1. SESSION 4
HUMAN CAPABILITIES – MANAGERIAL CAPITAL,
ORGANISATIONAL PRACTICES AND MOBILITY
Discussion by
Giuseppe Nicoletti, OECD
Conference of the Global Forum on Productivity
Keeping pace with technological change: the role
of capabilities and dynamism
Sydney, 20-21 June, 2019

2. General remarks
• Excellent and very complementary papers – econometrics at its best, huge data work
• Event studies, with similar identification assumptions
– Treated firms randomly receiving US government support are observationally equivalent to other firms (control group)
and would have behaved identically in the absence of the program
– Treated firms randomly chosen as suppliers to MNEs are observationally equivalent to other firms (control group) and
would have behaved identically if they had not reached a MNE buyer
• Relevant for understanding catch up mechanisms (not only in developing economies) and the role of
intangibles
• Illustrate key complementarities for productivity outcomes:
– Between structural change (tech progress or globalisation) and organisational capital (managerial, branding,
reputation, skills)
– Among different intangible investments (managerial, skills)
• Exemplify ways in which policy can be effective in leveraging on these complementarities
• Studies differ in way in which the validity of the basic identification assumptions are tested – could
learn from each other!

3. Complementarities are key for productivity
• Role of management and skills also at core of current OECD work –
Human Side of Productivity, Going Digital
• Central message: various kinds of complementarities are key for reaping
benefits of globalisation and digitalisation
• And missing complementarities can be key to understand the “modern
productivity paradox”
• We highlight skill shortages, slowly adjusting institutions and plateauing
GVCs, with a laggards’ vicious circle that slows down aggregate
productivity gains

4. “Not all management training is created equal”,
Michela Giorcelli
• Very compelling historical study
– US WWII “Training Within Industry” programme used to gauge the effects of different managerial training/practices on firm
performance
• Clever ways around endogeneity and selection bias ensure causality
– random effects of constraints and failures in programme implementation generate variability needed for identification
– firms that applied in the same year randomly given training within homogeneous subdistricts, the extent and nature of
training randomly differing across treated firms
• Battery of tests to prove randomness and observational equivalence pre-treatment
– lack of predictive power of firm characteristics on type of treatment and of year of application
– similarity of pre-treatment firm characteristics and performance trends
– use of survey data to unveil/confirm mechanisms (specific training matters, not generic exposure to consultants)
• Main results
– firms receiving training improved performance, more so for HR training relative to inventory management or floor operations
– performance of firms receiving both HR and another form of training improved by more (but no complementarity among
other kinds of training)
– stronger effects of HR training on middle vs top management (reverse for inventory management training)

5. “The long-term effects of management and
technology transfers”, Michela Giorcelli
• Another fascinating historical study
– effects of US-EU Marshall Plan cooperation (origin of the OECD!) on knowledge diffusion
– clever ways around endogeneity and selection bias: exploits random effects of US budget cut on selection of firms in Italian
regions; tests to prove randomness and observational equivalence of treated and non-treated firms
• Identifies causal effects of managerial ability and technology transfer on productivity – catch up
mechanisms unveiled!
• Stresses complementarity among managers and machines
• Effects heterogeneous across firms – pure tech transfer most beneficial for frontier firms, combination
with managerial upgrade most beneficial for laggards
• With much coarser cross-country data (and lesser claims of causality!) our findings for skills and
digitalisation across high and low productive firms are very consistent

6. Technology A
Complementarities
High-speed broadband and
cloud computing
Supply-chain management and
customer-relationship software
Between technologies
Technology B
Digital
technologies
R&D and intangible
investments
Human capital and ICT-
related skills
Reallocation-enhancing
regulations
Organisational capital
and management skills
A story of
complementarities
Between technologies & structural factors/policies
(DeStefano et al., 2018)
(Wieder et al., 2006; Aral et al., 2006;
Engelstätter, 2009; Bartelsman et al., 2017).
(Brynjolfsson and Hitt, 2000; Basu
et al., 2003; Bloom et al., 2012;
Aral et al., 2012)
(Corrado et al., 2017; Mohnen et al., 2018)
(Bugamelli and Pagano, 2004)
(Gust and Marquez, 2004; Bartelsman,
2013; Conway, P. et al., 2006)

