DP9331 Reallocation and Technology: Evidence from the U.S. Steel Industry

Author(s): Allan Collard-Wexler, Jan De Loecker
Publication Date: February 2013
Keyword(s): competition, productivity, reallocation, technology
JEL(s): L1, O3
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9331

We measure the impact of a drastic new technology for producing steel, the minimill, on the aggregate productivity of U.S. steel producers, using unique plant-level data between 1963 and 2002. We find that the sharp increase in the industry's productivity is linked to this new technology, and operates through two distinct mechanisms. First, minimills displaced the older technology, called vertically integrated production, and this reallocation of output was responsible for a third of the increase in the industry's productivity. Second, increased competition, due to the expansion of minimills, drove a substantial reallocation process within the group of vertically integrated producers, driving a resurgence in their productivity, and consequently of the industry's productivity as a whole.