Essays on industry relatedness: Productivity spillovers through labor flows, diversification and agglomeration economies

Zsolt Csafordi

Research output: Types of ThesisDoctoral ThesisInternal

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In the first essay, productivity spillovers through labor flows are investigated. Labor flows are important channels for knowledge spillovers between firms; yet competing theories provide different explanations for this mechanism. Firstly, productivity differences between the source and recipient firms have been found to drive these spillovers; secondly, previous evidence suggests that labor flows from multinational enterprises (MNEs) provide productivity gains for firms; and thirdly, industry relatedness across firms have been found important, because industry-specific skills have an impact on organizational learning and production. The first essay aims to disentangle the effects of productivity gap, multinational experience and industry relatedness in a common framework. Hungarian employee-employer linked panel data from 2003-2011 imply that the productivity gap rules out the effect of multinational spillovers. Furthermore, the findings reveal that flows from related industries outperform the effect of flows from same and unrelated industries even when controlling for the effects of productivity gap and multinational spillovers.

The second essay examines the connection of product diversification with relatedness. Multiproduct firms often diversify into technologically related activities to exploit efficiencies of joint production. On the contrary, unrelated products in the company’s portfolio provide access to distinct markets and can help to avoid industry-specific shocks. Nevertheless, what conditions drive related versus unrelated diversification of firms, is still poorly understood. Here we propose that investigating diversification decisions of firms in periods when corporations’ markets are hit by a demand crisis in contrast to their era of prosperity offers new insights into the underlying mechanisms. In crisis times, cost efficiency considerations might drive firms to reduce costs by narrowing product portfolios and focusing on combinations of technologically related products, in which economies of scope and mutual capabilities can be exploited. To test this hypothesis, we look at the effect of product-specific demand shocks on product portfolios of Hungarian firms in the 2005-2012 period. We find that production has become more cohesive in terms of technological relatedness if firms were exposed to demand shocks. Evidence suggests that firms in crisis drop peripheral products that are not related to their core product and add related ones.

The third essay builds on the first essay on productivity spillovers to investigate to what extent the firm-level sorting effects of labor flows – new hires with an experience of a more efficient production or in a technologically related industry – are conditioned by agglomeration; doing so by extending the productivity gap framework with agglomeration interactions on Dutch linked employer-employee data. Findings reveal that urbanization and diversity are positively associated with firm productivity, even when controlling for current productivity. This effect is no longer sustained when human capital and work experience of new hires of a more efficient production is controlled for. This may point to a mechanism through which urbanization affects productivity spillovers through attracting and selecting skilled workers into the region, who can then learn from each other facilitated by the urban setting; furthermore the diversity of the workforce also fosters this learning process. Robustness checks on subsamples reveal that agglomeration effects are most pronounced for small firms in years of average productivity growth.
Original languageEnglish
Awarding Institution
  • Erasmus University Rotterdam
  • van Oort, Frank, Supervisor
  • Pennings, Enrico, Supervisor
Award date7 Dec 2023
Place of PublicationRotterdam
Publication statusPublished - 7 Dec 2023


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