7. Digital technologies are strongly
complementary with other intangibles...
Source: Andrews, D., G. Nicoletti and C. Timiliotis (2018), “Digital technology diffusion: a matter of capabilities, incentives or both?”, OECD Economics Department Working papers,
No. 1476.
0
2
4
6
8
10
12
Customer Relationship Management Cloud Computing
% Median
Increase in digital adoption rates are associated with
managerial upgrades
Increasing the diffusion of high performance work practices to Danish levels
Highest benefit: Greece

8. ... but more productive firms benefit more from a
digitalized environment
0
0.5
1
1.5
2
2.5
High-speed broadband Enterprise Resource
Planning
Customer Relationship
Management
Cloud Computing
%
Average firm-level increase in productivity from a 10 percentage point increase in digital adoption
Laggards FrontierMedian
P. Gal, G. Nicoletti, S. Sorbe, C. Timiliotis (2019) , “Digitalisation and productivity: In search of the Holy Grail”, OECD Economics Department Working Papers, N. 1533

9. Skill shortages curb productivity gains from
adoption, especially in low productive firms
Panel A: Effectofspecific skill shortages across all firms Panel B: Effectofgeneral skill shortage on less-productive firms
0
25
50
75
100
Computer and
electronics skills
General
technical skills
Resource
allocation skills
General
management
skills
-24%
Productivity gain from digitalisation (gain withoutskill shortage =100)
Shortfall due to
skill shortage
-23% -19% -19%
0 25 50 75 100
Industries
with
skill shortages
Industries
without
skill shortages -9%
-31%
Productivity gain from digitalisation
(gain in mostproductive firms=100)
Shortfall
compared to
mostproductive
firms
Shortfall in productivity gains from adoption of a mix of digital technologies due to skill shortages
P. Gal, G. Nicoletti, S. Sorbe, C. Timiliotis (2019) , “Digitalisation and productivity: In search of the Holy Grail”, OECD Economics Department Working Papers, N. 1533

10. “The effects of joining multinational supply
chains”, Alfonso Alfaro-Ureña
• Another empirical tour de force – merging multiple firm-level databases and survey to seek causal effects of GVC participation on
domestic Costa Rica firms performance
• Different timing of becoming a first-time MNE supplier (if at all) provide variability needed for identification
– used in two different ways: comparison with control group, comparison with past performance
• Alternatively, random selection of supplier by MNEs from a (homogeneous) short-list established by the government programme
Procomer constitutes a quasi-randomised trial (observationally equivalent “winners vs losers”)
• Extensive robustness checks
– past trends have no predictive power
– survey of pre-deal firm behaviour (including hiring of new managers)
– Procomer mediation by government not key and scores of winners and losers similar
– Results confirmed on a model-based TFP measure that accounts for possible changes in firm-specific prices
• Main results
– becoming first-time supplier strongly improves many dimensions of performance, more so if a firm belongs to a high tech industry
– survey-based results highlight interdependence with intangibles (e.g internal organisation, managerial upgrades, etc.)
– both intensive (i.e. sales) and extensive margins (i.e. # of buyers) are affected
• Enhances understanding of participation to GVCs as knowledge diffusion mechanism for catch up
• Results also resonate well with recent cross-country/industry level analysis done in the context of the GFP work programme

11. • Manufacturing:
backward
participation
• Services:
forward
participation
• Trading partners
also matter
• Learning from
suppliers (BW)
• Better quality
inputs (BW)
• Upgrading (FW)
How big are the sectoral productivity effects of
GVC participation?
11
Note: more productive trading partners are the early EU-15 plus AUS, CAN, JPN, CHE, NOR, NZL, USA
1.4
2.8
5.6
0
1
2
3
4
5
6
7
0
2
4
6
8
Backward Forward Backward Forward Backward Forward
Total market sector Manufacturing Services
MFPimpact
(%, over 5 years)
1.4
2.8
5.6
4.7
1.8
6.2
0
2
4
6
8
0
2
4
6
8
Backward Forward Backward Forward Backward Forward
Total market sector Manufacturing Services
MFP impact
(%, over 5 years)
Tradingwithmore
productive partners
Productivity impacts from raising GVC intensity from
the bottom decile to the median of countries

