New Economics Papers
on Efficiency and Productivity
Issue of 2006‒01‒24
twenty-one papers chosen by

  1. Linking Productivity to Trade in the Structural Estimation of Production within UK Manufacturing Industries By Marian Rizov; Patrick Paul Walsh
  2. Efficiency and Productivity Growth of Domestic and Foreign Commercial Banks in Malaysia By Matthews, Kent; Ismail, Mahadzir
  3. Micro-Heterogeneity and Aggregate Productivity Development in the German Manufacturing Sector - Results from a Decomposition Exercise By Uwe Cantner; Jens J. Krüger
  4. Investment and Dynamic DEA By Pierre Ouellette; Li Yan
  5. Network effects of the productivity of infrastructure in developing countries By Hurlin, Christophe
  6. Productivity Trends in the Natural Resource Industries By Parry, Ian
  7. Productivity Changes in U.S. Coal Mining By Darmstadter, Joel
  8. Testing for Marginal Spillovers from Foreign Direct Investment By Carlo Altomonte; Enrico Pennings
  9. Innovation, Machine Replacement and Productivity By Licandro, Omar; Maroto Illera, María Reyes; Puch, Luis
  10. Total Factor Productivity and the Mongolian Transition By Antonio G. Chessa; Marije C. Schouwstra
  11. Service Offshoring and Productivity: Evidence from the United States By Mary Amiti; Shang-Jin Wei
  12. Identifying Externalities in UK Manufacturing Using Direct Estimation of an Average Cost Function By Ciaran Driver; Paul Temple; Giovanni Urga
  13. Public Sector Efficiency: Evidence for New EU Member States and Emerging Markets By António Afonso; Ludger Schuknecht; Vito Tanzi
  14. Assessing the Effects of Mergers and Acquisitions on Firm Performance, Plant Productivity, and Workers: New Evidence from Matched Employer-Employee Data By Donald S. Siegel; Kenneth L. Simons
  15. Economies of Scale and Technical Efficiency in Community Water Systems By Pizer, William; Harrington, Winston; Shih, Jhih-Shyang; Gillingham, Kenneth
  16. Projecting Productivity Growth: Lessons from the U.S. Growth Resurgence By Ho, Mun; Jorgenson, Dale; Stiroh, Kevin
  17. Business cycle non-linearities and productivity shocks By Paolo Piselli
  18. Institutions and Long-Run Growth in the UK: the Role of Standards By Paul Temple; Robert Witt; Chris Spencer
  19. Obsolescence and Productivity By Antonio R. Sampayo; Fernando del Río
  20. Telecommunications performance, reforms, and governance By Manacorda, Marco; Goicoechea, Ana; Estache, Antonio
  21. Sector Potentiality and Sources of Growth. An Analysis of Structural Changes in Italy in the Nineties By Andrea BONFIGLIO

  1. By: Marian Rizov; Patrick Paul Walsh
    Abstract: We estimate productivity dynamics within 4-digit manufacturing industries, using FAME data on UK Companies, from 1994 to 2003. We extend the algorithm in Olley and Pakes (1996) to allow for a selection bias driven by the Melitz (2003) effect (high productivity types selecting to exporting) to get more consistent and unbiased estimates of the parameters of the production function. We demonstrate a link between trade orientation and productivity within industries that is driven by selection, not by learning. Hence aggregate productivity is driven by market share reallocations amongst companies rather than from improvements in company level productivity.
    Keywords: Simultaneity, Selection (Exit and Trade) Biases, Productivity Dynamics, UK Manufacturing Companies, within 4-digit industries.
    JEL: F14 D24
    Date: 2005–12–15
  2. By: Matthews, Kent (Cardiff Business School); Ismail, Mahadzir
    Abstract: This study examines the technical efficiency and productivity of domestic and foreign commercial banks in Malaysia 1994-2000. We find that foreign banks have a higher efficiency level than domestic banks, and that efficient banks are characterised by size but not profitability or loan quality. The main source of productivity growth is technical change rather than improvement in efficiency. The productivity of domestic banks is more susceptible to macroeconomic shocks than foreign banks but over the medium term foreign banks are only marginally superior to domestic banks.
