nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2007‒01‒14
twenty papers chosen by
Angelo Zago
University of Verona

  1. Physical public infrastructure and private sector output/productivity in Uganda: a firm level analysis By MUSISI, A.A.
  2. The cost efficiency of German banks : a comparison of SFA and DEA By Fiorentino, Elisabetta; Karmann, Alexander; Koetter, Michael
  3. Should we Abandon the Intermediation Approach for Analyzing Banking Performance? By Mario Fortin; Andre Leclerc
  4. Efficiency and Productivity in Finnish Comprehensive Schooling 1998-2004 By Juho Aaltonen; Tanja Kirjavainen; Antti Moisio
  5. Efficiency and Technology Gap in China's Agriculture: A Regional META-Frontier Analysis By Zhuo Chen; Shunfeng Song
  6. Return to Dollar, Generalized Distance Function and the Fisher Productivity Index By Zofío, José Luis; Prieto, Angel
  7. Is there a single frontier in a single European banking market? By Jaap W. B. Bos; Heiko Schmiedel
  8. Corruption and Productivity Growth in OECD Countries By Maria Del Mar Salinas-Jimenez; Javier Salinas-Jimenez
  9. R&D and productivity: Estimating production functions when productivity is endogenous By Doraszelski, Ulrich; Jaumandreu, Jordi
  10. Total Factor Productivity Growth and the Environment: A Case for Green Growth Accounting By Vangelis Tzouvelekas; Dimitra Vouvaki; Anastasios Xepapadeas
  11. Spatial Efficiency Analysis of Arable Crops in Greece By Anastassios Karaganis; Antonios Tassoulis
  12. Innovation and Productivity a Story of Convergence and Divergence Process in EU Countries By Aikaterini Kokkinou
  13. Industry Learning Environments and the Heterogeneity of Firm Performance By Natarajan Balasubramanian; Marvin Lieberman
  14. Economies of Scale and Spatial Scope in the European Airline Industry By Manuel Romero-Hernandez; Hugo Salgado
  15. Efficiency Implications of Corporate Diversification: Evidence from Micro Data By Ekaterina Emm; Jayant Kale
  16. Handling losses in translog profit models By Bos, J.W.B.; Koetter, M.
  17. Labour Productivity Dynamics in Europe: Alternative Explanations for a Well Known Problem By Antonio Godinho Rodrigues
  18. Mind the Gap: Convergence of Technology and Technology of Convergence in Italian Regions, 1982-2001 By Francesco Quatraro
  19. Patterns of R&D and Growth Performance: Can a Technological Follower Be Converted Into an Economic Leader? By Argentino Pessoa; Mario Silva
  20. Cost Efficiency in Japanese Local Governments: the Economic Effect of Information Technology in Japanese Local Governments By Tomoyasu Tanaka

  1. By: MUSISI, A.A.
    Keywords: physical infrastructure; public works; private sector; productivity; enterprises; Uganda;
    Date: 2006
  2. By: Fiorentino, Elisabetta; Karmann, Alexander; Koetter, Michael
    Abstract: We investigate the consistency of efficiency scores derived with two competing frontier methods in the financial economics literature: Stochastic Frontier and Data Envelopment Analysis. We sample 34,192 observations for all German universal banks and analyze whether efficiency measures yield consistent results according to five criteria between 1993 and 2004: levels, rankings, identification of extreme performers, stability over time and correlation to standard accounting-based measures of performance. We find that non-parametric methods are particularly sensitive to measurement error and outliers. Furthermore, our results show that accounting for systematic differences among commercial, cooperative and savings banks is important to avoid misinterpretation about the status of efficiency of the total banking sector. Finally, despite ongoing fundamental changes in Europe’s largest banking system, efficiency rank stability is very high in the short run. However, we also find that annually estimated efficiency scores are markedly less stable over a period of twelve years, in particular for parametric methods. Thus, the implicit assumption of serial independence of bank production in most methods has an important influence on obtained efficiency rankings.