12. Forward participation to GVCs also affects
innovation
12
Suppliers to
more advanced
destinations
upgrade
through
• more R&D
• higher
ICT capital
intensity
6.2
8.1
10.4
18.7
23.5
0
10
20
30
Forward Forward Forward,
more productive
destinations
Forward Forward,
more productive
destinations
Total market
sector
Manufacturing Manufacturing
ICT capital intensityR&D spending
%
Notes:
GVC expansion is measured by moving from “low” (bottom decile) to “typical”
(median) GVC intensities.
More productive trading partners are the early EU-15 plus AUS, CAN, JPN, CHE,
NOR, NZL, USA
Impacts on R&D and ICT (over 5 years)

13. 20
30
40
50
60
70
2000 2002 2004 2006 2008 2010 2012 2014
Manufacturing
Pre-crisis trend
Actual
% of value added
4
6
8
10
12
2000 2002 2004 2006 2008 2010 2012 2014
Services
Forward GVC
Pre-crisis trend
Actual
% of value added
How much does GVC plateauing matter for
post-crisis weak productivity?
13
Counterfactual simulations of the cumulative MFP impact from
continuing the pre-crisis trend in GVC expansion
102.5
103.5
100
102
104
106
108
2014
Manufacturing
Index, 2009 =100
Extra gains from
stronger GVC
expansion: 1.02%
104.5
105.7
100
102
104
106
108
2014
Services
Index, 2009 =100
Extra gains from stronger
GVC expansion: 1.12%
GVC
MFP

14. Some remaining doubts
• On Michela’s paper:
– Introducing new managerial practices only works if monitoring is good, what if volunteering for the program and
subsequent improvements are due to differential pre-treatment ability to monitor (are FE enough to control for this
unobservable)?
– What is the external validity (for policy in nowadays OECD economies) of context-specific historical experiences?
• On Alonso’s paper:
– can we rule out that MNEs pick suppliers on basis of their expected ability to improve performance (in which case basic
identification assumption would be invalid)?
– can we rule out that (for the same reason) winners and losers of Procomer programme are not random (in which case same
problem applies)?
– can we rule out that gains in MFPR partly reflect sharing of rents with MNEs (e.g. via deal for cheaper inputs)
– significance of results of Procomer analysis not so convincing (Figure 6)
• Overall, I found claims of causality slightly more compelling in Michela’s papers and policy implications
more compelling in Alonso’s paper

15. What lessons for policy?
• Three examples of how good public policy can accelerate catch up via understanding of key
complementarities and successful knowledge diffusion across firms
• US Marshall Plan and TWI efforts regrettably unthinkable today (at least in that form and scale)
– budget constraints
– lack of cooperation/rivalry in globalised and multipolar world
• But as intangibles rise other forms of public stimulus to creation and transfer of knowledge have
to be found:
– smart use of public procurement?
– supporting other forms of intangible investment (instead of mainly tangible or R&D)?
• Stimulus to GVC and trade integration that combines public support with market tests remains
promising, especially in emerging and less developed countries
 Solutions are urgent to resolve the digital productivity paradox and make the best of globalisation
 Absent these policies, the risk is that productivity laggards remain trapped in a low intangibles/low
productivity vicious circle

16. Spares

17. Complementarities are boosted by the
right policy environment
Increasing managerial quality (HPWP) to sample maximum (DNK)
in different market environments
The positive effect of managerial quality on adoption is boosted
by easier access to markets and reallocation
NB: effects for Cloud Computing; all differences are statistically significant
-3
-1
1
3
5
7
9
11
13
Low PMR High PMR Low DTRI High DTRI Low EPL High EPL
%
A B C