Wednesday, November 10, 2010
Posted by D. Daniel Sokol
Timothy Dunne (Federal Reserve Bank of Cleveland), Shawn Klimek (U.S. Census Bureau) and James Schmitz, Jr. (Federal Reserve Bank of Minneapolis) describe Competition and Productivity: Evidence from the Post WWII U.S. Cement Industry.
ABSTRACT: In the mid 1980s, the U.S. cement industry faced a large increase in foreign competition. Foreign cement producers began offering cement at very large discounts on U.S. prices. We show that productivity (measured by TFP) in the industry was falling during the 1960s and 1970s, but that following the increase in competition, productivity has reversed course and is growing strongly. When foreign competition was weak, productivity fell. When it was strong, productivity grew robustly. We explore the reasons for the large productivity increase. We argue that a large share of the productivity gains resulted from significant changes in management practices at plants.