Plant-level Determinants of Total Factor Productivity in Great Britain, 1997-2008

Abstract

This paper examines the determinants of total factor productivity (TFP) using a British plant-level dataset. It considers the role of the following four plant characteristics: internal and external knowledge; foreign ownership; multi-plant economies of scale and competition; and spatial spillovers and ‘place’ effects. A wide range of results are obtained, most of which confirm earlier results in the literature, such as that undertaking R&D is positively associated with TFP and most foreign ownership groups have higher than average TFP. The results also confirm the very small number of studies in the literature that have shown that the age of the plant is negatively related to TFP and therefore that vintage effects outweigh any learning-by-doing effects. The inclusion of a wide range of determinants of TFP allows comment on the relative importance of different groups of TFP determinants; knowledge creation is found to be the most important determinant of TFP (especially in manufacturing), with spatial location impacts overall the next largest determinant. Foreign-ownership is founded to be (overall) the least important determinant of TFP although this is partly the consequence of the relatively small size of the foreign-owned sector.