    Keywords: Cost Efficiency, Banks, Stochastic Frontier Approach, Data Envelopment Analysis
    JEL: D24 G21 L25
    Date: 2006
  3. By: Mario Fortin (GREDI, Département d'économique, Université de Sherbrooke); Andre Leclerc (Secteur sciences humaines, Université de Moncton, campus d’Edmundston)
    Abstract: The intermediation approach considers banks’ liabilities as inputs to produce loans and other banking assets. We show that measures of banking efficiency and productivity are biased when there is an incomplete coverage of assets and liabilities. The bias can be eliminated with a complete coverage, but in this situation we show that banks are necessarily technically efficient. Moreover, the Malmquist decomposition of productivity growth becomes useless. The difficulties identified in this paper question the usefulness of the intermediation approach in assessing banks’ performance.
    Keywords: Intermediation approach, efficiency, Malmquist index
    JEL: G21 D24
    Date: 2006
  4. By: Juho Aaltonen; Tanja Kirjavainen; Antti Moisio
    Abstract: This study measures efficiency differences and productivity changes of Finnish municipalities providing comprehensive school education during 1998-2004 by estimating both production and cost functions. The average inefficiency was approximately 6-10 percent during 1998-2004 based on both production and cost function estimations. Both approaches also produced very similar inefficiency rankings for the municipalities. Based on the results of cost functions, both the size of the municipality and average school size had a nonlinear impact on costs. The optimal municipal size was approximately 24 000-37 000 inhabitants and optimal school size was 690 students. The share of students in remedial instruction, the share of students using transportation, and taxable income per inhabitant had a positive impact on costs whereas the share of students in lower school decreased the costs. The productivity of the comprehensive schools decreased on average 12 percent during the period. The increase in per capita taxable income and the share of students in remedial instruction had the biggest impact on the productivity decrease whereas the increase in school size clearly enhanced productivity.
    Keywords: comprehensive education, efficiency, productivity
    Date: 2006–12–20
  5. By: Zhuo Chen (the Chicago Center of Excellence in Health Promotion Economics, The University of Chicago); Shunfeng Song (Department of Economics, University of Nevada, Reno)
    Abstract: This paper utilizes a unique county-level dataset to examine technical efficiency and technology gap in China’s agriculture. We classify the counties into four regions with distinctive levels of economic development, and hence production technologies. A meta-frontier analysis is applied to the counties. We find that although the eastern counties have the highest efficiency scores with respect to the regional frontier but the northeastern region leads in terms of agricultural production technology nationwide. Meanwhile, the mean efficiency of the northeastern counties is particularly low, suggesting technology and knowledge diffusion within region might help to improve production efficiency and thus output.
    Keywords: China’s grain production, county-level, metafrontier, stochastic production frontier, technical efficiency
    JEL: D24 N55 O13
    Date: 2006–12
  6. By: Zofío, José Luis (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid); Prieto, Angel (Ministerio de Educación y Ciencia - C.S.I.C.)
    Abstract: Exploring the duality between a return to dollar definition of profit and the generalized distance function we establish the relationship between the Laspeyres, Paasche and Fisher productivity indexes and their alternative Malmquist indexes counterparts. By proceeding this way, we propose a consistent decomposition of these productivity indexes into two mutually exclusive components. A technical component represented by the Malmquist index and an economical component which can be identified with the contribution that allocative criteria make to productivity change. With regard to the Fisher index, we indicate how researchers can further decompose the Malmquist technical component rendering explicit the sources of productivity change. We also show how the proposed model can be implemented by means of Data Envelopment Analysis techniques, and illustrate the empirical process with an example data set.
    Keywords: Generalized Distance Function; Return to Dollar; Fisher and Malmquist Productivity Indexes
    JEL: C43 C61 D24
  7. By: Jaap W. B. Bos (Corresponding author: Utrecht School of Economics, Utrecht University, Vredenburg 138, 3511 BG, Utrecht, The Netherlands.); Heiko Schmiedel (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper attempts to estimate comparable efficiency scores for European banks operating in the Single Market in the EU. Using a data set of more than 5000 large commercial banks from all major European banking markets over the period 1993-2004, the application of meta-frontiers enables us to assess the existence of a single and integrated European banking market. We find evidence in favor of a single European banking market characterized by cost and profit meta-frontiers. However, compared to the meta-frontier estimations, pooled frontier estimations tend to underestimate efficiency levels and correlate poorly with country-specific frontier efficiency ranks. JEL Classification: G21, L11, L22, L23.
