New Economics Papers
on Efficiency and Productivity
Issue of 2006‒07‒09
sixteen papers chosen by

  1. Total Factor Productivity Estimates: Some Evidence from European Regions By Maria Gabriela Ladu
  2. Technical Change, Efficiency, Firm Size and Age in an R&D Intensive Sector By Elina Berghäll
  3. Innovation and productivity in European industries By Mario Pianta; Andrea Vaona
  4. Are Government Expenditures Productive? Measuring the Effect on Private Sector Production By Jaakko Kiander; Reino Hjerppe; Matti Virén
  5. R&D and Productivity Growth in Finnish ICT Manufacturing By Elina Berghäll
  6. Allocative Efficiency Measurement Revisited : Do We Really Need Input Prices? By Oleg Badunenko; Michael Fritsch; Andreas Stephan
  7. Technical Efficiency in an R&D Intensive Industry: Finnish ICT Manufacturing By Elina Berghäll
  8. Gifted Kids or Pushy Parents? Foreign Acquisitions and Plant Performance in Indonesia By Jens Matthias Arnold; Beata Smarzynska Javorcik
  9. Productivity and its Drivers in Finnish Primary Care 1988-2003 By Maija-Liisa Järviö; Juho Aaltonen; Tarmo Räty; Kalevi Luoma
  10. A productivity model of city crowdedness By Jordan Rappaport
  11. Innovativity: A Comparison Across Seven European Countries By Pierre Mohnen; Jacques Mairesse; Marcel Dagenais
  12. Productivity and U.S. macroeconomic performance: interpreting the past and predicting the future with a two-sector real business cycle model By Peter N. Ireland; Scott Schuh
  13. Trade, Foreign Networks and Performance: a Firm-Level Analysis for India By Alessandra Tucci
  14. The Legacy of History for Development: The Case of Putnam's Social Capital By Guido de Blasio; Giorgio Nuzzo
  15. Market Size, Trade, and Productivity By Marc J. Melitz; Gianmarco I.P. Ottaviano
  16. Productivity Impacts of Offshoring and Outsourcing: A Review By Karsten Bjerring Olsen

  1. By: Maria Gabriela Ladu
    Abstract: This paper provides total factor productivity estimates for a sam- ple of 115 European Regions over the period 1976-2000. In particular, a set of Cobb-Douglas production functions is estimated using panel techniques and allowing for heterogeneity across regions. Moreover, on the basis of speci…c panel tests, the paper shows that there is em- pirical evidence which suggests the presence of unit roots in the series and panel cointegration tests are applied to guard against spurious regression.
    Keywords: Total Factor Productivity, Panel Unit Root Test, Panel Cointegration
    JEL: C23 D24 O47 O52
    Date: 2006
  2. By: Elina Berghäll
    Abstract: The relationship between firm size and age relative to technical change and efficiency is examined in a highly innovative and dynamic sector, the Finnish ICT equipment manufacturing industry. A stochastic frontier model is applied to an unbalanced firm level panel over the period 1990?2003. The sample is representative of almost half of corporate R&D in Finland. The Method of Moments and Battese-Coelli efficiency measures are obtained to compare permanent and time-varying efficiency levels. Results show firm age to be relatively insignificant. New firms do not dominate technical change. In contrast, firm size makes a substantial contribution to productivity growth, technical change and efficiency. High elasticity of factor inputs result in, on average, highly increasing returns to scale. These factors point towards growing concentration and capital-intensity, which can be expected to further widen the productivity gap between small and large firms. To survive, smaller firms may need to combine frontier technology adoption with expanding scale, e.g., by mergers, to improve both technical and scale efficiency.