    Keywords: domestic and foreign banks; technical efficiency; Malmquist productivity index
    JEL: D2 G2
    Date: 2006–01
  3. By: Uwe Cantner (University of Jena, Faculty of Economics); Jens J. Krüger (University of Jena, Faculty of Economics)
    Abstract: In this paper different formulae for the decomposition of aggregate productivity levels and changes are applied to a sample of German manufacturing firms that pertain to 11 different industries at a roughly two-digit level observed over the period 1981-1998. Productivity is measured by a nonparametric frontier function approach. The decompositions of productivity allow for an explanation of the aggregate outcomes by the quantification of the effect of structural change as well as the contributions from entering and exiting firms. Our results show that these forces drive aggregate productivity dynamics to a considerable extent. Especially the period after the German reunification is characterized by large productivity improvements, mostly driven by structural change.
    Keywords: productivity, structural change, manufacturin
    JEL: D24 O12 L60
    Date: 2006–01–06
  4. By: Pierre Ouellette (Département des sciences économiques, Université du Québec (Montréal)); Li Yan (Département des sciences administratives, Université du Québec (Outaouais) et LRSP)
    Abstract: A dynamic version of Data Envelopment Analysis (DEA) is developed in the present paper. Our model introduces investment in traditional DEA and imposes intertemporal cost minimization. Adding an intertemporal adjustment constraint into the cost minimization problem, we derive the relation between the DEA variables of the cost function and those of the primary production frontiers’ coefficients. The augmented DEA model can be solved using standard linear programming. This dynamic framework enables computing the production frontiers, measuring the productive efficiencies and evaluating the potential economies all in the presence of adjustment costs.
    Keywords: Adjustment cost, Data envelopment analysis, Efficiency, Multiple outputs/inputs, Quasi-fixed inputs.
    JEL: D24 L23
    Date: 2006–01–12
  5. By: Hurlin, Christophe
    Abstract: Using panel data models, the author examines the threshold effects of the productivity of infrastructure investment in developing countries. He considers various specifications of an augmented production function that allow for endogenous thresholds. More precisely, these specifications are tested in a panel threshold regression model. The author ' s main robust result is the presence of strong threshold effects in the relationship between output and private and public inputs. Whatever the transition mechanism used, the testing procedures lead to strong rejection of the linearity of this relationship. In particular, the productivity of infrastructure investment generally exhibits some network effects. When the available stock of infrastructure is very low, investment in this sector has the same productivity as noninfrastructure investment. On the contrary, when a minimum network is available, the marginal productivity of infrastructure investment is generally largely greater than the productivity of other investment. Finally, when the main network is achieved, its marginal productivity becomes similar to the productivity of other investment.
    Keywords: Economic Theory & Research,Investment and Investment Climate,Public Sector Economics & Finance,Non Bank Financial Institutions,Technology Industry
    Date: 2006–01–01
  6. By: Parry, Ian (Resources For the Future)
    Abstract: This paper examines multi-factor productivity trends in the U.S. petroleum, coal, copper and logging industries since 1970. Measures of multi-factor productivity growth are negative for all four industries during the 1970s. At the time this led to fears that stocks of natural resources were being exhausted, and this might hinder future economic growth. However in retrospect the 1970s look like an exceptional period, rather than marking a change in long run productivity trends. The decline in measured multi-factor productivity in that decade appear to be explained by a number of special factors that generally have a transitory rather than a permanent effect on productivity growth. For example, the rise in natural resource prices encouraged the entry of relatively inefficient producers. New environmental and health & safety regulations were phased in during the period that also reduce measured multi-factor productivity. Over the last 15 years however, productivity measures have improved significantly in all the industries. For example, we estimate that the level of productivity in 1992 was around 75 percent higher in the petroleum industry than at the trough of the productivity slowdown, and around 60 percent higher in coal and copper. To some extent these improvements represent restructuring and consolidation in response to falling output prices. However, technological developments have also played an important role in all four industries.
  7. By: Darmstadter, Joel (Resources For the Future)
    Abstract: Labor productivity in U.S. coal mining increased at an average annual rate of slightly over four percent during the past 45 years. This report examines key factors contributing to that record - particularly, technological innovation in both surface and underground mining and concurrent geographic shifts in U.S. coal production. Health, safety, and environmental regulations introduced in the sixties and seventies, as well as labor unrest, interrupted long-term productivity advance; but the interruption was of limited duration. Although our principal focus is on worker productivity, steady growth in the relative importance of non-labor inputs underscores the need to consider total factor productivity. The report touches on the productivity record using that measure.
