New Economics Papers
on Efficiency and Productivity
Issue of 2005‒03‒13
six papers chosen by

  1. Growth, distance to frontier and composition of human capital By ; Jérôme Vandenbussche; Philippe Aghion; Costas Meghir
  2. Adjustment costs and the identification of Cobb Douglas production functions By Steve Bond; ; Måns Söderbom
  3. Productivity Spillovers, Terms of Trade and the "Home Market Effect" By Giancarlo Corsetti; Philippe Martin; Paolo A. Pesenti
  4. The Barrier Model of Productivity Growth: South Africa By Torfinn Harding; Jørn Rattsø
  5. Productivity Growth in Backward Economies and the Role of Barriers to Technology Adoption By Hildegunn Ekroll Stokke
  6. Consolidation, Scale Economies and Technological Change in Japanese Banking By Solomon Tadesse

  1. By: ; Jérôme Vandenbussche; Philippe Aghion (Institute for Fiscal Studies and Harvard University); Costas Meghir (Institute for Fiscal Studies and University College London)
    Abstract: We examine the contribution of human capital to economy-wide technological improvements through the two channels of innovation and imitation. We develop a theoretical model showing that skilled labor has a higher growth-enhancing effect closer to the technological frontier under the reasonable assumption that innovation is a relatively more skillintensive activity than imitation. Also, we provide evidence in favor of this prediction using a panel dataset covering 19 OECD countries between 1960 and 2000 and explain why previous empirical research had found no positive relationship between initial schooling level and subsequent growth in rich countries. In particular, we show that in OECD economies it is crucial to isolate the two separate margins of primary/secondary and tertiary education. Interestingly, the latter type of schooling proves to be a factor of economic divergence.
    Date: 2004–08
  2. By: Steve Bond (Institute for Fiscal Studies and Nuffield College, Oxford); ; Måns Söderbom
    Abstract: Cobb Douglas production function parameters are not identified from cross-section variation when inputs are perfectly flexible and chosen optimally, and input prices are common to all firms. We consider the role of adjustment costs for inputs in identifying these parameters in this context. The presence of adjustment costs for all inputs allows production function parameters to be identified, even in the absence of variation in input prices. This source of identification appears to be quite fragile when adjustment costs are deterministic, but more useful in the case of stochastic adjustment costs. We illustrate these issues using simulated production data.
    Keywords: Production functions, adjustment costs, identification
    JEL: D20 D24 C23
    Date: 2005–02
  3. By: Giancarlo Corsetti; Philippe Martin; Paolo A. Pesenti
    Abstract: This paper analyzes the welfare implications of international spillovers related to productivity gains, changes in market size, or government spending. We introduce trade costs and endogenous varieties in a two-country general-equilibrium model with monopolistic competition, drawing a distinction between productivity gains that enhance manufacturing efficiency, and gains that lower the cost of firms' entry and product differentiation. Our model suggests that countries with lower manufacturing costs have higher GDP but supply a smaller number of goods at a lower international price. Countries with lower entry and differentiation costs also have higher GDP, but supply a larger array of goods at improved terms of trade. The sign of the international welfare spillovers depends on terms of trade, but also on consumers' taste for variety. Higher domestic demand has macroeconomic implications that are similar to those of a reduction in firms' entry costs.
    JEL: F41 F32
    Date: 2005–03
  4. By: Torfinn Harding (Statistics Norway and Department of Economics, Norwegian University of Science and Technology); Jørn Rattsø (Department of Economics, Norwegian University of Science and Technology)
    Abstract: The barrier model of productivity growth suggests that individual country productivity is related to the world technology frontier disturbed by national barriers. We offer a country study of the barrier model exploiting the dramatic changes in the linkages to the world economy in South Africa. The productivity growth in the manufacturing sector panel for 1970-2003 covers a period of political and economic turbulence and international sanctions. The econometric analysis uses tariffs as measure of barrier and fixed effects estimation to concentrate inference to time series properties. The model shows how productivity growth can be understood as a combination of world frontier growth and the tariff barrier to international spillovers. The estimates establish a long run relationship where domestic productivity follows the world frontier and with change of the barrier affecting transitional growth.
    Keywords: Barriers to growth; technology spillover; South Africa; total factor productivity; econometric analysis.
    JEL: F13 F43 O11 O33 O55
    Date: 2005–02–16
  5. By: Hildegunn Ekroll Stokke (Department of Economics, Norwegian University of Science and Technology)
    Abstract: We offer a barrier model of growth with a broader understanding of the sources of productivity growth. Organizational change is suggested as an alternative to innovation and technology adoption. Domestic and international barriers (related to the level of human capital and the trade share) determine the timing and pace of technological catch-up, and as opposed to the catchingup hypothesis backward economies may get stuck in a poverty trap. Growth in lagging economies is not driven by adoption of foreign technology due to inappropriateness. The large technological distance forces the economy to rely more on own productivity improvements through organizational change. Trade liberalization in backward economies does not give the expected boost to productivity growth, because of low capability to take advantage of the frontier technology. Economies can escape the poverty trap by reducing trade barriers, but the benefits from an open economy is highest in middle-income economies, which have both the potential and capability to adopt foreign technology.
    Keywords: Ramsey-model; sources of growth; trade barriers; poverty trap
    JEL: O3 O4
    Date: 2005–02–16
  6. By: Solomon Tadesse
    Abstract: The paper examines the technological structure of the Japanese banking sector before the onset of the banking crisis and structural reforms of the 90s in order to shade light on the logic of the recent trend to consolidation in the industry. While diseconomies of scale are shown to be pervasive in the large banks, defying the rationale for consolidation, the paper presents evidence of an underlying technological progress that operates to significantly increase the industry’s efficient minimum size, generating economies at larger banks, thus justifying the ongoing trend in consolidation. The results suggest that, to the extent that consumers can benefit from lower costs of bank production, policies that promote a more concentrated banking structure might be consistent with public interest.
    Keywords: Scale Economies; Technical Change; Banking
    JEL: G21 D24 O3
    Date: 2005–02–01

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