New Economics Papers
on Efficiency and Productivity
Issue of 2006‒06‒03
thirteen papers chosen by

  1. Computer Investment, Computer Networks and Productivity By Sang Nguyen; B.K. Atrostic
  2. Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability? By Lucia Foster; John Haltiwanger; Chad Syverson
  3. Outstanding Outsourcers: A Firm- and Plant-Level Analysis of Production Sharing By Christopher Johann Kurz
  4. Review of Workplace Skills, Technology Adoption and Firm Productivity: A Review By Sid Durbin
  5. IT and Beyond: The Contribution of Heterogenous Capital to Productivity By Daniel Wilson
  6. Regional Differences in Productivity Growth in the Netherlands - an Industry-level Growth Accounting By Lourens Broersma; Jouke Van Dijk
  7. Does Ownership Matter? The Impact of Foreign Takeovers on Innovation and Productivity Performance By Ebersberger, Bernd; Johansson, Börje; Lööf, Hans
  8. The Growing Allocative Inefficiency of the U.S. Higher Education Sector By James D. Adams; J. Roger Clemmons
  9. Assessing Multi-Dimensional Performance: Environmental and Economic Outcomes By Ronald Shadbegian; Wayne Gray
  10. Productivity matters for trade policy : theory and evidence By Karacaovali, Baybars
  11. The Contribution of Foreign Affilliates to Productivity Growth: Evidence from OECD Countries By Chiara Criscuolo
  12. Agglomeration, Enterprise Size, and Productivity By Edward Feser
  13. Import Price Pressure on Firm Productivity and Employment: The Case of U.S. Textiles By Patrick Conway

  1. By: Sang Nguyen; B.K. Atrostic
    Abstract: Researchers in a large empirical literature find significant relationships between computers and labor productivity, but the estimated size of that relationship varies considerably. In this paper, we estimate the relationships among computers, computer networks, and plant-level productivity in U.S. manufacturing. Using new data on computer investment, we develop a sample with the best proxies for computer and total capital that the data allow us to construct. We find that computer networks and computer inputs have separate, positive, and significant relationships with U.S. manufacturing plant-level productivity. Keywords: computer input; information technology; labor productivity
    Keywords: computer input; information technology; labor productivity
    Date: 2005–01
  2. By: Lucia Foster; John Haltiwanger; Chad Syverson
    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.
    Date: 2005–09
  3. By: Christopher Johann Kurz
    Abstract: This paper examines the differences in characteristics between outsourcers and nonoutsourcers 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.
    Date: 2006–01
  4. By: Sid Durbin (New Zealand Treasury)
    Abstract: The way that skills contribute to productivity improvements in firms is still something of a "black box". There is general agreement that human capital (broadly defined) is important for growth. Less is known about the ways in which skills and knowledge contribute to a firm’s pursuit of efficiency in production, the process of innovation and technology adoption, and to the take-up of market opportunities. This paper reviews literature on the types of skills utilised by firms, the mechanisms by which skills contribute to firm productivity, and how skills are acquired. It identifies potential policy implications relating to work based skills training.
    Keywords: technological change, human capital; labour productivity; multifactor productivity; firm productivity; workplace productivity; skills
    JEL: D21 D24 J24 L19 O30
    Date: 2004–09
  5. By: Daniel Wilson
    Abstract: This paper explores the relationship between capital composition and productivity using a unique and remarkably detailed data set on firm-level, asset-specific investment in the U.S. Using cross-sectional and longitudinal regressions, I find that among all types of capital, only computers, communications equipment, software, and office building are associated (positively) with current and subsequent years’ multifactor productivity. The link between offices and productivity, however, is shown to be due to the correlation between the use of offices and organizational capital. In contrast, the link between ICT equipment and productivity is robust to a number of controls and appears to be part causal effect and part reflection of the correlation between ICT and firm fixed (or slow-moving) effects. The implied marginal products by capital type are derived and compared to official data on rental prices; substantial differences exist for a number of key capital types. Lastly, I provide evidence of complementaries and substitutabilities among capital types — a rejection of the common assumption of perfect substitutability — and between particular capital types and labor.
