New Economics Papers
on Efficiency and Productivity
Issue of 2006‒04‒29
nineteen papers chosen by

  1. A Generalized Knowledge Production Function By Heshmati, Almas
  2. Entry, Exit, and Productivity of Indonesian Electronics Manufacturing Plants By Alfons Palangkaraya; Jongsay Yong
  3. The Effects of Innovation on Performance of Korean Firms By Heshmati, Almas; Kim, Yee-Kyoung; Kim, Hyesung
  4. Outstanding outsourcers: a firm- and plant-level analysis of production sharing By Christopher Johann Kurz
  5. Causes of Efficiency Change in Transition: Theory and Cross-Country Survey Evidence from Agriculture By Johan Swinnen; Liesbet Vranken
  6. In search of true productivity differences By Anže Burger; Crt Kostevc
  7. Comparative Analysis of Firm Dynamics by Size: Korean Manufacturing By Oh, Inha; Heshmati, Almas; Baek, Chulwoo; Lee, Jeong-Dong
  8. Estimating Feedback Effect in Technical Change: A Frontier Approach By Vincent M. Otto; Timo Kuosmanen; Ekko C. van Ierland
  9. Productivity Levels in Distributive Trades: A New ICOP Dataset for OECD Countries By Timmer, Marcel P.; Ypma, Gerard
  10. Tracking the elusive French productivity lag in industry 1840-1973 By Jean-Pierre Dormois
  11. Reforms, Entry and Productivity: Some Evidence from the Indian Manufacturing Sector By Sumon Kumar Bhaumik; Shubhashis Gangopadhyay; Shagun Krishnan
  12. Social Capital and Labour Productivity in Italy By Fabio Sabatini
  13. Volatility accounting: a production perspective on increased economic stability By Kevin J. Stiroh
  14. Analysis of Product Efficiency in the Korean Automobile Market from a Consumer’s Perspective By Oh, Inha; Lee, Jeong-Dong; Hwang, Seogwon; Heshmati, Almas
  15. Contribution of ICT to the Chinese Economic Growth By Heshmati, Almas; Yang, Wanshan
  16. Economies of Density, Network Size and Spatial Scope in the European Airline Industry By Hugo Salgado; Manuel Romero-Hernández
  17. The Productivity of UK Universities By Gustavo Crespi; Aldo Geuna
  18. The Long-Run Impact of ICT By Francesco VENTURINI
  19. Economies of Scope in European Railways: An Efficiency Analysis By Christian Growitsch; Heike Wetzel

  1. By: Heshmati, Almas (Ratio)
    Abstract: This paper presents a generalized production model based on the knowledge production function. The model allows the relationships between corporate competitiveness strategy, innovation, efficiency, productivity growth and outsourcing to be investigated at the firm level in a number of steps. First, in reviewing recent developments of researches on the above relationships, provide discussion on data and the methods of measuring these variables. Second, depending on availability of information, different measures are transferred into single multidimensional index of corporate strategy using principal component analysis. Third, stochastic frontier production function and factor productivity analysis are used to estimate the efficiency and factor productivity growth at the firm level. Fourth, the causal relationships between the five variables of interest are established and modelled. Finally, given the direction of causality, the implications of the findings for estimation of the relationship are discussed. For the empirical analysis we use Swedish firm-level innovation survey data covering both manufacturing and service sectors.
