New Economics Papers
on Efficiency and Productivity
Issue of 2006‒10‒28
twelve papers chosen by

  1. Multinationals' Productivity Advantage: Scale or Technology By Girma, Sourafel; Görg, Holger
  2. Non-Parametric Analysis of Efficiency Gains from Bank Mergers in India By Adrian R. Gourlay; Geetha Ravishankar; Tom Weyman-Jones
  3. New technologies and economic growth: a regional approach. The case of Andalucia By Jesús Rodríguez López; Diego Martínez López
  4. Does financial intermediation matter for macroeconomic efficiency? By Pierre-Guillaume Méon; Laurent Weill
  5. Labour productivity developments in the euro area By Ramon Gomez-Salvador; Alberto Musso; Marc Stocker; Jarkko Turunen
  6. Drift and Breaks in Labour Productivity By Benati, Luca
  7. Productivity, External Balance and Exchange Rates: Evidence on the Transmission Mechanism among G7 Countries By Corsetti, Giancarlo; Dedola, Luca; Leduc, Sylvain
  8. How Does Investing in Cheap Labour Countries Affect Performance at Home? France and Italy By Castellani, Davide; Disdier, Anne-Célia; Navaretti, Giorgio Barba
  9. Decentralization and the Productive Efficiency of Government: Evidence from Swiss Cantons By Barankay, Iwan; Lockwood, Ben
  10. Public Investment in Transportation Infrastructures and Industry Performance in Portugal By Alfredo M. Pereira; Jorge M. Andraz
  11. Public Infrastructures and Regional Asymmetries in Spain By Alfredo M. Pereira; Oriol Roca Sagales
  12. The Performance of Italian Family Firms By Favero, Carlo A; Giglio, Stefano W; Honorati, Maddalena; Panunzi, Fausto

  1. By: Girma, Sourafel; Görg, Holger
    Abstract: The first aim of this paper is to decompose the productivity advantage of foreign multinationals into two components: the technology and scale effect. The second aim is to analyse the causal relationship between foreign ownership and these two components of productivity growth. We do so by analyzing the effects of an acquisition of a domestic establishment by a foreign multinational enterprise, using a combined propensity score matching and difference-in-differences estimation. Our empirical analysis is based on plant level data for the UK. From our econometric investigation four broad patterns emerge: (i) any positive impact of ownership change is predominantly due to change in technical efficiency, not scale effects (ii) the pre-acquisition TFP level of the erstwhile domestic plants play a role - positive or negative - in mediating the rate of technology transfer from the MNE parent companies, (iii) the productivity growth effects are not confined to the year of acquisition, and tend to persist through time.
    Keywords: acquisitions; multinational enterprises; productivity; scale; technical efficiency
    JEL: F23 L22
    Date: 2006–09
  2. By: Adrian R. Gourlay (Dept of Economics, Loughborough University); Geetha Ravishankar (Dept of Economics, Loughborough University); Tom Weyman-Jones (Dept of Economics, Loughborough University)
    Abstract: This paper offers an insight into the effectiveness of economic policy reforms in the Indian Banking System by examining the efficiency benefits of mergers among Scheduled Commercial Banks in India over the post-reform period 1991-92 to 2004-05. It does this by using the methodology developed by Bogetoft and Wang (2005). We also provide a metric for judging the success or failure of a merger. Overall, we find that bank mergers in the post-reform period possessed Considerable potential efficiency gains stemming from harmony gains. Post-merger efficiency analysis of the merged bank with a control group of non-merging banks reveals an initial merger related efficiency advantage for the former that, while persistent, did not show a sustained increase this failing to provide merging banks with a competitive advantage vis-a-viz their non-merging counterparts.
    Keywords: Data Envelopment Analysis, Mergers, Banking, Intermediation Approach, Production Approach.
    JEL: C14 G21 G34
    Date: 2006–10
  3. By: Jesús Rodríguez López (Department of Economics, Universidad Pablo de Olavide); Diego Martínez López (Centro de Estudios Andaluces y Department of Economics, Universidad Pablo de Olavide)
    Abstract: This paper studies the contribution of Information and Communication Technologies (ICT) to economic growth and labor productivity growth in Andalucía (Spain) over 1995-2004. We find that the contribution of ICT assets to total market GVA growth is quantitatively modest. However the contribution to GVA growth and employment growth within the intensive ICT sectors has experienced a considerable increase during the period. Although our analysis detects that intensive ICT sectors exhibit a high productivity level with respect to that of the non intensive ones, our main conclusion is that the advantages that might emerge from the use of ICT are nor yet observable in the economic dynamics of Andalucía, at least in a similar manner to that of the most developed.
    Keywords: Information and Communication Technologies, productivity, regional growth.
