New Economics Papers
on Efficiency and Productivity
Issue of 2005‒09‒11
fourteen papers chosen by

  1. Productivity and the Business Cycle in Japan: Evidence from Japanese Industry Data By Tsutomu Miyagawa; Yukie Sakuragawa; Miho Takizawa
  2. Quality of Service, Efficiency and Scale in Network Industries: An analysis of European electricity distribution By Christian Growitsch; Tooraj Jamasb; Michael Pollitt
  3. Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability? By Lucia Foster; John Haltiwanger; Chad Syverson
  4. Market Reform, Productivity and Efficiency in Vietnamese Rice Production By Tom Kompas
  5. Competition and Productivity in Japanese Manufacturing Industries By Yosuke Okada
  6. Export Performance and Destination Characteristics of Irish Manufacturing Industry By Ruane, Frances; Sutherland, Julie
  7. Testing competing explanations for the inverse productivity puzzle By Juliano Junqueira Assunção; Luiz Henrique Braido
  9. Bridging the Barriers: Knowledge Connections, Productivity, and Capital Accumulation By R. Quentin Grafton; Tom Kompas; P. Dorian Owen
  10. The use of permanent and temporary jobs across Spanish regions: Do unit labour cost differentials offer an explanation? By José Ignacio García Pérez; Yolanda Rebollo Sanz
  11. Production and Technical Efficiency on Australian Dairy Farms By Tom Kompas; Tuong Nhu Che
  12. The Division of Labour, Worker Organisation, and Technological Change By Lex Borghans; Bas ter Weel
  13. Deregulation and R&D in Network Industries: The Case of the Electricity Industry By Tooraj Jamasb; Michael Pollitt
  14. Foreign direct investment and total factor productivity in OECD countries: evidence from aggregate data By Argentino Pessoa

  1. By: Tsutomu Miyagawa; Yukie Sakuragawa; Miho Takizawa
    Abstract: Constructing thirty-seven industries database, we examines whether measured productivity in Japan is procyclical and investigates the sources of that procyclicality using the production function approach employed by Hall (1990) and Basu and Fernald (1995). At the aggregate level, the measured Solow residual shows procyclicality. Large numbers of industries show constant returns to scale. No significant evidence for the presence of thick-market externalities is found. Our results also hold when we consider labor hoarding, part-time employment, and the adjustment cost of investment. The results suggest policies to revitalize the Japanese economy should concentrate on promoting productivity growth.
    JEL: E32 E47
    Date: 2005–07
  2. By: Christian Growitsch; Tooraj Jamasb; Michael Pollitt
    Abstract: Quality of service is of major economic significance in natural monopoly infrastructure industries but is generally not reflected in efficiency analysis. In this paper we present an efficiency analysis of electricity distribution networks using a sample of about 500 electricity distribution utilities from seven European countries. We apply the stochastic frontier analysis (SFA) method on multi-output translog input distance function models to estimate cost and scale efficiency with and without incorporating quality of service. We show that introducing the quality dimension into the analysis affects estimated efficiency significantly. In contrast to previous research, smaller utilities seem to indicate lower technical efficiency when incorporating quality. We also show that incorporating quality of service does not alter scale economy measures. Quality of service should be an integrated part of efficiency analysis and incentive regulation regimes, as well as in the economic review of market concentration in regulated natural monopolies.
    Keywords: efficiency, quality of service, scale economies, input distance function, stochastic frontier analysis.
    JEL: L15 L51 L94
    Date: 2005–09
  3. By: Lucia Foster (U.S. Census Bureau); John Haltiwanger (University of Maryland, NBER and IZA Bonn); Chad Syverson (University of Chicago, NBER)
    Abstract: There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high "productivity" businesses may not be particularly efficient, and the literature’s findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth.
    Keywords: productivity dynamics, market selection, reallocation
    JEL: L10 J63
    Date: 2005–07
  4. By: Tom Kompas (Asia Pacific School of Economics and Government,Australian National University.)
    Abstract: This paper analyzes the dramatic increases in rice output and productivity in Vietnam due largely to market reform, inducing farmers to work harder and use land more efficiently. The reform process is captured through changes in effort variables and a decomposition of total factor productivity (TFP) due to enhanced incentives for two main reform periods: output contracts (1981-87) and trade liberalization (1988-94). The results show that the more extensive is market reform the larger the increase in TFP and the share of TFP growth due to incentive effects, suggesting that more competitive markets and secure property rights matter greatly. However, in the post-reform period (1995-99), the incentive component of TFP dissipates as a result of falls in the price of rice and slow increases in input prices, especially for hired labour, fertilizer and capital. A stochastic production frontier is estimated to determine what farm-specific factors limit efficiency gains. Results show that farms in the main rice growing regions, those with larger farm size and farms with a higher proportion of rice land ploughed by tractor are more efficient, suggesting the need for additional reforms to augment productvity. In particular, the requirement that rice be grown in every province in Vietnam, restrictions on farm size (especially in the north) and the slow development of rural credit markets for capital and land are seen to restrict the level and growth of efficiency substantially.