    Keywords: Competition; innovation; outsourcing; productivity; efficiency; causality; firm
    JEL: C31 C52 D24 L10 L60 L80 O31
    Date: 2006–04–25
  2. By: Alfons Palangkaraya (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Jongsay Yong (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: We study the link between plant turnover and productivity using Indonesian plant-level data for the period of 1990-95. First, we compare productivity differentials among incumbents, entrants, and exiting plants by constructing the Farrell technical efficiency index using data envelopment analysis. We test the significance of these differentials using Simar and Wilson (1998) bootstrap algorithm and Li’s (1996) nonparametric test of closeness between unknown distributions. We find that the incumbent plants are on average the most productive group in every year of the estimation period. Also, the new plants are relatively less productive than the exiting plants in the early years. However, they are more productive than the exiting plants in the later years. Second, and more importantly, we estimate the productivity change during the study period using the Malmquist productivity change index and decompose the change to see if the differences in measured productivity change among the three groups of plants come from differences in the efficiency change or the technical change. Since the existing literature rarely distinguishes between these two different components, little is known whether exiting plants are less productive because of their inability to catch up to the current frontier or to adopt a better technology. Similarly, not much known whether entrants’ ability to survive come from their being equipped with a ’better’ technology or being able to catch up to the current frontier. Our findings indicate that although new plants enter with relatively lower productivity levels, they exhibit the highest productivity change during the early years. In addition, we find entrants’ high productivity growth in the early period is due to a movement toward the frontier, while in the later period is due to an upward shift of the technology frontier. Exiting plants, on the other hand, exhibit the lowest productivity change during the early years when entrants experience high productivity change.
    JEL: D24 L63
    Date: 2006–04
  3. By: Heshmati, Almas (Ratio); Kim, Yee-Kyoung (Seoul National University); Kim, Hyesung (Seoul National University)
    Abstract: This study empirically examines the relationship between knowledge capital and performance heterogeneity at the firm level. The model is based on a knowledge production function comprising of four interdependent equations linking innovativeness to innovation input, innovation output and productivity. The empirical part is based on Korean firm level innovation data. The model is estimated using advanced econometric methods. We investigate whether innovation is a significant and contributing determinant of performance heterogeneity among firms. In examining the relationship between innovation and productivity we correct for selectivity and simultaneity biases. The results show that there is a two-way causal relationship between knowledge capital and labor productivity. Firm-specific effects positively contribute to innovation output but they are negatively related to productivity. Industry heterogeneity does not affect innovation output or productivity.
    Keywords: Innovation Input; Innovation Output; Productivity; Korea
    JEL: C33 E22 L60 O32
    Date: 2006–04–25
  4. By: Christopher Johann Kurz
    Abstract: This paper examines the differences in characteristics between outsourcers and non-outsourcers with a particular focus on productivity. The measure of outsourcing comes from a question in the 1987 and 1992 Census of Manufactures regarding plant-level purchases of foreign intermediate materials. There are two key findings. First, outsourcers are "outstanding." That is, all else equal, outsourcers tend to have premia for plant and firm characteristics, such as being larger, more capital intensive, and more productive. One exception to this outsourcing premia is that wages tend to be the same for both outsourcers and non-outsourcers. Second, outsourcing firms, but not plants, have significantly higher productivity growth.
    Keywords: Industrial productivity ; Manufactures
    Date: 2006
  5. By: Johan Swinnen; Liesbet Vranken
    Keywords: transition agriculture, production efficiency, reforms
    Date: 2006
  6. By: Anže Burger; Crt Kostevc
    Abstract: Recent work on production functions estimation revealed that substantial biases can be introduced into the estimates when the assumption of perfect competition and price exogeneity is not satisfied in the data itself. As Klette and Griliches (1996) show applying traditional econometrics in differentiated good markets will negatively bias the scale estimates of the production function. In fact, when deflated sales are used as a proxy for output in case of differentiated good industries scale economies (and subsequently productivity) cannot be estimated independently of markups. We extend this basic framework to show that, if exporting markups are smaller than those attainable in the domestic market, the Klette-Griliches estimation procedure will tend to overestimate exporting firm markups and underestimate their productivity. In addition, we provide an estimation algorithm based on the Olley-Pakes (1996) framework that could serve to ensure unbiased estimates of exporter productivity.
    Keywords: Productivity measurement, Imperfect competition, Exporting, Foreign direct investment
    JEL: C14 D24 L11 L25
    Date: 2006
  7. By: Oh, Inha; Heshmati, Almas (Ratio); Baek, Chulwoo; Lee, Jeong-Dong
    Abstract: The Korean economy severely suffered from the Asian financial crisis, and is well known for rapid recovery in the years following. However, the recovery was mainly due to successful restructuring by a limited number of large-sized enterprises (LSEs). The small and medium sized enterprises (SMEs) are still suffering from the depression. The crisis and subsequent unequal size related recovery patterns have aggravated the pre-crisis gap between LSEs and SMEs. In this paper, the total factor productivity (TFP) of the South Korean manufacturing industry is calculated, at the firm level, and comparative analysis is performed by size classes. The sources of the TFP growth are decomposed into various effects related to entry, exit, and survival of firms. Additional survival analyses are used to investigate internal and external determinant variables for the survival of LSEs and SMEs. The results indicate that the exit of SMEs with higher productivity rates represented a major problem in Korean manufacturing, particularly in the post-crisis period. Non-selective government support for SMEs appears to have caused disorder in the SME sector.