    Keywords: ICT industry, total factor productivity, technical change, technical efficiency, R&D elasticity, firm size, firm age
    JEL: O39 L63 O30
    Date: 2006–05–04
  3. By: Mario Pianta (Corresponding author, Università di Urbino); Andrea Vaona (Dipartimento di Scienze economiche (Università di Verona))
    Abstract: The labour productivity impact of innovation is investigated in this paper combining neo-Schumpeterian insights on the variety of innovation, with the importance of industrial structures and firm size; two models are proposed for explaining productivity and export success in European manufacturing industries and firm size classes. The empirical estimates are based on data from the European innovation survey (CIS 2), covering Austria, France, Italy, the Netherlands and the UK, broken down by 22 sectors and for large, medium and small firms. The econometric results, obtained adopting cross-sectional estimation methodologies able to account for unobserved industrial characteristics, show that productivity in Europe relies on product and process innovation, with the support of the efficiency gains provided by a grouped business structures. Conversely, in Italy the introduction of new machinery linked to innovation appears as the key mechanism supporting domestic productivity. When export success is considered, all countries have to rely on an innovation-based model of competitiveness.
    Keywords: Innovation, productivity, export performance, industries
    Date: 2006–06
  4. By: Jaakko Kiander; Reino Hjerppe; Matti Virén
    Abstract: This paper analyses the productivity of public expenditures. It follows the branch of literature originated by Aschauer but has also some novel features. First of all, it focuses on the effect of both public investment and public consumption (investment part of public consumption) on private sector productivity. Secondly, empirical evidence is derived from relative large cross-country data that cover more than three decades. For the testing purpose, it uses a production function approach in which (alternative definitions of) public sector capital stocks are allowed to affect total factor productivity. The production relationships are estimated from a panel data that are derived from the data banks of OECD and the World Bank. Empirical findings suggest that, to some extent, the significant deceleration of economic growth in many OECD countries during the last two decades can, in the same way as in the original Aschauer analysis with the US data, be explained by a secular decrease in public sector investment.
    Keywords: Public sector, productivity, growth accounting, capital stock
    Date: 2006–03–03
  5. By: Elina Berghäll
    Abstract: A stochastic frontier model is applied to firm level panel data from the Finnish ICT manufacturing sector to explore the role of R&D and technological progress in the outstanding productivity growth Finland demonstrated in the latter half of the 1990?s. The sample is representative of over 90 % of the R&D carried out in the sector, which in turn represents about half of corporate R&D in Finland. Constant returns to scale production functions are clearly inappropriate and labour productivity provides a biased view of TFP. Results show increasing returns to scale and output growth to have been, until recent years, more important than technical change in TFP growth. Like all inputs, physical and R&D capital appear to be substitutes to some extent, reducing concern over low overall investment. The technology policy mix appears to have been R&D investment and R&D employment enhancing, at the expense of non-R&D labour and physical capital. Meanwhile, technical change has been R&D saving and labour using, with large and surprisingly persistent firm-specific differences in R&D productivity.
    Keywords: Finnish ICT industry, total factor productivity, technical change, R&D elasticity, technology policy
    JEL: O39 L63 O30
    Date: 2006–05–04
  6. By: Oleg Badunenko; Michael Fritsch; Andreas Stephan
    Abstract: The traditional approach to measuring allocative efficiency is based on input prices, which are rarely known at the firm level. This paper proposes a new approach to measure allocative efficiency which is based on the output-oriented distance to the frontier in a profit - technical efficiency space - and which does not require information on input prices. To validate the new approach, we perform a Monte-Carlo experiment which provides evidence that the estimates of the new and the traditional approach are highly correlated. Finally, as an illustration, we apply the new approach to a sample of about 900 enterprises from the chemical industry in Germany.