  8. By: Carlo Altomonte (Bocconi University, Milan); Enrico Pennings (Erasmus University Rotterdam)
    Abstract: We develop a simple test to assess whether horizontal spillover effects from multinational to domestic firms are endogenous to the market structure generated by the entry of the same multinationals. In particular, we analyze the performance of a panel of 10,650 domestic and multinational firms operating in Romania in the period 1995-2001. Controlling for the simultaneity bias in productivity estimates through semi-parametric techniques, we find that changes in domestic firms’ TFP are positively related to the first foreign investment in a specific industry and region, but get significantly weaker and become negative as the number of multinationals that enter in the considered industry/region increases. We can thus recover evidence of changing marginal effects in domestic firms’ TFP, the sign of which depends on a specific threshold in the presence of foreign firms.
    Keywords: Multinational firms; productivity; transition economies
    JEL: F23 L10 P20
    Date: 2005–11–01
  9. By: Licandro, Omar; Maroto Illera, María Reyes; Puch, Luis
    Abstract: This paper explores the role of replacement and innovation in shaping investment and productivity during episodes of lumpy adjustment in capital. To this purpose we use a rich firm-level panel of Spanish manufacturing data that combines information on equipment investment and firm's strategies. Investment concentrates on episodes of high investment, or investment spikes, but its nature depends upon observable heterogeneity. We find evidence of replacement activity for firms involved in neither process innovation nor plant expansion. Then, we explore how large investment episodes transmit into the evolution of productivity under different innovative strategies. We find that productivity increases after an investment spike in innovative firms. However, long learning curves seem to be associated with innovative investments.
    Keywords: investment spikes; labour productivity; learning effects; machine replacement; technological innovation
    JEL: C33 E22 L60
    Date: 2005–12
  10. By: Antonio G. Chessa (University of Amsterdam); Marije C. Schouwstra (University of Amsterdam)
    Abstract: Total Factor Productivity (TFP)is often used on the macro-economic level as an indicator of changes in efficiency of a country. In many transition economies TFP is seen to have been negative the last decade of the plan economy and starts increasing and become positive after a (quite a) few years of transition. Many authors conclude that this is a gain in efficiency due to the structural changes –such as privatisation and liberalisation – carried out in order to establish a market economy in those countries. In the case of Mongolia, not only non-viable enterprises closed down, but many possibly viable enterprises with potential closed down as well. This raises the question whether changes in TFP were really attributable to increases in efficiency. To investigate this, the mathematical properties of TFP are analysed in order to generate new insights into the development of TFP in Mongolia. Simulations are performed to see what happens with TFP if not the le! ast efficient, but a certain percentage of enterprises in a (closed) economy randomly close down. The robustness of Total Factor Productivity of Mongolia was tested not only for errors in all estimated values but also for measurement errors in the data. It was concluded that in many commonly occurring cases it is not necessary to estimate alpha; that a random closure of enterprises fits the data of Mongolia much more closely than closing only the least efficient enterprises; and that measurement errors in the data influence the estimated TFP significantly.
    Keywords: transition; development; TFP; total factor productivity; Mongolia; measurement errors; simulation; Cobb-Douglas production function; sensitivity analysis; efficiency
    JEL: O C15 E2 P2
    Date: 2005–09–22
  11. By: Mary Amiti; Shang-Jin Wei
    Abstract: The practice of sourcing service inputs from overseas suppliers has been growing in response to new technologies that have made it possible to trade in some business and computing services that were previously considered non-tradable. This paper estimates the effects of offshoring on productivity in US manufacturing industries between 1992 and 2000, using instrumental variables estimation to address the potential endogeneity and errors in measurement of offshoring. It finds that service offshoring has a significant positive effect on productivity in the US, accounting for around 11 percent of productivity growth during this period. Offshoring material inputs also has a positive effect on productivity, but the magnitude is smaller accounting for approximately 5 percent of productivity growth.
    JEL: F1 F2
    Date: 2006–01
  12. By: Ciaran Driver (Tanaka Business School, Imperial College, London); Paul Temple (University of Surrey); Giovanni Urga (Cass Business School, London)
    Abstract: We test for the presence of externalities in UK manufacturing industry, seeking to identify the channels through which they operate. Using survey data on average variable cost available by industry, we estimate a translog cost function, storing the coefficients on time dummies for a second stage regression in which measures of external activity are entered to capture omitted spillover effects. We carry out the analysis for total manufacturing and for a panel of ten sub-sectors. We find weak evidence that fixed investment represents one significant channel; there is stronger evidence for an effect stemming from high utilisation in the mechanical engineering sector. This appears to be a combination of both thick market effects and knowledge based externalities.