    Keywords: Capital Heterogeneity, Productivity, Investment, Production Function Estimation
    JEL: D21 D24 D29
    Date: 2004–12
  6. By: Lourens Broersma; Jouke Van Dijk
    Abstract: Main point in the current European policy debate is to find instruments that stimulate the growth rate of labour productivity. The reason for this is a persistent slowdown in labour productivity growth in European countries and an increasing gap in growth rates between the USA and Europe starting in the second half of the 1990’s. Labour productivity in the US is nowadays at a much steeper growth path than in Europe. What is the reason for this increasing gap between Europe and the USA? This is an important question in order to assess the measures proposed in the Lisbon Agreement by the European Union (EU) to become the world’s most competitive and dynamic knowledge-based economy in 2010. With increasing globalisation and deregulation of international markets, productivity growth is the tool to enhance competitiveness. Therefore instruments are sought that will get the productivity growth rate in European countries back on track. One of the main explanatory factors for productivity growth is the production, use and diffusion of information and communication technology (ICT). Inklaar et al. (2003) show, however, that the main source for the European slowdown in productivity growth is not so much lagging IT use, but a deceleration of non-ICT capital deepening (i.e. lagging increase of non-ICT capital per hour worked) and, in contrast to the US, a lack of acceleration of TFP growth. TFP growth is the part of productivity growth that cannot be attributed to an increase in the capital stock per hour worked, where capital is usually subdivided in ICT capital and non-ICT capital. Daveri (2004), who applies a more rigorous definition of ICT using and ICT producing industries, by and large corroborates these results. The deceleration of non-ICT capital deepening of the nineties in Europe has coincided with a sharp rise in employment. Non-ICT capital deepening, or the growth of non-IT capital per hour worked, is clearly related to the growth rates of the price of both inputs. Faster wage growth increases non-ICT capital deepening because capital will substitute labour. An increase in the ‘price’ of non-ICT-capital, on the other hand, makes capital more expensive and leads to deceleration of non-ICT capital deepening. Inklaar et al. (2003), however, show that the impact of growth rates of wage and rental prices on non-ICT capital deepening is much stronger for the US than Europe. The small effect of wage growth in European countries implies that wage moderation might be an important reason for the slowdown of non-ICT capital deepening. Labour productivity growth in The Netherlands is at a persistently lower growth path than the European average. Since The Netherlands has been champion in wage moderation in the past decades, a natural question is whether this has led to an even slower non-ICT capital deepening than Europe or that other mechanisms have instead caused the Dutch slowdown of productivity growth. This issue will be addressed at a low spatial level: what is the reason for the Dutch slowdown, are there regions that have contributed more to the lagging productivity growth rate than others and which industries are responsible. This question will be answered using the growth accounting approach, which is also used to explain the widening of the productivity growth gap between Europe and the USA. Distinction can be made at the provincial level of The Netherlands between growth rates of value added in constant prices, number of hours worked, ICT and non-ICT capital services for eight aggregate industries. There is therefore sufficient detail to determine which industry in which province contributes positively or negatively to the lagging Dutch growth performance of the late 1990’s. This issue is useful from both an academic and a policy perspective.
    Date: 2005–08
  7. By: Ebersberger, Bernd (Fraunhofer Institute for Systems and Innovation Research); Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Recent debate has focused on how foreign direct investments and foreign take-overs may effect growth and welfare. In this study we have methodologically approximated foreign-ownership by foreign take-over and raised the question: how would a firm’s behaviour and performance have been if a foreign owner had not acquired the firm? The analysis is based on a sample of 5 186 firm-level observations in four Nordic countries, of which approximately 30 percent of the firms have foreign owners. The econometric design helps us to establish some new findings. First, no robust difference in the propensity to be innovative can be established. Second, among the group of innovative firms, foreign-owned multinationals are generally outperformed by domestic multinationals in R&D and innovation engagement. Finally, the results on labor productivity are at variance with the findings in a large number of previous comparison studies. We find that foreign take-over of firms are neutral with respect to labor productivity, and hence the issue of welfare gain and welfare drain is turned into a non-issue.