    Keywords: Allocative efficiency, data envelopment analysis, frontier analysis, technical efficiency, Monte-Carlo study, chemical industry
    JEL: D61 L23 L25 L65
    Date: 2006
  7. By: Elina Berghäll
    Abstract: Technical efficiency levels in Finnish ICT manufacturing are established by applying a stochastic frontier model and retrieving Method of Moments and Battese-Coelli efficiency measures to identify both permanent and time-varying efficiency levels, as well as determinants of inefficiency such as R&D investments. The sample is representative of almost half of corporate R&D in Finland in 1990-2003. Results show wide and surprisingly persistent disparities in technical efficiency, with the average firm enjoying only about half of the frontier firm?s technical efficiency level. The rhetoric of Finland featuring on the global technology frontier is based on few firms. Most Finnish firms are constrained to catch-up with the frontier rather than advance it by means of innovation, implying inappropriateness of an innovation focus in policy. The persistence of efficiencies suggests that high risks involved in innovative activity account for only a share of productivity differences. There appear to be considerable permanent gaps between firms related e.g. to managerial and organisational efficiency.
    Keywords: Finnish ICT industry, technical efficiency, technology frontier, technology policy and R&D
    JEL: O39 L63 O30
    Date: 2006–05–04
  8. By: Jens Matthias Arnold (World Bank and Bocconi University); Beata Smarzynska Javorcik (World Bank and CEPR)
    Abstract: This paper uses micro data from the Indonesian Census of Manufacturing to analyze the causal relationship between foreign ownership and plant productivity. To control for the possible endogeneity of the FDI decision, a difference-in-differences approach is combined with propensity score matching. An advantage of this method, which has not been previously applied in this context, is the ability to follow the timing of observed changes in productivity and other aspects of plant performance. The results suggest that foreign ownership leads to significant productivity improvements in the acquired plants. The improvements become visible in the acquisition year and continue in subsequent periods. After three years, the acquired plants outperform the control group in terms of productivity by 34 percentage points. The data also suggest that the rise in productivity is a result of restructuring, as acquired plants increase investment outlays, employment and wages. Foreign ownership also appears to enhance the integration of plants into the global economy through increased exports and imports.
    Keywords: foreign direct investment, productivity
    JEL: F23 O33 D24
    Date: 2005
  9. By: Maija-Liisa Järviö; Juho Aaltonen; Tarmo Räty; Kalevi Luoma
    Abstract: We measure productivity changes of primary care in Finland between 1988 and 2003 as a ratio of key services produced and real operating costs. In the second stage we estimate a truncated regression model that quantifies the contribution of certain internal and exogenous factors to productivity. We use newly developed techniques to correct asymptotic bias in non-parametric efficiency scores and bootstrap the confidence intervals for the explanatory model parameter estimates. The bias accounts on average 2.8 percent decrease in efficiency level. From 1997 to 2003 the average productivity declined 13.7 percent; the result is insensitive to estimated bias. Even if standard parametric confidence intervals do not generally apply when efficiency scores are regressed, our bootstrapped intervals are almost equal to parametric ones. Of the correlates used the increased income subject to municipal taxation accounted for three percentage points of the productivity decrease. The correlates, that are expected to decrease the need of primary care services, had a negative impact on productivity, implying that health centres have not been able to adjust their resource usage correspondingly. Organisational changes that have taken place within primary care have not resulted in desired productivity improvements.
    Keywords: primary care, health centres, productivity, bootstrap
    JEL: I11 D61 C15
    Date: 2005–12–29
  10. By: Jordan Rappaport
    Abstract: Population density varies widely across U.S. cities. A simple, static general equilibrium model suggests that moderate-sized differences in cities’ total factor productivity can account for such variation. Nevertheless, the productivity required to sustain above-average population densities considerably exceeds estimates of the increase in productivity caused by such high density. In contrast, increasing returns to scale may be able to sustain multiple equilibria at below-average population densities.