    Keywords: Costs, Productivity, Externalities, Investment, Manufacturing
    JEL: L60 O40 D62
    Date: 2005–06
  13. By: António Afonso; Ludger Schuknecht; Vito Tanzi
    Abstract: In this paper we analyse public sector efficiency in the new member states of the European Union compared to that in emerging markets. After a conceptual discussion of expenditure efficiency measurement issues, we compute efficiency scores and rankings by applying a range of measurement techniques. The study finds that expenditure efficiency across new EU member states is rather diverse especially as compared to the group of top performing emerging markets in Asia. Econometric analysis shows that higher income, civil service competence and education levels as well as the security of property rights seem to facilitate the prevention of inefficiencies in the public sector.
    Keywords: government expenditure; efficiency; DEA; new EU member states; emerging markets.
    JEL: C14 H40 H50
  14. By: Donald S. Siegel (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA); Kenneth L. Simons (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)
    Abstract: Studies of the effects of mergers and acquisitions focus on a single unit of analysis: firms, plants, or workers. In contrast, we model these events as transactions that simultaneously have cross-levels effects. Based on the theory of human capital, we generate a set of predictions regarding the antecedents and consequences of firm, plant, and worker turnover. Our empirical analysis is based on longitudinal, linked employer-employee data for virtually the entire population of Swedish manufacturing firms and employees for the period 1985-1998. These data allow us to assess the effects of mergers and acquisitions on firm performance, plant productivity, levels of employment, and compensation. Consistent with human capital theory, we find that mergers and acquisitions lead to improvements in firm performance and plant productivity, although they also result in the downsizing of establishments and firms. These transactions also appear to enhance the careers of workers because they provide a mechanism for improving the sorting and matching or workers and managers to firms and industries that best suit their skills.
    JEL: G34 D24 C81
    Date: 2006–01
  15. By: Pizer, William (Resources For the Future); Harrington, Winston (Resources For the Future); Shih, Jhih-Shyang (Resources For the Future); Gillingham, Kenneth
    Abstract: In this study we use datasets from the 1995 and 2000 Community Water Supply surveys to examine the production costs of water supply systems. We first estimate the economies of scale in water supply by estimating the total unit cost as well as individual component cost elasticities. For total unit cost elasticity, we find that a 1% increase in production reduces unit costs by a statistically significant 0.16%. For individual component cost elasticities, we find that higher economies of scale exist in capital costs, outside costs, other costs, and materials costs; labor costs and energy costs exhibit lower but still positive economies of scale. These economies of scale may reflect production economies or suggest that larger systems are better than smaller systems at bargaining and can obtain inputs at a lower unit cost. Importantly, bargaining gains and some production economies do not necessarily depend on water systems’ becoming physically interconnected.
    Keywords: small water systems; water supply; capacity development; economies of scale; community water systems
    JEL: Q25 Q28
  16. By: Ho, Mun (Resources For the Future); Jorgenson, Dale; Stiroh, Kevin
    Abstract: This paper analyzes the sources of U.S. labor productivity growth in the post-1995 period and presents projections for both output and labor productivity growth for the next decade. Despite the recent downward revisions to U.S. GDP and software investment, we show that information technology (IT) played a substantial role in the U.S. productivity revival. We then outline a methodology for projecting trend output and productivity growth. Our base-case projection puts the rate of trend productivity growth at 2.21% per year over the next decade with a range of 1.33 - 2.92%, reflecting fundamental uncertainties about the rate of technological progress in IT-production and investment patterns. Our central projection is only slightly below the average growth rate of 2.36% during the 1995-2000 period.
