Study on productivity differences in Hungary and mechanism of TEP-growth slowdown (CR 2017)

Slow post-crisis TFP growth is a significant policy challenge for many European countries in general and for Hungary in particular. This report aims at providing a comprehensive analysis of the processes behind productivity growth slowdown in Hungary based on micro-data from administrative sources between 2001 and 2016. In particular, the report aims to contribute to four ongoing debates. First, it attempts to document the productivity growth slowdown in detail to uncover potential sources of heterogeneity. Besides documenting differences across industries, it also makes an effort to identify how the whole shape of the productivity distribution evolved along different dimensions. A focus on the whole distribution is motivated, i.a., by recent findings that in many countries productivity slowdown has resulted from a combination of healthy productivity growth of frontier firms coupled with an increasing gap between frontier and non-frontier firms. Interestingly, this does not seem to be the case in Hungary, where frontier firm productivity growth has actually been similar to or slower than that of other firms. Understanding the exact detail of this phenomenon is of much interest given that slow frontier firm productivity growth necessitates different policies from those that intend to close the gap between frontier and non-frontier firms. The second overarching question, related to frontier and non-frontier firms, is the idea of the so-called duality in Hungary. The concept of duality emphasises the large differences in terms of productivity and wages between globally oriented, often foreign-owned, large firms and the rest of the economy. The third group of questions relates to how efficiently resources are allocated across firms. Finally, the report is interested in the extent to which sectors and industries differ in terms of productivity and firm dynamics.