    Keywords: Cities and towns ; Productivity ; Population
    Date: 2006
  11. By: Pierre Mohnen; Jacques Mairesse; Marcel Dagenais
    Abstract: This paper proposes a framework to account for innovation similar to the usual accounting framework in production analysis and a measure of “innovativity” comparable to that of total factor productivity. This innovation accounting framework is illustrated using micro-aggregated firm data from the first Community Innovation Surveys (CIS1) for seven European countries: Belgium, Denmark, Ireland, Germany, the Netherlands, Norway and Italy for the year 1992. Based on the estimation of a generalized Tobit model and measuring innovation as the share of total sales due to improved or new products, it compares the propensity to innovate, and the innovation intensity conditional and unconditional on being innovative, across the seven countries and low- and high-tech manufacturing sectors. Even with relatively few explanatory variables our innovation framework already accounts for sizeable differences in country innovation intensity. It also shows that differences in innovativity across countries can be nonetheless very large. <P>Nous proposons, dans cette étude, un cadre d’analyse, ou « comptabilité de l’innovation », semblable à celui très généralement utilisé pour la « comptabilité de la croissance », ainsi qu’une mesure de la « productivité des facteurs d’innovation » ou « innovativité » comparable à celle de la productivité totale des facteurs. Nous appliquons ce cadre d’analyse à la comparaison de l’innovation pour sept pays européens – l’Allemagne, la Belgique, le Danemark, l’Irlande, l’Italie, la Norvège et les Pays-Bas –, à partir des données d’entreprises « micro agrégées » de la première enquête communautaire sur l’innovation (CIS1) portant sur l’année 1992. Sur la base d’un modèle Tobit généralisé et en mesurant l’innovation par la part du chiffre d’affaires des entreprises en produits innovants (nouveaux ou améliorés sur les trois années 1990-1992), nous estimons la propension à innover et l’intensité de l’innovation (conditionnellement ou non au fait d’innover) pour les industries manufacturières de haute et basse technologie des sept pays. Bien que disposant de variables explicatives peu nombreuses, nous rendons compte ainsi de différences déjà très significatives d’intensité d’innovation entre pays. Les différences d’innovativité entre pays restent néanmoins très fortes.
    Keywords: Europe, innovation, innovativity, R-D, selectivity, Europe, innovation, innovativité, R-D, sélectivité
    JEL: C35 L60
    Date: 2006–06–01
  12. By: Peter N. Ireland; Scott Schuh
    Abstract: A two-sector real business cycle model, estimated with postwar U.S. data, identifies shocks to the levels and growth rates of total factor productivity in distinct consumption- and investment-goods- producing technologies. This model attributes most of the productivity slowdown of the 1970s to the consumption-goods sector; it suggests that a slowdown in the investment-goods sector occurred later and was much less persistent. Against this broader backdrop, the model interprets the more recent episode of robust investment and investment-specific technological change during the 1990s largely as a catch-up in levels that is unlikely to persist or be repeated anytime soon.
    Keywords: Business cycles ; Productivity
    Date: 2006
  13. By: Alessandra Tucci (University of Milan and Centro Studi Luca d'Agliano)
    Abstract: Using Indian firm-level data, this paper examines the combined role of import and export intensity in a context of foreign networks. The more Indian firms are involved in trade networks the more they have a productivity advantage. Finally, information on the origin of import and on the destination of output are used to shed some light on the kind of networks in which firms are involved. We show that the upstream or downstream contact with more developed countries is not correlated with an higher productivity while there it seems to be an advantage for those firms that import and export to the same area.
    Date: 2005
  14. By: Guido de Blasio (Bank of Italy, Research Dept.); Giorgio Nuzzo (Bank of Italy, Branch of L'Aquila)
    Abstract: Putnam (1993) argues that (i) center-northern Italy has developed faster than southern Italy because the former was better endowed with social capital; and (ii) that the endowments of social capital across Italian territories have been highly persistent over centuries. This paper provides an empirical investigation of Putnam’s case. To evaluate the relevance of social capital, we present a test based on worker productivity, entrepreneurship, and female labor market participation. Using as instruments regional differences in civic involvement in the late ninetieth century and local systems of government in the middle age, we show that social capital does have economic effects.
