K/L) 0.099* Management × Log(PC/L) 0.088*** People Management 0.023 MNE × Log(PC/L) 0.019 USA × Log(PC/L) Ln(PC/L) Ln(PC/L) Ln(Q/L) Dependent Variable

38. Labor market regulation and IT investment Source: GGDC

39. Labor market regulation and productivity growth Source: GGDC

40. Flexible labor markets are correlated with IT use and productivity growth —but so is higher education Sources: IT contribution to output growth (annual average, percentage points) and share with tertiary education from OECD. Employment Protection Index from Nicoletti et al (2000). (Increasing flexibility ->) Source: John Fernald, EF&G discussion Fall 2007

42. Back Up

44. Table A1 BREAKDOWN OF INDUSTRIES (1 of 3) IT Intensive (Using Sectors) IT-using manufacturing 18 Wearing apparel, dressing and dying of fur 22 Printing and publishing 29 Machinery and equipment 31, excl. 313 Electrical machinery and apparatus, excluding insulated wire 33, excl. 331 Precision and optical instruments, excluding IT instruments 351 Building and repairing of ships and boats 353 Aircraft and spacecraft 352+359 Railroad equipment and transport equipment 36-37 miscellaneous manufacturing and recycling IT-using services 51 Wholesale trades 52 Retail trade 71 Renting of machinery and equipment 73 Research and development 741-743 Professional business services

45. BREAKDOWN OF INDUSTRIES (2 of 3) IT Producing Sectors (Other Sectors) IT Producing manufacturing 30 Office Machinery 313 Insulated wire 321 Electronic valves and tubes 322 Telecom equipment 323 radio and TV receivers 331 scientific instruments IT producing services 64 Communications 72 Computer services and related activity

46. BREAKDOWN OF INDUSTRIES (3 of 3) Non- IT Intensive (Other sectors – cont.) Non-IT intensive manufacturing 15-16 Food drink and tobacco 17 Textiles 19 Leather and footwear 20 wood 21pulp and paper 23 mineral oil refining, coke and nuclear 24 chemicals 25 rubber and plastics 26 non-metallic mineral products 27 basic metals 28 fabricated metal products 34 motor vehicles Non-IT Services 50 sale, maintenance and repair of motor vehicles 55 hotels and catering 60 Inland transport 61 Water transport 62 Air transport 63 Supporting transport services, and travel agencies 70 Real estate 749 Other business activities n.e.c. 90-93 Other community, social and personal services 95 Private Household 99 Extra-territorial organizations Non-IT intensive other sectors 01 Agriculture 02 Forestry 05 Fishing 10-14 Mining and quarrying 50-41 Utilities 45 Construction