    JEL: O30 O40 O47
    Date: 2006–10
  4. By: Pierre-Guillaume Méon (DULBEA-CERT, Université libre de Bruxelles, Brussels); Laurent Weill (Université Robert Schuman, France)
    Abstract: This paper investigates whether financial intermediary development influences macroeconomic technical efficiency on a sample of 47 countries, both developed and developing, over 1980-1995. We do so by applying Battese and Coelli (1995)’s method at the aggregate level. It is found that financial intermediary development, except financial depth, is on average associated with more efficiency. However we find strong evidence that this relationship is conditional on the level of economic development. The lower economic development the weaker is the impact of financial development on efficiency. That impact can even become negative in the poorest countries.
    Keywords: financial development, income, aggregate productivity, efficiency
    JEL: C33 O11 O16 O47
    Date: 2006–10
  5. By: Ramon Gomez-Salvador (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Alberto Musso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marc Stocker (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Jarkko Turunen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper provides a description and a discussion of some important aspects relating to recent productivity developments in the euro area. Following decades of stronger gains in the euro area than in the US, labour productivity growth has fallen behind that in the US in recent years. This reflects a decline in average labour productivity growth observed in the euro area since the mid-1990s, which stands in sharp contrast with opposite developments in the US. The decline in labour productivity growth experienced in the euro area since the mid-1990s resulted from both lower capital deepening and lower total factor productivity growth. From a sectoral perspective, industries not producing or using intensively information and communication technology (ICT) would appear mostly responsible for the decline in average labour productivity growth since the mid-1990s. These developments were broadly experienced by most euro area countries. A comparison with developments in the US suggests that the euro area economy seems to have benefited much less from increased production and use of ICT technologies, in particular in the services sector. Diverging trends in labour productivity growth between the euro area and the US in recent years mainly reflect developments in a number of specific ICT-using services such as retail, wholesale and some financial services where strong gains were registered in the US. The evidence presented in this paper suggests that, in order to support economic growth in the euro area, emphasis should be given to both policy measures that directly address the determinants of productivity and, given the interactions among the various factors of growth, to policies that raise labour utilisation.
    Date: 2006–10
  6. By: Benati, Luca
    Abstract: We use tests for multiple breaks at unknown points in the sample, and the Stock-Watson (1996, 1998) time-varying parameters median-unbiased estimation methodology, to investigate changes in the equilibrium rate of growth of labor productivity–both per hour and per worker–in the United States, the Eurozone Australia, and Japan over the post-WWII era. Results for the U.S. well capture the 'conventional wisdom’ of a golden era of high productivity growth, the 1950s and 1960s; a marked deceleration starting from the beginning of the 1970s; and a strong growth resurgence starting from mid-1990s. Interestingly, evidence suggests the 1990s’ productivity acceleration to have reached a plateau over the last few years. Results for the Eurozone point towards a marked deceleration since the beginning of the 1980s, with the equilibrium rate of growth of output per hour falling to 0.9% in 2004:4. Results based on Cochrane’s variance ratio estimator suggest a non-negligible fraction of the quarter-on-quarter change in labor productivity growth to be permanent. From a technical point of view, we propose a new method for constructing confidence intervals for variance ratio estimates based on spectral bootstrapping. Preliminary Monte Carlo evidence suggests such a method to possess good coverage properties.
    Keywords: bootstrapping; frequency domain; median-unbiased estimation; Monte Carlo integration; structural break tests; time-varying parameters; variance ratio
    JEL: E30 E32
    Date: 2006–08
  7. By: Corsetti, Giancarlo; Dedola, Luca; Leduc, Sylvain
    Abstract: This paper investigates the international transmission of productivity shocks in a sample of five G7 countries. For each country, using long-run restrictions, we identify shocks that increase permanently domestic labour productivity in manufacturing (our measure of tradables) relative to an aggregate of other industrial countries including the rest of the G7. We find that, consistent with standard theory, these shocks raise relative consumption, deteriorate net exports, and raise the relative price of nontradables -- in full accord with the Harrod-Balassa-Samuelson hypothesis. Moreover, the deterioration of the external account is fairly persistent, especially for the US. The response of the real exchange rate and (our proxy for) the terms of trade differs across countries: while both relative prices depreciate in Italy and the UK (smaller and more open economies), they appreciate in the US and Japan (the largest and least open economies in our sample); results are however inconclusive for Germany. These findings question a common view in the literature, that a country's terms of trade fall when its output grows, thus providing a mechanism to contain differences in national wealth when productivity levels do not converge. They enhance our understanding of important episodes such as the strong real appreciation of the dollar as the US productivity growth accelerated in the second half of the 1990s. They also provide an empirical contribution to the current debate on the adjustment of the US current account position. Contrary to widespread presumptions, productivity growth in the US tradable sector does not necessarily improve the US trade deficit, nor deteriorate the US terms of trade, at least in the short and medium run.
