Firms, Strategy and Performance (PERFORMANCE)

The research group analyses the nature and causes of firm heterogeneity observable within each industry and country. It focuses on the relationship of this heterogeneity with industry and macro level measures of competitiveness such as productivity, innovation and growth. To this end, the group will create a database containing information on the resources and strategies of firms on the one hand, and productivity, markups and other measures of performance on the other. It will analyze in detail pricing and production decisions and their relationship with firm dynamics and performance. Additionally, it will consider the economic geography aspects of firms’ location with a special interest in urbanization and local business environment. The research will link firm-level analysis with models describing the behavior of whole industries and economies in order to understand better the role of these firm-level patterns and growth.



The main motivation of our work is to link the enormous variety observed in the micro-level Economics and Business literatures with the macro-level approach in International Trade and Macroeconomics. While recent models in International Trade emphasize firm heterogeneity, the heterogeneity in these models is often abstract and detached from the enormous variety observed at the firm level. Consequently, the main aim of our research group will be to bridge this gap by using many data sources about the environment, resources, strategies and performance of firms together with powerful models in Industrial Organization and International Trade in order to uncover the nature and role of different dimensions of heterogeneity in firm behavior and performance.

Our research will consist of four work packages. WP1 focuses on data collection, cleaning, estimating important input variables for other work packages and documenting the data. This database will be used in other work packages, guaranteeing consistency between different results. WP2 focuses on pricing, with a large emphasis on the determinants of firm-level markups and the heterogeneity of firm reactions to exogenous shocks. WP3 will extend our earlier research on trade dynamics, by analyzing dynamics in newly available production data as well as linking different variables to trade and production stability. Finally, WP4 will focus on determinants and effects of innovation and firm growth.

Our project was granted a permanent position at the Academy with excellent rating.