New Economics Papers
on Efficiency and Productivity
Issue of 2006‒08‒05
nineteen papers chosen by

  1. Robust non-parametric quantile estimation of efficiency and productivity change in U.S. commercial banking, 1985-2004 By David C. Wheelock; Paul Wilson
  2. Mind the gap! International comparisons of productivity in services and goods production By Robert Inklaar; Marcel P. Timmer; Bart van Ark
  3. Innovation and Productivity in European Industries By Mario Pianta; Andrea Vaona
  4. Foreign direct investment, spillovers and absorptive capacity : evidence from quantile regressions By Girma, Sourafel; Görg, Holger
  5. Cost Efficiency of Domestic and Foreign Banks in Thailand: Evidence from Panel Data By Chantapong, Saovanee; Menkhoff, Lukas
  6. Exports versus FDI in German manufacturing: firm performance and participation in international markets By Arnold, Jens Matthias; Hussinger, Katrin
  7. Performance Related Pay and Labor Productivity By Anne C. Gielen; Marcel J.M. Kerkhofs; Jan C. van Ours
  8. Growth and Productivity in Papua New Guinea By Ebrima Faal
  9. Capital, labour and productivity: What role do they play in the potential GPD weakness of France, Germany and Italy? By Bassanetti, Antonio; Döpke, Jörg; Torrini, Roberto; Zizza, Roberta
  10. Inefficient or just different? Effects of heterogeneity on bank efficiency scores By Bos, Jaap W. B.; Heid, Frank; Koetter, Michael; Kolari, James W.; Kool, Clemens J. M.
  11. Evaluating the German bank merger wave By Koetter, Michael
  12. Export-Led Growth in Chile: Assessing the Role of Export Composition in Productivity Growth By Herzer, Dierk; Nowak-Lehmann D., Felicitas; Siliverstovs, Boriss
  13. Multinational enterprises international trade, and productivity growth : Firm-level evidence from the United States By Keller, Wolfgang; Yeaple, Stephen R.
  14. Measurement matters – Input price proxies and bank efficiency in Germany By Koetter, Michael
  15. Trade reforms, farm productivity, and poverty in Bangladesh By Klytchnikova, Irina; Diop, Ndiame
  16. Is Rural Income Diversity Pro-Growth? Is It Pro-Poor? Evidence from Georgia By Bezemer, Dirk; Balcombe, Kelvin; Davis, Junior; Fraser, Iain
  17. Finance and growth in a bank-based economy: is it quantity or quality that matters? By Koetter, Michael; Wedow, Michael
  18. Foreign entry and bank competition By Rajdeep Sengupta
  19. Accounting for distress in bank mergers By Koetter, Michael; Bos, Jaap W. B.; Heid, Frank; Kool, Clemens J. M.; Kolari, James W.; Porath, Daniel

  1. By: David C. Wheelock; Paul Wilson
    Abstract: This paper describes a non-parametric, unconditional quantile estimator that unlike traditional non-parametric frontier estimators is both robust to data outliers and has a root-n convergence rate. We use this estimator to examine changes in the efficiency and productivity of U.S. banks between 1985 and 2004. We find that larger banks experienced larger efficiency and productivity gains than small banks, consistent with the presumption that recent changes in regulation and information technology have favored larger banks.
    Keywords: Production (Economic theory) ; Banks and banking
    Date: 2006
  2. By: Robert Inklaar; Marcel P. Timmer; Bart van Ark
    Abstract: In this paper, we make a comparison of industry output, inputs and productivity growth and levels between seven advanced economies (Australia, Canada, France, Germany, Netherlands, UK and U.S.). Our industry-level growth accounts go up to 2003, and make use of input data on labour quantity (hours) and quality (schooling levels), and distinguish between six different types of capital assets (including three ICT assets). The comparison of levels relies on multilateral, industry-specific purchasing power parities (PPPs) for output and inputs, within a consistent input-output framework for the year 1997. Our results show that differences in productivity growth and levels can mainly be traced to market services, not to goods-producing industries. Some of the strong productivity growth in market services in Anglo-Saxon countries may be related to relatively low productivity levels compared to the U.S. In contrast, services productivity levels in continental European countries were on par with the U.S. in 1997, but growth in Europe was much weaker since then. In terms of factor input use, the U.S. is very different from all other countries, mostly because of its more intensive use of ICT capital.
