The effectiveness of state technology incentives: evidence from the machine tool industry

Sheila Ann Martin

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: Industrial competitiveness has become an important economic issue in the United States. A number of studies have confirmed that productivity in U.S. manufacturing has declined since the 1950s. However, they have found that a great deal of heterogeneity exists between firms, even within the same industry, with respect to productivity. This paper examines performance of individual plants in the machine tool industry to highlight heterogeneity among plants, and to investigate the characteristics of plants that are correlated with high efficiency;Technical efficiency is used as an indicator of plant performance. In this study, an econometric approach to technical efficiency measurement is adopted, and the method of maximum likelihood is employed. The data are derived from the Longitudinal Research Database, a plant level database created by the Center for Economic Studies at the U.S. Bureau of the Census. This rich and detailed database consists of data from the Census of Manufactures and the Annual Survey of Manufactures;Evidence of inefficiency was found in both of the machine tool industries, metal cutting tools and metal forming tools. Efficiency varies systematically with size, average production worker wage, and access to manufacturing extension. Using a probit analysis, it was determined that efficient plants were more likely to survive than relatively inefficient plants;The most serious efficiency problem facing the machine tool industry is a failure to fully utilize its fixed capital stock. This problem should be addressed through the development of new markets, particularly international markets. Manufacturing extension can be an important vehicle through which these markets might be developed. The machine tool industry in the United States also suffers from a relatively slow pace of advanced technology adoption and product development. Policies to promote technological advance and adoption should include R&D tax credits and other forms of government-industry risk sharing.

Date: 1992-01-01
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