    Keywords: X-efficiency, stochastic frontiers, banking, meta-frontiers, technology gap ratios.
    Date: 2006–12
  8. By: Maria Del Mar Salinas-Jimenez; Javier Salinas-Jimenez
    Abstract: The study of corruption is attracting lot of attention in recent years. Focusing on the economic consequences of corruption, the empirical evidence points to a positive relation between institutional integrity, or absence of corruption, and economic growth. Although most developed countries tend to have lower corruption than less developed ones, there exists significant variation within OECD countries. As an example, it may be observed that the gap in perceived corruption between the Nordic countries and southern Europe is larger than the gap between southern Europe and the average of the emerging economies. In this context, the objective of this paper is to analyze the impact of corruption on economic performance in a sample of OECD countries during the period 1980-2000. Specifically, we study the effect of corruption on productivity and efficiency change, trying to determine whether productivity growth is greater in countries with lower corruption. To this end, different productivity measures are compared by considering both output per worker and Total Factor Productivity (TFP). Furthermore, TFP change is decomposed into efficiency change and technological progress by means of Malmquist productivity indices. On the basis of this of this decomposition we will analyze whether corruption affect TFP growth via efficiency gains or technological change, thus gaining insight into the channels through which corruption influence economic growth.
    Date: 2006–08
  9. By: Doraszelski, Ulrich; Jaumandreu, Jordi
    Abstract: We develop a simple estimator for production functions in the presence of endogenous productivity change that allows us to retrieve productivity and its relationship with R&D at the firm level. Our dynamic investment model can be viewed as a generalization of the knowledge capital model (Griliches 1979) that has remained a cornerstone of the productivity literature for more than 25 years. We relax the assumptions on the R&D process and examine the impact of the investment in knowledge on the productivity of firms. We illustrate our approach on an unbalanced panel of more than 1800 Spanish man- ufacturing firms in nine industries during the 1990s. Our ¯ndings indicate that the link between R&D and productivity is subject to a high degree of uncertainty, nonlinearity, and heterogeneity across firms. Abstracting from uncertainty and nonlinearity, as is done in the knowledge capital model, or assuming an exogenous process for productiv- ity, as is done in the recent literature on structural estimation of production functions, overlooks some of its most interesting features.
    Keywords: production function; knowledge capital; productivity; R&D;
    JEL: O3
    Date: 2006
  10. By: Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece); Dimitra Vouvaki (Department of Economics, University of Crete, Greece); Anastasios Xepapadeas (Department of Economics, University of Crete, Greece)
    Abstract: We examine whether the use of the environment, proxied by CO2 emissions, as a factor of production contributes, in addition to con- ventional factors of production to output growth, and thus it should be accounted for in total factor productivity growth (TFPG) mea- surement and deducted from the ‘residual’. A theoretical framework of growth accounting methodology with environment as a factor of production which is unpaid in the absence of environmental policy is developed. Using data from a panel of 23 OECD countries, we show that emissions’growth have a statistically signi…cant contribution to the growth of output, that emission augmenting technical change is present along with labor augmenting technical change, and that part of output growth which is traditionally attributed to technical change should be attributed to the use of the environment as a not fully com- pensated factor of production. Our results point towards the need for developing a concept of Green Growth Accounting.
    Keywords: Solow Residual, Total Factor Productivity Growth, Growth, Environment, Green Growth Accounting.
    JEL: O47 Q2
    Date: 2006–12–16
  11. By: Anastassios Karaganis; Antonios Tassoulis
    Abstract: This paper aims at the analysis of determinants of efficiency of arable crops in a spatial context in Greece. Moreover it suggests policy interventions in order to diminish regional inequalities in efficiency and to raise the average level of efficiency, so as Greek arable crops will follow the new CAP framework which imposes single area payment scheme (SAPS). Efficiency will be estimated within the production function framework using a quasi-production function. In empirical analysis production functions are specified as spatially seemingly unrelated regression equations (spatial SURE). In the paper spatial lag and spatial error specifications as well as common SURE estimations are tested. Data come from National Statistical Service.