    Keywords: Firm dynamics; TFP; survival analysis; SME; Korean manufacturing
    JEL: C33 C41 D24 L60 O30
    Date: 2006–04–25
  8. By: Vincent M. Otto (Massachusetts Institute of Technology); Timo Kuosmanen (Agrifood Research Finland); Ekko C. van Ierland (Environmental Economics and Natural Resources University)
    Abstract: This study examines whether today’s technical change depends on yesterday’s technical change. We propose to investigate this feedback effect by using the technical-change component of the Malmquist productivity index. This approach can overcome some problems in alternative patent-citation approaches. We apply the approach by estimating the feedback effect from production data of 25 OECD countries for 1980 through 1997. Our model yields evidence on a positive feedback effect with delays up till eight years. These findings are in line with patent-citation studies and bring us closer to a measure of the social returns to R&D.
    Keywords: Cross-country comparisons, Data envelopment analysis (DEA), Feedback effect, Malmquist productivity index, Technical change, Two-stage semiparametric estimation
    JEL: O47 O30 D24
    Date: 2006–02
  9. By: Timmer, Marcel P.; Ypma, Gerard (Groningen University)
    Abstract: This study provides a new dataset for international comparisons of labour productivity levels in distributive trade (retail and wholesale trade) between OECD countries. The productivity level comparisons are based on a harmonised set of Purchasing Power Parities (PPPs) for 1997 using the industry-of-origin approach as developed in the International Comparisons of Output and Productivity (ICOP) project. The methodology mimics current national accounts practice in measuring real output over time. The comparative estimates are extrapolated from the benchmark year using those national accounts series. The main finding of this study is that there is still a wide variety in labour productivity levels in the distribution sector across the OECD area. In 2002, the Germany, the Benelux and Scandinavian countries (except Sweden) were leading in terms of PPP-converted value added per hour worked with higher levels than in the U.S.. In Asia, the comparative labour productivity level is on average 39% of the U.S. level, whereas it is 48% on average in Eastern Europe. Within the ?old? EU-15, countries like Italy, Portugal, Spain and the U.K. had relative levels less than 70% of the U.S.. There is no clear sign of convergence in productivity levels among OECD countries during the past two decades.
    Date: 2006
  10. By: Jean-Pierre Dormois
    Date: 2006–03
  11. By: Sumon Kumar Bhaumik (Brunel University and IZA Bonn); Shubhashis Gangopadhyay (India Development Foundation); Shagun Krishnan (India Development Foundation)
    Abstract: It is now stylized that, while the impact of ownership on firm productivity is unclear, product market competition can be expected to have a positive impact on productivity, thereby making entry (or contestability of markets) desirable. Traditional research in the context of entry has explored the strategic reactions of incumbent firms when threatened by the possibility of entry. However, following De Soto (1989), there has been increasing emphasis on regulatory and institutional factors governing entry rates, especially in the context of developing countries. Using 3-digit industry level data from India, for the 1984-97 period, we examine the phenomenon of entry in the Indian context. Our empirical results suggest that during the 1980s industry level factors largely explained variations in entry rates, but that, following the economic federalism brought about by the post-1991 reforms, variations entry rates during the 1990s were explained largely by state level institutional and legacy factors. We also find evidence to suggest that, in India, entry rates were positively associated with growth in total factor productivity.