    Keywords: Multinational enterprises; Take-Over; Corporate governance; Cross-country comparison; Spillovers; R&D; Innovation; Productivity
    JEL: C31 D21 F23 G34 L22 O31 O33
    Date: 2006–05–31
  8. By: James D. Adams (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA); J. Roger Clemmons (Institute for Child Health Policy, College of Medicine of the University of Florida)
    Abstract: This paper presents new evidence on research and teaching productivity in universities. The findings are based on a panel that covers 1981-1999 and includes 102 top U.S. universities. Faculty size grows at 0.6 percent per year, compared with growth of 4.9 percent in the industrial science and engineering workforce. Measured by papers and citations per researcher, productivity grows at 1.4-6.7 percent per year and productivity and its rate of growth are higher in private than public universities. Measured by baccalaureate and graduate degrees per teacher, teaching productivity grows at 0.8-1.1 percent per year and growth is faster in public than private universities. A decomposition analysis shows that growth in research productivity within universities exceeds overall growth. This is because research shares grow more rapidly in universities whose productivity grows less rapidly. Likewise the research share of public universities increases even though productivity grows less rapidly in public universities. Together these findings suggest that allocative efficiency of U.S. higher education declined during the late 20th century. Regression analysis of individual universities finds that R&D stock, endowment, and postdoctoral students increase research productivity, that the effect of nonfederal R&D stock is less, and that research is subject to decreasing returns. Since the nonfederal R&D share grows and is much higher in public universities, this could account for some of the rising allocative inefficiency. The evidence for decreasing returns in research, which are greater than in teaching, suggests limits on the ability of more efficient institutions to expand and implies that differences in the scale of the teaching function are the primary reason for differences in university size. Besides all this the data strongly hint at growing financial pressures on U.S. public universities.
    JEL: J3 L3 O3
    Date: 2006–05
  9. By: Ronald Shadbegian; Wayne Gray
    Abstract: This study examines the determinants of environmental and economic performance for plants in three traditional smoke-stack industries: pulp and paper, oil, and steel. We combine data from Census Bureau and EPA databases and Compustat on the economic performance, regulatory activity and environmental performance on air and water pollution emissions and toxic releases. We find that plants with higher labor productivity tend to have lower emissions. Regulatory enforcement actions (but not inspections) are associated with lower emissions, and state-level political support for environmental issues is associated with lower water pollution and toxic releases. There is little evidence that plants owned by larger firms perform better, nor do older plants perform worse.
    Keywords: Environmental Performance, Labor Productivity, Emissions, Enforcement Activity, Technology
    Date: 2005–05
  10. By: Karacaovali, Baybars
    Abstract: There is a growing literature that investigates the effect of trade liberalization on productivity. Nearly all such studies assume that trade policy is determined independently of productivity, hence it is exogenous. The author shows that this assumption is not valid in general, both theoretically and empirically, and that researchers may be underestimating the positive effect of liberalization on productivity when they do not account for the endogeneity bias. On the theory side, he demonstrates that under a standard political economy model of trade protection, productivity directly influences tariffs. Moreover, this productivity-tariff relationship partly determines the extent of liberalization across sectors even in the presence of a large exogenous unilateral liberalization shock that affects all sectors. The link between productivity and tariffs is maintained after the author includes in his political economy model a learning-by-doing motive of protection, which also serves as the source of liberalization. On the empirical side, he examines total factor productivity (TFP) estimates obtained at the firm level for Colombia between 1983 and 1998, and finds that more productive sectors receive more protection within this period. In estimating the effect of productivity on tariffs, he controls for the endogeneity of the two main right-hand-side variables-the inverse import penetration to import demand elasticity ratio and productivity-by using materials prices, the capital to output ratio, a measure of scale economies, and the TFP of the upstream industries as robust instruments. The author also accounts for the large trade liberalization between 1990 and 1992, and finds that the sectors with a higher productivity gain are liberalized less. Finally, he illustrates a system of equations estimation and shows that the positive impact of liberalization on productivity grows stronger when corrected for the endogeneity bias.
    Keywords: Economic Theory & Research,Free Trade,Political Economy,Trade Policy,Trade Law
    Date: 2006–05–01
  11. By: Chiara Criscuolo
    Abstract: This study uses new information to determine the role of foreign affiliates in productivity growth. The study has three aims. Firstly, the study quantifies the contribution of foreign affiliates to productivity growth in OECD countries using a growth accounting approach. Secondly, the analysis shows how much of this contribution derives from an increase in the employment share of foreign affiliates in the host country relative to an increase in the productivity of existing foreign affiliates. Thirdly, the study compares the presence of foreign affiliates across OECD countries. The information is derived by matching three OECD data sources: the STAN database for industrial analysis, the AFA (Activities of Foreign Affiliates) and FATS (Foreign Affiliates in Trade and Services) databases. Despite its limitations, this combined database provides longitudinal industry level information on both the presence and the productivity of foreign