    Date: 2006–07
  3. By: Mario Pianta; Andrea Vaona
    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
    JEL: O31 O33 O41
    Date: 2006–07
  4. By: Girma, Sourafel; Görg, Holger
    Abstract: This paper focuses on the role of absorptive capacity in determining whether or not domestic firms benefit from productivity spillovers from FDI using establishment level data for the UK. We allow for different effects of FDI on establishments located at different quantiles of the productivity distribution by using conditional quantile regression. Overall, while there is some heterogeneity in results across sectors and quantiles, our findings clearly suggest that absorptive capacity matters for productivity spillover benefits. We find evidence for a u-shaped relationship between productivity growth and FDI interacted with absorptive capacity. We also analyse in some detail the impact of changes in absorptive capacity on establishments’ ability to benefit from spillovers.
    Keywords: foreign direct investment, absorptive capacity, productivity spillovers, quantile regressions
    JEL: F21 F23
    Date: 2005
  5. By: Chantapong, Saovanee; Menkhoff, Lukas
    Abstract: The paper estimates and compares cost efficiency of domestic and foreign banks in Thailand by using bank-panel data between 1995 and 2003. It also examines the effect of foreign bank entry on banking efficiency in Thailand since the significant acquisitions by foreign banks after the 1997 financial crisis. The widely used translog functional form specification is statistically tested by pooled regressions. The estimated results suggest that the unit costs of production of domestic and foreign banks are indistinguishable, although the two types of banks focus on different areas of the banking business. The findings suggest that based on bank operating efficiency, if foreign banks represent the best-practice banks in the industry, to a large extent, domestic banks in Thailand have caught up to the best-practice standards throughout 1995-2003, significantly after the 1997 financial crisis . This may be due to greater foreign participation through acquisitions, which increases the competitive pressure in the banking industry, and also to financial restructuring of domestic banks, which increases the cost efficiency of domestic banks, thereby benefiting banking customers.
    Keywords: Banks, Financial Policy, Capital and Ownership Structure, Cost Efficiency
    JEL: D24 G21 G32
    Date: 2005
  6. By: Arnold, Jens Matthias; Hussinger, Katrin
    Abstract: This paper tests some of the predictions of recent advances in trade theory that have focused on different trade patterns of firms within the same sector. Helpman, Melitz and Yeaple (2005) develop a model in which innate productivity differences between firms determine the degree of international engagement of firms: The least productive firms produce for the domestic market, better performers engage in export activities, and the top firms establish foreign subsidiaries. Using German firm-level data from 1996 to 2002, we test this prediction using non-parametric methods, by examining the distribution functions of the three subsets of firms for stochastic dominance. Rather than just comparing first moments, this technique allows us to compare productivity over the entire distribution. Our results show robust support for the prediction from theory.
    Keywords: Export, FDI, Heterogeneous firms, Total Factor Productivity
    JEL: D21 D24 F10 F14 F21 F23 L60
    Date: 2006
  7. By: Anne C. Gielen (Tilburg University, CentER, OSA and IZA Bonn); Marcel J.M. Kerkhofs (OSA, Tilburg University); Jan C. van Ours (Tilburg University, CentER, CEPR and IZA Bonn)
    Abstract: This paper uses information from a panel of Dutch firms to investigate the labor productivity effects of performance related pay (PRP). We find that PRP increases labor productivity at the firm level with about 9% and employment with about 5%.
    Keywords: performance related pay, labor productivity
    JEL: C41 H55 J64 J65
    Date: 2006–07
  8. By: Ebrima Faal
    Abstract: This paper has examined Papua New Guinea's historical economic growth patterns through a simple growth accounting framework. The analysis shows that swings in growth are mostly accounted for by a significant slowdown in capital input and lower Total Factor Productivity (TFP) growth. It also suggests that raising real GDP growth will require increases in both investment levels and productivity. With a ratio of investment to GDP of 13 percent during the last decade, significantly higher productivity growth and investment will be needed to sustain GDP growth rates at 5 percent or higher. The historical performance also indicates that, in the absence of structural reforms and strong institutions, higher rates of productivity growth will be hard to achieve.
    Keywords: Gross domestic product , Papua New Guinea , Economic growth , Productivity , Investment , Structural adjustment , Business cycles ,
    Date: 2006–05–10
  9. By: Bassanetti, Antonio; Döpke, Jörg; Torrini, Roberto; Zizza, Roberta
    Abstract: The paper analyses the recent supply side developments in France, Germany, and Italy by employing a non-parametric approach to estimate potential GDP. The analysis reveals marked heterogeneity among the three countries with regard to the contribution made by labour input. Where similarities can be found, however, are in the slowdown of accumulation activity and in the pronounced worsening of total factor productivity. The paper is rounded out by estimates of some measures of wage pressures and of profitability in order to assess the role played by the movements of relative input prices in the intensity of use of primary factors in the production process.