    Keywords: entry, productivity, institutions, regulations, India, reforms
    JEL: L11 L52 L64 L67 O14 O17
    Date: 2006–04
  12. By: Fabio Sabatini (University of Rome La Sapienza)
    Abstract: This paper carries out an empirical assessment of the relationship between social capital and labour productivity in small and medium enterprises in Italy. By means of structural equations models, the analysis investigates the effect of different aspects of the multifaceted concept of social capital. The bonding social capital of strong family ties and the bridging social capital shaped by informal ties connecting friends and acquaintances are proved to exert a negative effect on labour productivity, the economic performance, and human development. On the contrary, the linking social capital of voluntary organizations positively influences such outcomes.
    Keywords: Labour productivity, Small and medium enterprises, Social capital, Social networks, Structural equations models
    JEL: J24 R11 O15 O18 Z13
    Date: 2006–02
  13. By: Kevin J. Stiroh
    Abstract: This paper examines the declining volatility of U.S. output growth from a production perspective. At the aggregate level, increased output stability reflects decreased volatility in both labor productivity growth and hours growth as well as a significant decline in the correlation. The decline in output volatility can also be traced to less volatile labor input and total factor productivity (TFP) growth and the smaller covariance between them. This relationship suggests that labor market changes such as increased labor market flexibility are an important source of increased output stability. At the industry level, the decline in volatility appears widespread, with about 80 percent of component industries showing smaller contributions to aggregate output volatility after 1984, although most of the aggregate decline reflects smaller covariances between industries. Across industries, there is strong evidence of a decline in the correlation between hours growth and labor productivity growth, suggesting again that the labor market dynamics are part of the decline in U.S. output volatility.
    Keywords: Production (Economic theory) ; Productivity ; Labor productivity ; Labor market ; Industries
    Date: 2006
  14. By: Oh, Inha; Lee, Jeong-Dong (Seoul National University); Hwang, Seogwon; Heshmati, Almas (Ratio)
    Abstract: A product is called technically inefficient when it has higher price and/or lower quality than others. Technical inefficiency of product has been conceptualized since Lancaster (1966), and empirically measured by many researchers, for example, Fernandez-Castro and Smith (2002) and Lee et al. (2005) among others. If we know further the information about structure of utility function, allocative inefficiency can also be measured. Even though a product is technically efficient with highest quality together with lowest price, it could not be chosen in the market, if it cannot match the preference structure of consumers, i.e. it is allocatively inefficient. This study poses a conceptual and methodological framework to measure technical and allocative efficiency at the product level considering consumer’s choice, which comprises the overall efficiency. Empirically we combine Data Envelopment Analysis (DEA) and discrete choice model to measure the level of inefficiencies. The suggested framework is applied to the Korean automobile market. The relationship between the level of efficiency and market performance in terms of market share is discussed.
    Keywords: DEA; Product Efficiency; Consumers Utility; Automobile Market; Korea
    JEL: C14 C25 D13 D61 L92
    Date: 2006–04–25
  15. By: Heshmati, Almas (Ratio); Yang, Wanshan
    Abstract: The view about systematic irrationality of investors and managers in investment with reference to information and communication technology (ICT) with no effects on productivity growth is called productivity paradox. Research suggests that ICT return in developed nations is significant and positive, but not in developing countries. This paper challenges the above conclusion by examining the contribution of ICT to the Chinese economic growth. We investigate the relationship between TFP growth and ICT capital and provide estimation of the returns to ICT investment. The contribution of ICT to economic growth has not been studied earlier for the developing countries like China. The empirical results suggest that China has reaped the benefits of ICT investment. The policy implications for the Chinese ICT investment and development are also discussed. The results add to our understanding of how ICT affects growth in the context of economic development.
    Keywords: Productivity paradox; ICT; economic development; TFP growth; China
    JEL: D24 E22 O47
    Date: 2006–04–25
  16. By: Hugo Salgado; Manuel Romero-Hernández
    Abstract: In this article we use four different indices to measure cost performance of the European Airline Industry. By using the number of routes as an indicator of Network Size, we are able to estimate indicators of Economies of Density, Network Size and Spatial Scope. By estimating total and variable cost functions we are also able to calculate an index of the excess capacity of the firms. For this purpose, we use data from the years 1984 to 1998, a period during which several deregulation measures were imposed on the European airline industry. Our results suggest that in the year 1998, almost all the firms had Economics of Density in their existing networks, while several of the firms also had Economies of Network Size and Economies of Spatial Scope. These results support our hypothesis that fusion, alliance, and merger strategies followed by the principal European airlines after 1998 are not just explained by marketing strategies, but also by the cost structure of the industry.