affiliates in OECD countries. The analysis confirms that foreign affiliates can make an important contribution to productivity growth. The contribution is larger in the manufacturing sector. In the services sector and in low-tech manufacturing sectors, the largest component of the contribution of foreign affiliates is due to the increased employment share of foreign affiliates. In medium- and high-tech sectors, the contribution is mainly driven by stronger productivity growth of existing foreign affiliates. In the United States the contribution is consistently driven by stronger productivity growth of existing foreign affiliates in both the manufacturing and the services sectors. <P>La constribution des filiales étrangères à la croissance de la productivité La présente étude utilise de nouvelles informations pour déterminer le rôle joué par les filiales étrangères dans la croissance de la productivité. L'analyse s'articule autour de trois axes. Premièrement, l'étude quantifie la contribution des filiales étrangères aux gains de productivité dans les pays de l'OCDE à partir d'une analyse causale de la croissance. Deuxièmement, l'analyse montre dans quelle mesure cette contribution résulte d'une augmentation du poids relatif des filiales étrangères dans l'emploi du pays hôte, ou de gains de productivité réalisés par les filiales étrangères existantes. Troisièmement, l'étude compare la présence des filiales étrangères dans différents pays de l'OCDE. Les informations utilisées sont obtenues par rapprochement de trois sources de données de l'OCDE : la base de données sur l'analyse structurelle (STAN), la base de données sur les activités des filiales étrangères (AFA) et la base de données sur les échanges de services des filiales étrangères (FATS). Malgré ses limites, l'ensemble de données ainsi constitué offre des informations longitudinales par secteur tant sur la présence que sur la productivité des filiales étrangères dans les pays de l'OCDE. L'analyse confirme que les filiales étrangères peuvent contribuer de manière importante à la croissance de la productivité. Cette contribution est plus forte dans le secteur manufacturier. Dans les services et dans les secteurs manufacturiers de basse technologie, la contribution des filiales étrangères est principalement imputable à l'augmentation de leur poids relatif dans l'emploi. Dans les secteurs de moyenne et haute technologie, cette contribution repose essentiellement sur une croissance plus forte de la productivité des filiales étrangères existantes. Aux États-Unis, cette contribution résulte systématiquement d'une croissance plus forte de la productivité des filiales étrangères existantes, tant dans le secteur manufacturier que dans les services.
    Date: 2005–08–30
  12. By: Edward Feser
    Abstract: Much research on agglomeration economies, and particularly recent work that builds on Marshall’s concept of the industrial district, postulates that benefits derived from proximity between businesses are strongest for small enterprises (Humphrey 1995, Sweeney and Feser 1998). With internal economies a function of the shape of the average cost curve and level of production, and external economies in shifts of that curve, a small firm enjoying external economies characteristic of industrial districts (or complexes or simply urbanized areas) may face the same average costs as the larger firm producing a higher volume of output (Oughton and Whittam 1997; Carlsson 1996; Humphrey 1995). Thus we observe the seeming paradox of large firms that enjoy internal economies of scale co-existing with smaller enterprises that should, by all accounts, be operating below minimum efficient scale. With the Birch-inspired debate on the relative job- and innovation-generating capacity of small and large firms abating (Ettlinger 1997), research on the small firm sector has shifted to an examination of the business strategies and sources of competitiveness of small enterprises (e.g., Pratten 1991, Nooteboom 1993). Technological external scale economies are a key feature of this research (Oughton and Whittam 1997).
    Date: 2004–08
  13. By: Patrick Conway
    Abstract: Theoretical research has predicted three different effects of increased import competition on plant-level behavior: reduced domestic production and sales, improving average efficiency of plants, and increased exit of marginal firms. In empirical work, though, such effects are difficult to separate from the impact of exogenous technological progress (or regress). I use detailed plant-level information available in the US Census of Manufacturers and the Annual Survey of Manufacturers for the period 1983-2000 to decompose these effects. I derive the relative contribution of technology and import competition to the increase in productivity and the decline in employment in textiles production in the US in recent years. I then simulate the impact of removal of quota protection on the scale of operation of the average plant and the incentive to plant closure. The methodology employs a number of important innovations in examining the impact of falling import prices on the domestic production of an import-competing good. First, import competition is modeled directly through its impact on the relative prices of monopolistically competitive goods along the lines suggested by Melitz (2000). Second, the effect of technology is incorporated through structural estimation of plant-level production functions in four factors (capital, labor, energy and materials). Solutions to econometric difficulties related to missing capital data and unobserved productivity are incorporated into the estimation technique. The model is estimated for plants with primary product in SIC 2211 (broadwoven cotton cloth). Results validate modeling demand as for differentiated products. Technological coefficients are sensible, with exogenous technological progress playing a large role. In the simulations run, the effects of foreign price competition are orders of magnitude higher than those of technological progress for the period after quotas on imports are removed. The large-scale reduction in employment and output in the US is shown to be a combination of reduced employment and output at plants in continuous operation and of plant closures that exceed new entries.
    Date: 2006–03

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