    Keywords: Potential output, growth accounting, productivity, NAIRU, factor shares
    JEL: E32 O47 O52
    Date: 2006
  10. By: Bos, Jaap W. B.; Heid, Frank; Koetter, Michael; Kolari, James W.; Kool, Clemens J. M.
    Abstract: In this paper, we show the importance of accounting for heterogeneity among sample firms in stochastic frontier analysis. For a fairly homogenous sample of German savings and cooperative banks, we analyze how alternative theoretical assumptions regarding the nature of heterogeneity can be modeled and the extent to which the respective empirical specifications affect estimated efficiency levels and rankings. We find that the level of efficiency scores is affected in the case of both cost and profitmodels. On the cost side especially, level and rank correlations show that different specifications identify different banks as being best or worst performers. Our main conclusion is that efficiency studies in general and bank efficiency studies in particular should account for heterogeneity across sample firms. Especially when efficiency measures are employed for policy purposes, a careful choice of models and transparency regarding maximization methods are essential to be able to make inferences about managerial behavior.
    Keywords: Heterogeneity, X-efficiency, benchmarking, bank production
    JEL: G14 G21 G34
    Date: 2005
  11. By: Koetter, Michael
    Abstract: German banks experienced a merger wave throughout the 1990s. However, the success of bank mergers remains a continuous matter of debate. In this paper we suggest a taxonomy as how to evaluate post-merger performance on the basis of cost efficiency (CE). We categorise mergers a success that fulfill simultaneously two criteria. First, merged institutes must exhibit CE levels above the average of non-merging banks. Second, banks must exhibit CE changes between merger and evaluation year above efficiency changes of non-merging banks. We employ this taxonomy to characterise (successful) mergers in terms of various key-performance and structural indicators and investigate the implications for three important policy issues. Our main conclusions are twofold. First, approximately every second merger is a success. Second, the margin of success is narrow, as the CE differential between merging and non-merging banks is one percentage point.
    Keywords: Banks mergers, regulation, distress, cost efficiency, Germany
    JEL: G21 G28 G33 G34 L44
    Date: 2005
  12. By: Herzer, Dierk; Nowak-Lehmann D., Felicitas; Siliverstovs, Boriss
    Abstract: This study examines the export-led growth hypothesis using annual time series data from Chile in a production function framework. It addresses the limitations of the existing literature and focuses on the impact of manufactured and primary exports on productivity growth. In order to investigate if and how manufactured and primary exports affect economic growth via increases in productivity, several single-equation and system cointegration techniques are applied. The estimation results can be interpreted as evidence of productivity-enhancing effects of manufactured exports and of productivity-limiting effects of primary exports.
    Keywords: Export-led growth, Chile, cointegration
    JEL: C22 F43 O47
    Date: 2005
  13. By: Keller, Wolfgang; Yeaple, Stephen R.
    Abstract: We estimate international technology spillovers to U.S. manufacturing firms via imports and foreign direct investment (FDI) between the years of 1987 and 1996. In contrast to earlier work, our results suggest that FDI leads to substantial productivity gains for domestic firms. The size of FDI spillovers is economically important, accounting for about 11% of productivity growth in U.S. firms between 1987 and 1996. In addition, there is some evidence for imports-related spillovers, but it is weaker than for FDI. The paper also gives a detailed account of why our study leads to results different from those found in previous work. This analysis indicates that our results are likely to generalize to other countries and periods.
    Date: 2005
  14. By: Koetter, Michael
    Abstract: Most bank efficiency studies that use stochastic frontier analysis (SFA) employ each bank’s own implicit input price when estimating efficient frontiers. But the theoretical foundation of most studies is a cost minimisation and/ or profit maximisation problem assuming perfect input markets. At the very least, traditional input price proxies therefore contain substantial measurement error. In this paper, we examine the magnitude and direction of this error in cost and profit efficiency (CE and PE) measurement. We suggest two input market definitions to approximate exogenous input prices alternatively and estimate CE and PE of German banks between 1993 and 2003. Our main findings are threefold. First, after accounting for systematic differences across banks, mean CE is sensitive to alternative input prices. Second, distortions of mean PE due to traditional input prices are small. Third, across CE models small cooperative banks located in large western states are identified as top performers. Large banks and those located in eastern states rank lowest.