    Keywords: Social Capital, Economic Development
    JEL: Z10 O10 D10
    Date: 2006–05
  15. By: Marc J. Melitz (Harvard University, NBER and CEPR); Gianmarco I.P. Ottaviano (University of Bologna, FEEM and CEPR)
    Abstract: We develop a monopolistically competitive model of trade with firm heterogeneity - in terms of productivity differences - and endogenous differences in the ‘toughness’ of competition across markets - in terms of the number and average productivity of competing firms. We analyze how these features vary across markets of different size that are not perfectly integrated through trade; we then study the effects of different trade liberalization policies. In our model, market size and trade affect the toughness of competition, which then feeds back into the selection of heterogeneous producers and exporters in that market. Aggregate productivity and average markups thus respond to both the size of a market and the extent of its integration through trade (larger, more integrated markets exhibit higher productivity and lower markups). Our model remains highly tractable, even when extended to a general framework with multiple asymmetric countries integrated to different extents through asymmetric trade costs. We believe this provides a useful modeling framework that is particularly well suited to the analysis of trade and regional integration policy scenarios in an environment with heterogeneous firms and endogenous markups.
    Keywords: market structure, market size, productivity heterogeneity, endogenous markups, trade liberalization
    JEL: F12 R13
    Date: 2005
  16. By: Karsten Bjerring Olsen
    Abstract: Despite the attention that offshore outsourcing currently demands in the public media, there is little empirical evidence on its economic impact. As a consequence of rising fears of job losses associated with the phenomenon, most existing research on the subject is primarily concerned with addressing related labour market issues. The impacts on productivity, however, have received only little attention. This paper surveys the empirical literature on offshore outsourcing and its productivity effects. Due to the small number of existing studies, the survey also includes research that may serve as indirect evidence of the phenomenon’s link to productivity, such as its effect on skill upgrading. The most apparent conclusion drawn from the review is that there appears to be no clear patterns as to how offshore outsourcing affects productivity, and that much depends on both sector and firm-specific characteristics. There are some indications, however, that positive productivity effects from foreign material sourcing depends on the degree to which firms are already globally engaged, but also that such engagements generally could be close to their optimum level in developed economies. There is little existing research on offshoring of services, but it appears that its productivity enhancing effects generally are small in manufacturing plants while being of a somewhat greater magnitude for firms in the services sector. <P>Límpact des délocalisations sur la productivité : Vue d'ensemble <BR>Malgré l’intérêt que les délocalisations à l’étranger suscitent dans les médias, on dispose de peu d’éléments empiriques sur leur impact économique. Le phénomène de délocalisation faisant craindre de plus en plus des pertes d’emplois, la plupart des études qui y sont consacrées s’attachent essentiellement aux aspects qui ont trait au marché du travail, l’impact sur la productivité ne retenant guère l’attention. On commentera dans ce document les recherches empiriques sur les délocalisations à l’étranger et leur impact en termes de productivité. Vu le petit nombre d’études disponibles, on prendra également en compte les travaux qui éclairent indirectement le lien avec la productivité, notamment du point de vue de l’amélioration des qualifications. La conclusion la plus nette qui ressort de ce panorama est la suivante : il ne se dégage aucun profil clair quant à la façon dont la délocalisation à l’étranger influe sur la productivité, les caractéristiques du secteur et de l’entreprise jouant à cet égard un grand rôle. Certains éléments montrent néanmoins que l’impact positif que peut avoir la délocalisation matérielle à l’étranger est fonction du degré d’implication mondiale de l’entreprise, cette implication pouvant en général être proche de l’optimum dans les économies développées. Les recherches sont peu nombreuses sur la délocalisation des services ; il apparaît néanmoins que les gains de productivité dont la délocalisation s’accompagne dans le secteur manufacturier sont généralement faibles, alors qu’ils sont un peu plus nets dans le secteur des services.
    Date: 2006–03–06

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