    Date: 2006–08
  12. By: Aikaterini Kokkinou
    Abstract: Technology is apparently one of the main determining sources of productivity and economic growth and there is a huge literature on productivity, growth and innovation. This paper is aiming to review the main topics related to productivity, growth and innovation activities. In particular, the paper is also aiming to apply some econometric models, in order to estimate the effects of innovation activities to productivity growth in EU member states and to conclude to some safe results and policy implications.
    Date: 2006–08
  13. By: Natarajan Balasubramanian; Marvin Lieberman
    Abstract: This paper characterizes inter-industry heterogeneity in rates of learning-by-doing and examines how industry learning rates are connected with firm performance. Using data from the Census Bureau and Compustat, we measure the industry learning rate as the coefficient on cumulative output in a production function. We find that learning rates vary considerably among industries and are higher in industries with greater R&D, advertising, and capital intensity. More importantly, we find that higher rates of learning are associated with wider dispersion of Tobin’s q and profitability among firms in the industry. Together, these findings suggest that learning intensity represents an important characteristic of the industry environment.
    Keywords: Learning, Firm Heterogeneity, RBV, Productivity
    Date: 2006–12
  14. By: Manuel Romero-Hernandez; Hugo Salgado
    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 Scale 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. Some of the implications of this deregulation process for the cost performance of the industry are presented and discussed. 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 Scale and Economies of Spatial Scope. All of the firms had excess capacity of fixed inputs. 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.
    Date: 2006–08
  15. By: Ekaterina Emm; Jayant Kale
    Abstract: In this study, we contribute to the ongoing research on the rationales for corporate diversification. Using plant-level data from the U.S. Census Bureau, we examine whether combining several lines of business in one entity leads to increased productive efficiency. Studying the direct effect of diversification on efficiency allows us to discern between two major theories of corporate diversification: the synergy hypothesis and the agency cost hypothesis. To measure productive efficiency, we employ a non-parametric approach—a test based on Varian’s Weak Axiom of Profit Maximization (WAPM). This method has several advantages over other conventional measures of productive efficiency. Most importantly, it allows one to perform the efficiency test without relying on assumptions about the functional form of the underlying production function. To the best of our knowledge, this study is the first application of the WAPM test to a large sample of non-financial firms. The study provides evidence that business segments of diversified firms are more efficient compared to single-segment firms in the same industry. This finding suggests that the existence of the so-called ‘diversification discount’ cannot be explained by efficiency differences between multi-segment and focused firms. Furthermore, more efficient segments tend to be vertically integrated with others segments in the same firm and to have been added through acquisitions rather than grown internally. Overall, the results of this study indicate that corporate diversification is value-enhancing, and that it is not necessarily driven by managers’ pursuit of their private benefits.
    Keywords: Restructuring, Diversification, Efficiency
    JEL: D2 D92 G34
    Date: 2006–11
  16. By: Bos, J.W.B.; Koetter, M.
    Abstract: In this paper, we compare standard approaches used to handle losses in logarithmic stochastic profit frontier models with a simple novel approach. We discuss discriminatory power, rank stability and precision of profit efficiency scores. Our new method enhances rank stability and discriminatory power, and improves the precision of profit efficiency scores.
    Keywords: profit efficiency; stochastic frontier analysis; truncation and censoring
    JEL: L23 C24 G21
    Date: 2006–09–26
  17. By: Antonio Godinho Rodrigues
    Abstract: The study of regional dynamics in employment productivity has been the basis for a large body of literature; the use in cross-section applications of the well known linear relationship between changes in productivity and Output growth first proposed in 1949 by P.J. Verdoorn has allowed greater insights into the dynamic nature of economic systems. Furthermore, it has been shown that a positive Verdoorn coefficient represents the existence of localized increasing returns, which contradicts Neoclassical orthodoxy. In this paper, a dynamic analysis of labour productivity in manufacturing is performed for a sample of 211 European Union regions. Three hypothesis are tested: first, following recent work by Bernard Fingleton (1999 & 2000), two components related to Growth Theory are added to the original Verdoorn relation, the productivity gap between each spatial unit and the leader in the first period and two proxies for human capital. Second, the importance of the Marshallian type externality as well as economies of urbanization is tested. These factors are calculated according to the weighted density of each variable at the NUTS3 level for each of the 211 NUTS2 regions, following the work of Ciccone and Hall (1996). Finally, and following the ideas presented in the seminal paper by Chinitz (1961), the importance of the industrial mix and the level of regional specialization/diversity is taken into account through the use of a spatially weighted specialization measure. Spatial Econometrics methods are used and alternative forms for the spatial weights matrix are tested, based on time distances calculated using a network model built with the existing road network. Legal speed limits permit an accurate calculation of distance between each node.