  17. By: Gustavo Crespi (SPRU, University of Sussex); Aldo Geuna (SPRU, University of Sussex)
    Abstract: There is increasing recognition in the UK and other OECD countries of the importance of scientific research in providing the foundations for both innovation and competitiveness. This has resulted in increased public funding for research in the UK and elsewhere. At the same time, there is a lack of systematic evidence on how such investments can lead to increasing levels of scientific output and, ultimately, to better economic performance. Much of the available literature concentrates on the effects of public funding of basic research on either firms' innovative activities (see among others COHEN, NELSON AND WALSH [2002]; KLEVORICK, LEVIN, NELSON AND WINTER [1995]; JAFFE [1989]; NARIN, HAMILTON AND OLIVASTRO [1997]) or firm performance (Adams [1990]), bypassing the question of how to measure scientific output. The reasons for this are the difficulty of identifying a stable causal relationship between the resources spent on the science budget and 'intermediate' scientific outputs. This difficulty originates from the dynamic nature of this relationship. There is a persistent and therefore recursive feedback between inputs and outputs, which is exacerbated by lack of appropriate information for analysis. Among the few studies that have attempted to address the problem, are ADAMS AND GRILICHES [1996] and JOHNES AND JOHNES [1995]. This study is based on and further develops Adams and Griliches's methodology.
    Keywords: bibliometrics, university graduate students, national science budget, research funding, economic performance, scientific output
    JEL: O3 I2
    Date: 2006–04–11
  18. By: Francesco VENTURINI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: Using some new techniques of panel cointegration analysis, this paper describes the long-run impact of digital capital on the aggregate performance of the US and EU-15 member countries. ICT is found to significantly impact on output levels without substantial cross-country variation when one adopts the dynamic extension of panel OLS (PDOLS). In this case, however, the long-run elasticity of factor inputs does not differ from the one estimated in the short-run. The time-series version of seemingly unrelated regression (DSUR) provides more plausible findings, showing a significant cross-countries heterogeneity. The effect of ICT on growth appears relevant - and higher than emerging from short-differences - for most economies but not for the EU largest countries.
    Keywords: ICT, economic growth, panel cointegration analysis
    JEL: C33 E20 O47
    Date: 2006–03
  19. By: Christian Growitsch; Heike Wetzel
    Abstract: Im Zuge der Reformen der europäischen Eisenbahnindustrie entschieden die nationalen Regierungen Europas sowie die EU Kommission, die Eisenbahnmärkte zu liberalisieren und die Schieneninfrastruktur vom Fahrbetrieb organisatorisch zu trennen. Vertikal integrierte Eisenbahnunternehmen – Unternehmen, die sowohl das Schienennetz als auch den Transportbetrieb unterhalten – äußern die Befürchtung, daß eine solche Separierung Vorteile der vertikalen Integration (sogenannte Verbundvorteile) vermindern würde und somit nicht geeignet sei, die gesamtgesellschaftliche Wohlfahrt zu erhöhen. In diesem Aufsatz untersuchen wir mittels einer pan-europäischen Analyse die Produktivität europäischer Eisenbahnunternehmen und berücksichtigen dabei insbesondere etwaige Verbundvorteile indem wir überprüfen, ob integrierte Eisenbahnunternehmen eine höhere technische Effizienz aufweisen als vertikal separierte Unternehmen. Dazu berechnen wir ein Data Envelopment Analysis super-efficiency bootstrapping Modell, das die Effizienz der integrierten Produktionstechnologie im Verhältnis zu einer Referenzgruppe virtueller, aus den separierten Unternehmen konstruierter Beobachtungseinheiten berechnet. Unsere Forschungsergebnisse weisen auf existierende Verbundvorteile für die Mehrzahl der europäischen Eisenbahnunternehmen hin.
    Date: 2006–04

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