    Keywords: Germany, Banks, cost efficiency, profit efficiency, stochastic frontier analysis, measurement error
    JEL: C51 G20 L11
    Date: 2005
  15. By: Klytchnikova, Irina; Diop, Ndiame
    Abstract: This paper analyzes the distributional impacts of trade reforms in rural areas of Bangladesh. The liberalization of trade in irrigation equipment and fertilizer markets during the early 1990s has led to structural changes in the agricultural sector and a significant increase in rice productivity. A resulting increase in output has been associated with a decline in producer and consumer rice prices of approximately 25 percent. Using a combination of ex-post and ex-ante approaches, the authors investigate the implications of the changes in rice productivity and prices for the welfare of households. They find that the net effects of increased rice productivity and lower rice prices have benefited the poor. Regardless of the particular category analyzed, the poorest households emerged as being particularly positively affected by reforms in the 1990s. This mainly reflects the fact that they are predominantly net rice buyers in both urban and rural markets. In contrast, large net sellers of rice, among the better-off households in the rural areas, were the main losers. Since net buyers in rural areas tend to be poorer than net sellers, trade liberalization has benefited the poor. Although the authors are not able to test empirically what has happened to the welfare level of agricultural wage earners, secondary evidence suggests that they have gained from trade liberalization.
    Keywords: Rural Poverty Reduction,Economic Theory & Research,Markets and Market Access,Crops & Crop Management Systems
    Date: 2006–08–01
  16. By: Bezemer, Dirk; Balcombe, Kelvin; Davis, Junior; Fraser, Iain
    Abstract: This paper contributes to the literature on the role of on rural livelihood strategies in rural growth and poverty reduction. It distinguishes between livelihood diversity strategies that contribute to sustainable growth in household incomes, and those that mainly have a 'coping' function. It suggests that typically, the contribution of livelihood diversity to growing household income is through relaxing dependence on credit for access to capital. In this scenario, livelihood diversity would lead to higher technical efficiency in agriculture via investment and thereby to higher household incomes. Survey data from Georgia are introduced and used to test these hypotheses using a Bayesian stochastic frontier approach. The findings are relevant to defining more clearly the scope and aims of policies to stimulate the rural non-farm economy in developing and transition countries.
    Keywords: livelihoods analysis, survey data, incomes, efficiency, Bayesian stochastic frontier approach
    Date: 2005
  17. By: Koetter, Michael; Wedow, Michael
    Abstract: With this paper we seek to contribute to the literature on the relation between finance and growth. We argue that most studies in the field fail to measure the quality of financial intermediation but rather resort to using proxies on the size of nancial systems. Moreover, cross-country comparisons suffer from the disadvantage that systematic differences between markedly different economies may drive the result that finance matters. To circumvent these two problems we examine the importance of the quality of banks' financial intermediation in the regions of one economy only: Germany. To approximate the quality of financial intermediation we use cost effciency estimates derived with stochastic frontier analysis. We find that the quantity of supplied credit is indeed insignificant when a measure of intermediation quality is included. In turn, the efficiency of intermediation is robust, also after excluding banks likely to operate in multiple regions and distinguishing between dierent banking pillars active in Germany.
    Keywords: Finance-growth nexus, financial intermediation, regional growth
    JEL: G21 G28 O4 R11
    Date: 2005
  18. By: Rajdeep Sengupta
    Abstract: Foreign entry and bank competition are modeled as the interaction between asymmetrically informed principals: the entrant uses collateral as a screening device to contest the incumbent's informational advantage. Both better information ex ante and stronger legal protection ex post are shown to facilitate the entry of low-cost outside competitors into credit markets. The entrant's success in gaining borrowers of higher quality by offering cheaper loans increases with its efficiency (cost) advantage. This paper accounts for evidence suggesting that foreign banks tend to lend more to large firms thereby neglecting small and medium enterprises. The results also explain why this observed "bias" is stronger in emerging markets.
    Keywords: Bank competition ; Credit control
    Date: 2006
  19. By: Koetter, Michael; Bos, Jaap W. B.; Heid, Frank; Kool, Clemens J. M.; Kolari, James W.; Porath, Daniel
    Abstract: The inability of most bank merger studies to control for hidden bailouts may lead to biased results. In this study, we employ a unique data set of approximately 1,000 mergers to analyze the determinants of bank mergers. We use data on the regulatory intervention history to distinguish between distressed and non-distressed mergers. We find that, among merging banks, distressed banks had the worst profiles and acquirers perform somewhat better than targets. However, both distressed and non-distressed mergers have worse CAMEL profiles than our control group. In fact, non-distressed mergers may be motivated by the desire to forestall serious future financial distress and prevent regulatory intervention.
    Keywords: Mergers, bailout, X-efficiency, multinomial logit
    JEL: G14 G21 G34
    Date: 2005

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