    Date: 2006–08
  18. By: Francesco Quatraro
    Abstract: The paper investigates the patterns of Total Factor Productivity (TFP) convergence across Italian regions, in the period 1982-2001. According to the main theoretical approaches, two different concepts of convergence may be devised, strongly intertwined. Beta-convergence applies when poor, lagging behind countries tend to grow faster than the rich and leading ones, while sigma-convergence refers to the reduction of the cross-regional dispersion of the productivity index over time. We start from the distinction between “first†and “second†capitalism, representing two areas interested by different and idiosyncratic evolutions of the industrial structure after the World War II. The former area consists of North-western regions, while the latter basically refers to North-eastern and Adriatic regions. While North-eastern regions were characterized by higher TFP levels in 1982, the “second capitalism†regions showed up sensible lower levels. The hypothesis of convergence of TFP found strong econometric support, as we could reject both the hypothesis of no-mean reversion and that of no convergence (Lichtenberg, 1996). The evidence abut sigma convergence is even more striking, as TFP dispersion has been decreasing since 1985, with a speeding up in the second half of the 1990s. We argue that this pattern of convergence is the result of catching up process in which laggards are still able to deploy the growth potential of the post-fordist model of industrialization, while leading regions, according to the Wolff’s law, have slowly exhausted those opportunities. Empirical evidence suggests that this is occurring through the routinization of innovative activity and the support of R&D carried out within Universities and public labs. This witnesses the key role of both innovation and knowledge spillovers from academia to the business system and stresses once more the need to sustain the provision of funds to the public research system.
    Date: 2006–08
  19. By: Argentino Pessoa; Mario Silva
    Abstract: It is well known that researchers in several traditions have argued that innovation is essential to ensure countries’ economic growth (Schumpeter, 1912; Freeman, 1987; Pavitt, 1982; Romer, 1990; Jones, 1995). At the same time, others researchers have stressed the role of imitative capacity in economic catching-up (Rosenberg, 1963; Abramovitz, 1986; Fagerberg, 1987). Simultaneously, for a great lot of countries economic growth has become one of the most significant policy commitments. Accordingly, although with very different results, several countries have vastly increased their economic and policy commitments to innovation and have made investments in their innovative capacity, and in their levels of R&D expenditures. Furthermore, R&D intensity, the structure of R&D expenditures and the productivity of R&D outlays show a remarkable diversity across countries. Our paper uses this diversity and the lessons of the past three decades to shed some light on the relationship between productivity and technological change and aims to answer the following questions: How was the productivity in economic miracles propelled by a technological change? What are the reasons why it seems so easy for some few countries — and so difficult for a lot of others — to catch-up with the levels of productivity of the world technological frontier? So, in this paper we investigate the patterns of development in national innovative capacity, focusing on the country level investments in R&D, and in the examination of the patent counts, in a broad sample of countries that include the leaders and the followers in catching up to the world's leading countries. The institutional configurations, and national policy decisions that shape the different behaviour of some follower nations in terms of productivity and innovative output, are also studied.
    Date: 2006–08
  20. By: Tomoyasu Tanaka
    Abstract: Due to the current fiscal crisis faced by many Japanese local governments, we decided to conduct research to assist local governments in reducing costs, by reviewing previous studies, as well as investigate the factors affecting wasteful expenditure. Therefore, the purpose of this paper is to analyze the efficiency of local governments in Japan, applying an econometric technique. Further, we calculate indices of cost efficiency using the stochastic cost frontier method. For the purpose of this research we have focused specifically on city areas of municipal governments to examine whether or not information technology contributes to cost efficiency. The hypotheses that we tested were whether or not, the use of information technology equipment and outsourcing of information technology operations by local governments would result in greater cost efficiency. The results show that outsourcing information technology operations increases cost efficiency.
    Date: 2006–08

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