    Keywords: international transmission mechanism; long-run restrictions; net exports; real exchange rates; terms of trade; US current account; VAR
    JEL: F32 F41 F42
    Date: 2006–09
  8. By: Castellani, Davide; Disdier, Anne-Célia; Navaretti, Giorgio Barba
    Abstract: Transferring low tech manufacturing jobs to cheap labour countries is often seen by part of the general public and policy makers as a step into the de-industrialisation of the European economies. However, several recent contributions have shown that the effects on home economies are rarely negative and often positive. Our paper contributes to this literature by examining how outward investments to cheap labour countries affect home activities of a sample of French and Italian firms that turn multinational in the period analysed. The effects of these investments are also compared to the effects of outward investments to developed economies. The analysis is carried out by using propensity score matching in order to build an appropriate counterfactual of national firms. This provides the hypothetical benchmark of what would have happened to domestic activities if firms had not invested abroad. We find no evidence of a negative effect of outward investments to cheap labour countries. In Italy they enhance the efficiency of home activities, with also positive long term effect on output and employment. For France we find a positive effect on the size of domestic activity. Investments to developed economies from both countries have essentially scale effects which eventually trickle down on employment and productivity at home.
    Keywords: multinational firms; productivity; propensity score matching
    JEL: C14 D21 F23
    Date: 2006–07
  9. By: Barankay, Iwan; Lockwood, Ben
    Abstract: Advocates of fiscal decentralization argue that amongst other benefits, it can increase the efficiency of delivery of government services. This paper is one of the first to evaluate this claim empirically by looking at the association between education expenditure decentralization and the productive efficiency of schools using a data-set of Swiss cantons. We first provide careful evidence that expenditure decentralization is a powerful proxy for legal local autonomy. Further panel regressions of Swiss cantons provide robust evidence that more decentralization is associated with higher educational attainment. We also show that these gains lead to no adverse effects across education types but that male students benefited more from educational decentralization closing, for the Swiss case, the gender education gap.
    Keywords: decentralization; local public goods; productive efficiency
    JEL: H40 H52 H70 I20
    Date: 2006–04
  10. By: Alfredo M. Pereira (Department of Economics, College of William and Mary); Jorge M. Andraz (Faculdade de Economia, Universidade do Algarve)
    Abstract: The objective of this paper is to evaluate the effects at the industry level of public investment in transportation infrastructures in Portugal. The empirical results are based on VAR/ECM models for the Portuguese economy and for eighteen industries covering the whole spectrum of economic activity in the country. These models consider private-sector output, employment and investment as well as public investment. Empirical results at the aggregate level indicate that public investment has a positive effect on both private inputs as well as on private output and that it affects labor productivity positively. These aggregate results, however, hide a wide variety of industry-level effects. In absolute terms, the industries that benefit the most from public investment are Construction, Trade, Transportation, Finance, Real Estate, and Services. In turn, relative to their size, the industries that benefit the most are Mining, Non-Metal Products, Metal Products, Construction, Restaurants, Transportation, and Finance, and, therefore, public investment tends to shift the industry mix toward these industries. Accordingly, our empirical results suggest that although public investment has been a powerful instrument to enhance the long-term economic performance in Portugal it does so in a way that is rather unbalanced across industries.
    Keywords: infrastructure, industry performance, Portugal
    JEL: C32 E62 H54
    Date: 2006–10–08
  11. By: Alfredo M. Pereira (Department of Economics, College of William and Mary); Oriol Roca Sagales (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: The objective of this paper is to investigate the effects of public infrastructures on regional economic performance in Spain. The empirical results are based on VAR models relating output, employment, private capital, and public infrastructures. We estimate models at the aggregate level and for each of the seventeen autonomous regions that make up Spain. In the regional models, both public infrastructures in the region and public infrastructures elsewhere are considered, thereby taking into consideration the possible existence of regional spillovers of the effects of public infrastructures. Indeed, our empirical results show that regional spillovers are very important in the case of output and private capital but not in terms of employment, reflecting a low degree of mobility in the Spanish labor markets. More importantly, empirical results suggest that although public infrastructures have been a powerful instrument to promote long-term growth, they have done so in a way that is rather unbalanced across regions. This means that aggregate convergence in Spain to EU standards of living has been achieve at the cost of increased domestic asymmetries.
    Keywords: public infrastructures, regional spillovers, regional asymmetries, Spain
    JEL: C32 H54 R53
    Date: 2006–10–08
  12. By: Favero, Carlo A; Giglio, Stefano W; Honorati, Maddalena; Panunzi, Fausto
    Abstract: In this paper, we study the performance of Italian listed family firms in the period 1998-2003. We measure their performance by using both accounting and market data. We first study the relative performance of family firms compared to widely held firms. Then we investigate whether performance is affected by the type of family firm (i.e., whether the CEO is a member of the family or is an outsider). We find that the data and the methodology used to measure performance strongly affect the results. When performance is measured by accounting data (ROA), using a static model, we find evidence in favour of a superior performance of family firms. Such evidence is not confirmed by the application of the same model to market measures of performance. However, we report statistical evidence that the correct econometric specification for market data is a dynamic model. The results of estimation of the dynamic model for the market measures of performance are more consistent with those based on the static model for the accounting measures of performance.
    Keywords: corporate performance; family firms; management style
    JEL: G32
    Date: 2006–08

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