Why Are Firms More Productive in the US Than in the EU? - Hugo Reichardt

Speaker: Hugo Reichardt, Centre de Recerca en Economia Internacional (CREi), Barcelona School of Economics (BSE) and CEPR

Location: online or at Kiel Institute for the World Economy, Chausseestraße 111, 10115 Berlin

Organizers: Kiel Institute for the World Economy, CEPR

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Abstract: When a European firm moves its headquarters to the United States, when a US firm expands by hiring across many states, or when a Japanese firm raises funding from US investors, they reveal the sources of what makes the United States attractive to firms. This paper builds a model in which firms make location choices across multiple activities - where to hire production workers, where to place sales staff, where to raise funding, where to place the headquarters - and shows how these choices reveal the sources of a region's attractiveness. It constructs a new global database that tracks where firms locate these activities and it develops an econometric strategy to separately estimate the contribution of each one. Applying the framework to the US-EU comparison and translating attractiveness into productivity, it finds that the EU-US productivity gap is primarily accounted by higher efficiency of the US's funding markets and higher costs of operating across the EU’s fragmented internal market.