    Keywords: productivity, information technology
    JEL: O4
  17. By: Paolo Piselli (Banca d'Italia)
    Abstract: The recent empirical evidence documenting the presence of asymmetries in business cycles represents a challenge for the standard equilibrium models of real business cycle. These models successfully explain most first and second moments of the actual time series, but cannot replicate non-linear features of the data, unless a non-linear innovation is introduced. This paper aims at investigating the possible non-linearity in the technology shock, the basic innovation in Real Business Cycle models. In order to measure the unobservable technology shock, we derive some alternative measures of total factor productivity such as revenue-based and cost-based Solow residual and we also control for cyclical factor utilisation. We test for non-linearities and model a nonlinear SETAR model for the productivity shock as a natural extension of the autoregressive linear process, the standard way of representing technology shocks. Our findings suggest that, although the standard Solow residual turns out to be linear, the other measures of technology shock appear non-linear, as soon as non-technological cyclical components are ruled out.
    Keywords: Solow residual, technology shock, non-linear models, linearity test
    JEL: C22 C52 E32
    Date: 2004–07
  18. By: Paul Temple (University of Surrey); Robert Witt (University of Surrey); Chris Spencer (University of Surrey)
    Abstract: In this paper we consider the relationship between the standards created by national standards bodies and long run economic growth, exploring the relationship in the context of the UK and the British Standards Institution (BSI). We suggest that standards provide a key enabling mechanism for the widespread diffusion of major technologies, while being generally supportive of incremental innovation and general technological understanding. In order to further understanding of this mechanism we measure the ‘output’ of the BSI by estimating the size of the BSI ‘catalogue’ available to the economy since its inception in 1901. The measure allows us to estimate an augmented production function for the UK economy over the period 1948-2002. Within a co-integrating framework, we find a statistically significant and unique co-integrating vector between labour productivity, the capital-labour ratio, exogenous technological progress and the BSI catalogue. The long-run elasticity of labour productivity with respect to the standards stock is estimated to be about 0.05, so that the rapid growth of the catalogue in the postwar period is associated with about 13% of the aggregate growth in labour productivity.
    Keywords: standards, technological change, productivity.
    JEL: O11 O33 O47 L52 C22
    Date: 2004–10
  19. By: Antonio R. Sampayo; Fernando del Río
    Abstract: In this paper we argue that the increase in the obsolescence costs caused by the adoption of new information technologies, can play an important role in accounting for the productivity slowdown undergone by the US economy after 1974. We develop a standard growth model with physical and intangible capital in which technical progress is embodied in equipment. In this framework, we assume that the obsolescence of intangible capital increases when the embodied technical progress accelerates. The model is calibrated for the period 1957-1973 and the response of the economy to an increase in the rate of embodied technical progress -as observed after 1974- is simulated. We show that the increase in the obsolescence cost caused by the acceleration of embodied technical progress can account for a large part of the productivity slowdown post-1974.
  20. By: Manacorda, Marco; Goicoechea, Ana; Estache, Antonio
    Abstract: The authors assess the effects of private capital and independent regulatory agencies on telecommunications performance by using cross-country panel data from 1990 to 2003. In general, they find that having independent regulatory agencies positively affects affordability and labor productivity, but negatively affects quality. Having private capital positively affects access, quality, and labor productivity, but negatively affects affordability. However, reform policies affect industrial and developing countries differently in some cases. The authors also find that governance plays an important role as it affects performance and interacts with reform policies.
    Keywords: Country Strategy & Performance,Economic Theory & Research,Infrastructure Regulation,ICT Policy and Strategies,Investment and Investment Climate
    Date: 2006–01–01
  21. By: Andrea BONFIGLIO
    Abstract: The objective of this article is to analyse structural changes which occurred in Italy in the period 1992-2000. The analysis is carried out within the I-O framework by the use of multipliers, I-O elasticities, structural decomposition and causative approaches. These tools are used to assess over time the degree of sector interrelationships, the potentiality of sectors in fostering economic growth, the sources of change in the economy and contribution of sectors to growth. In particular, the structural decomposition approach is based on the use of a revised version of RAS finalised to isolate productivity and substitution effects affecting technology changes. From the analysis, there emerges that, in the nineties, the process of development has led to reinforcement of sectors more related to service supply and to an increasing reduction of the importance of agriculture and manufacturing sectors. Moreover, Italy has been interested by structural changes mainly due to the variation of the level of final demand, in particular of consumption, rather than technological changes. Finally, the Italian economy, in line with the general tendency of other industrialised countries, has been involved by the process of rising diffusion and importance of computer and communication technologies throughout the whole economy.
    Keywords: I-O elasticities, decomposition analysis, input-output frameworks, left causative matrix, multipliers, structural changes
    JEL: C63 C67 D57 O11 O39
    Date: 2005–06

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