    Keywords: market reform, total factor productivity, efficiency, rice production
    JEL: O13 O47 Q10
    Date: 2004–04
  5. By: Yosuke Okada
    Abstract: This paper examines the determinants of productivity in Japanese manufacturing industries, looking particularly at the impact of product market competition on productivity. Using a newly available panel data on around ten thousand firms in Japanese manufacturing for the years 1994-2000, I show that competition, as measured by lower level of industrial price-cost margin, enhances productivity growth, controlling for a broad range of industrial and firm-specific characteristics. Moreover, I suggest that market power, as measured by either individual firm’s price-cost margin or market share, has negative impact on productivity level of R&D performing firms.
    JEL: L11 L60 O30
    Date: 2005–08
  6. By: Ruane, Frances (Trinity College, Dublin); Sutherland, Julie (University of Wollongong)
    Abstract: Recent research has sought to explore whether exporting enterprises have superior performance characteristics relative to non-exporters, and whether such superiority is associated with performance pre- and/or post- exporting. This paper extends existing research by examining the influence of export market destination on firm performance. It explores these issues using micro data on Irish manufacturing between 1991 and 1998, a time period during which Ireland experienced rapid export-driven growth. The study provides further evidence of the superior characteristics of exporters relative to non-exporters and supports the self-selection hypothesis that superior enterprises are more likely to export. We find export destination matters: the performance characteristics of enterprises that export globally differ from those that export locally.
    Keywords: Trade, Export Premium, Export Destination
    JEL: F14
    Date: 2005
  7. By: Juliano Junqueira Assunção (Department of Economics PUC-Rio); Luiz Henrique Braido (EPGE/FGV)
    Abstract: We use plot-level data from ICRISAT to assess competing explanations for an old empirical regularity - the inverse relationship between land productivity and farm size. The presence of farmers who simultaneously crop multiple plots with di¤erent sizes is used to test (and reject) explanations based on household heterogeneity. The panel nature of the data is explored to test (and refuse) explanations based on plot fixed characteristics. We are then left with explanations based on time-varying plot features or measurement errors in the plot size. Theoretically, the input choices should reflect both plot-specific features and the true plot size. Empirically, the inverse relationship vanishes when we control for input use.
    Keywords: Development, farm size, productivity.
    Date: 2005–02
  8. By: Jesus Felipe; J. S. L. McCombie
    Abstract: This paper addresses the question of whether or not a theory of total factor productivity (TFP) is needed in order to explain the documented large per capita income differences across countries. As the argument that it is needed has been reached by calculating TFP empirically, we show that the way the estimates of TFP have been computed is not an innocuous issue. To prove our point, we discuss how two well-known textbooks on growth theory present the arguments and the problems associated with these expositions. We conclude that the tautological nature of the estimates of TFP lies at the heart of an important question that the empirical literature on economic growth has been dealing with during current years. Hence, our arguments cast doubt on the need for a theory of TFP.
    JEL: O11 O16 O47 O53
    Date: 2004–10
  9. By: R. Quentin Grafton (Asia Pacific School of Economics and Government, The Australian National University); Tom Kompas (Asia Pacific School of Economics and Government, The Australian National University); P. Dorian Owen (Asia Pacific School of Economics and Government, The Australian National UniversityTitle:)
    Abstract: The paper explains the large differences in cross-country productivity performance by modeling and testing the effects of social barriers to communication on productivity and capital accumulation. In an optimal growth model, social barriers to communication that impede the formation of knowledge connections are shown to reduce both transitory and steady-state levels of total factor productivity (TFP), per capita consumption, and reproducible capital. A ‘bridging’ parameter in the growth model that lowers the disutility of forming knowledge connections generates testable and dynamic implications about the effects of social barriers on capital, consumption, and productivity. Extensive empirical testing of the theoretical propositions yields a robust and theoretically consistent result — linguistic barriers to communication reduce productivity and capital accumulation. The findings provide a theoretical justification and a robust explanation for cross-country differences in TFP, and fresh insights into how productivity ‘catch up’ may be initiated.
    Keywords: knowledge connections, productivity, economic growth
    JEL: O41 C61 C21
    Date: 2004–11
  10. By: José Ignacio García Pérez (Centro de Estudios Andaluces); Yolanda Rebollo Sanz (Universidad Pablo de Olavide)
    Abstract: We study the use of permanent and temporary contracts across Spanish regions during the period 1995-2001. First we show that there are significant differences among the regional rates of permanent employment and that these differences tend to persist over time. To understand the underlying factors behind these observed differences we estimate a binary choice model for the individual probability of having a permanent contract, taking advantage of the panel data dimension of the Spanish Labour Force Survey. Our main results are that unit labour cost differentials, and thus labour productivity and total labour cost differentials, partially explain the divergence of regional permanent employment rates. Moreover, compared to the influence of regional fixed effects and other possible explanations such as sector specialisation or the presence of small firms in the region, unit labour costs explain more than two thirds of the observed variance in the permanent employment rate across Spanish regions, once all the relevant heterogeneity is taken into account .
    Keywords: Temporary Employment, Unit Labour Costs, Random Effects, Spanish Regions.
    JEL: C23 J23 J31 J41
    Date: 2005
  11. By: Tom Kompas (Australian Bureau of Agricultural and Resource Economics); Tuong Nhu Che (Australian Bureau of Agricultural and Resource Economics Canberra, ACT)
    Abstract: The dairy industry plays an important role in both Australia and the world dairy market. Domestically, it is one of the most important agricultural industries, valued at $A3.7 billion a year. Internationally, the industry exports more than $A3 billion a year, making Australia the third largest dairy exporter in the world. Using traditional farm survey input and output data and a unique biannual data set on farm technology use, this paper estimates a stochastic production frontier and technical efficiency model for Australian dairy farms, determining the relative importance of each input in dairy production, the quantitative effects of key technology variables on farm efficiency and overall farm profiles based on the efficiency rankings of dairy producers. Estimated results show that production exhibits constant returns to scale and although feed concentration and the number of cows milked at peak season matter, the key determinants of differences in dairy farm efficiency are the type of dairy shed used and the proportion of irrigated farm area. Overall farm profiles also indicate that those in the high efficiency group employ either rotary or swingover dairy shed technology and have (by far) the largest proportion of land under irrigation.
    Keywords: dairy industry, agriculture, technical efficiency model
    JEL: D21 D23 G14
    Date: 2004–01
  12. By: Lex Borghans (ROA, Maastricht University and IZA Bonn); Bas ter Weel (MERIT, Maastricht University and IZA Bonn)
    Abstract: The model developed in this paper explains differences in the division of labour across firms as a result of computer technology adoption. We find that changes in the division of labour can result both from reduced production time and from improved communication possibilities. The first shifts the division of labour towards a more generic structure, while the latter enhances specialisation. Although there exists heterogeneity, our estimates for a representative sample of Dutch establishments in the period 1990-1996 suggest that productivity gains have been the main determinant for shifts in the division of labour within most firms. These productivity gains have induced skill upgrading, while in firms gaining mainly from improved communication possibilities specialisation increased and skill requirements have fallen.
    Keywords: division of labour, wage level and structure, technological change, computerisation of the labour market
    JEL: J31 O15 O33
    Date: 2005–07
  13. By: Tooraj Jamasb; Michael Pollitt
    Abstract: Electricity reform has coincided with a significant decline in energy R&D activities. Technical progress is crucial for tackling many energy and environmental issues as well as for long-term efficiency improvement. This paper reviews the industrial organisation literature on innovation to explore the causes of this decline, and shows that it was predicted by the pre-reform literature. More recent evidence endorses this conclusion. At the same time, R&D productivity and innovative output appear to have improved in both electric utilities and equipment suppliers, in line with general improvements in the operating efficiency of the sector. Despite this, a lasting decline in basic R&D and innovation input into basic research may negatively affect development of radical technological innovation in the long run. There is a need for reorientation of energy technology policies and spending toward more basic research, engaging more firms in R&D, encouraging collaborative research, and exploring public private partnerships.
    Keywords: innovation, R&D expenditure, electricity reform, regulation, ownership
    JEL: L94 O38
    Date: 2005–08
  14. By: Argentino Pessoa (Faculdade de Economia, Universidade do Porto)
    Abstract: Foreign direct investment (FDI) can be a source not just of capital, but also of new technology and intangibles such as organizational and managerial skills, and marketing networks. In this study, a panel data approach is used to study the effects of FDI on aggregate Total Factor Productivity in a sample of 16 OECD countries. We have implemented a statistical descriptive model that allows us to show that FDI has a positive impact on TFP, possibly because FDI is a channel through which technologies are transferred internationally.
    Keywords: Foreign direct investment, total factor productivity, royalties and license fees, spillovers
    JEL: C33 F21 F23
    Date: 2005–09

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