New Economics Papers
on Efficiency and Productivity
Issue of 2007‒08‒14
thirteen papers chosen by

  1. From Transition to Competition : Dynamic Efficiency Analysis of Polish Electricity Distribution Companies By Astrid Cullmann; Christian von Hirschhausen
  2. Employment, Innovation, and Productivity: Evidence from Italian Microdata By Bronwyn H. Hall; Francesca Lotti; Jacques Mairesse
  3. Handling Losses in Translog Profit Models By Jaap Bos; Michael Koetter
  4. Choice for FDI and Post-FDI Productivity By ITO Yukiko
  5. Complexity and innovation: social interactions and firm level total factor productivity By Antonelli Cristiano; Scellato Giuseppe
  6. Wage and Productivity Premiums in Sub-Saharan Africa By Johannes Van Biesebroeck
  7. Incorporating the Price of Quality in Efficiency Analysis: the Case of Electricity Distribution Regulation in the UK By Yu, W.; Jamasb, T.; Pollitt, M.
  8. Misallocation and Manufacturing TFP in China and India By Chang-Tai Hsieh; Peter J. Klenow
  9. Improved Access to Foreign Markets Raises Plant-Level Productivity ... for Some Plants By Alla Lileeva; Daniel Trefler
  10. Sources of Productivity Slowdown in European Countries During 1990s By Enrico Saltari; Giuseppe Travaglini
  11. Structural Models and Endogeneity in Corporate Finance: the Link Between Managerial Ownership and Corporate Performance By Coles, Jeffrey; Lemmon, Michael; Meschke, Felix
  12. The Adoption of ICT: Firm-Level Evidence from Irish Manufacturing Industries By Stefanie Haller; Iula Traistaru-Siedschlag
  13. Family Values: Ownership Structure, Performance and Capital Structure of Canadian Firms By Michael R. King; Eric Santor

  1. By: Astrid Cullmann; Christian von Hirschhausen
    Abstract: In this paper we test the hypothesis that the economic transition toward a market economy increases the efficiency of firms. We study 32 Polish electricity distribution companies between 1997-2002, by applying common benchmarking methods to the panel: the nonparametric data envelopment analysis (DEA), the free disposal hull (FDH), and, as a parametric approach, the stochastic frontier analysis (SFA). We then measure and decompose productivity change with Malmquist indices. We find that the technical efficiency of the companies has indeed increased during the transition, while allocative efficiency has deteriorated. We also find significantly increasing returns to scale, suggesting that the regulatory authority should allow companies to merge into larger units.
    Keywords: Efficiency analysis, electricity distribution, transition, econometric methods, Poland, DEA, SFA
    JEL: P31 L51 L43 C1
    Date: 2007
  2. By: Bronwyn H. Hall; Francesca Lotti; Jacques Mairesse
    Abstract: Italian manufacturing firms have been losing ground with respect to many of their European competitors. This paper presents some empirical evidence on the effects of innovation on employment growth and therefore on firms' productivity with the goal of understanding the roots of such poor performance. We use firm level data from the last three surveys on Italian manufacturing firms conducted by Mediocredito-Capitalia, which cover the period 1995-2003. Using a slightly modified version of the model proposed by Harrison, Jaumandreu, Mairesse and Peters (HJMP 2005), which separates employment growth rates into those associated with old and new products, we find no evidence of significant employment displacement effects stemming from process innovation. The sources of employment growth during the period are split equally between the net contribution of product innovation and the net contribution from sales growth of old products. However, the contribution of product innovation to employment growth is somewhat lower than in the four European countries considered in HJMP 2005, and the contribution of innovation in general to productivity growth is almost nil in Italy during this period.
    JEL: D24 J0 J20 L20 O30
    Date: 2007–08
  3. By: Jaap Bos; Michael Koetter
    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, Censoring
    JEL: G21 C24
    Date: 2007–06
  4. By: ITO Yukiko
    Abstract: We highlight the difference between the service sector and the manufacturing sector in regard to the determinants for a firm to start FDI and the productivity growth it achieves. This paper analyzes two questions: (1) whether a certain level of productivity explains a Japanese firm's choice to be a multinational firm (by starting FDI), and (2) how the productivity of such a multinational firm changes over time after FDI. Using the longitudinal panel data on Japanese firms from 1980 to 2005, We trace some firm-level decisions over several decades. This research contributes to the discussions where empirical evidence is not yet profoundly available: how the TFP of the service and that of manufacturing sectors present difference for the choice of overseas activity, and how much productivity gain firms may achieve by intrafirm and cross-border reallocation of firm resources. We have found the following results: (1) compared by year and by industry, the TFP in manufacturing does not explain a firm's choice for starting FDI, but the TFP in the service sector does, then a low level of productivity deters a firm from pursuing FDI; (2) in the manufacturing sector, the size and profitability of firms are positive factors for their future choice in FDI, but these do not matter in the service sector; (3) after FDI, entrants in the service sector show 1.4 times higher annual productivity growth than those in the manufacturing sector. The productivity in service is also on average higher than that of selected domestic firms for counterfactuals.
    Date: 2007–08
  5. By: Antonelli Cristiano (University of Turin); Scellato Giuseppe
    Abstract: The analysis of social interactions as drivers of economic dynamics represents a growing field of the economics of complexity. Social interactions are a specific form of interdependence whereby the changes in the behavior of other agents affect the structure of the utility functions for households and of the production functions for producers. In this paper, we apply the general concept of social interactions to the area of the economics of innovation and technological change. In particular, we discuss how both the knowledge spillovers literature and the Schumpeterian notion of creative reaction can be reconciled within a general framework building on the concept of social interactions within complex dynamics. The paper presents an empirical analysis of firm level total factor productivity (TFP) for a sample of 7020 Italian manufacturing companies observed during years 1996-2005. We show that changes in firm level TFP are significantly affected by localised social interactions. Such evidence is robust to the introduction of appropriate regional and sectoral controls, as well as to econometric specifications accounting for potential endogeneity problems. Moreover, we find evidence suggesting that changes in competitive pressure, namely the creative reaction channel, significantly affect firm level TFP with and additive effect with respect to localised social interactions deriving from knowledge spillovers.
    Date: 2007–07
  6. By: Johannes Van Biesebroeck
    Abstract: Using a matched employer-employee data set of manufacturing plants in three sub-Saharan countries, I compare the marginal productivity of different categories of workers with the wages they earn. A methodological contribution is to estimate the firm level production function jointly with the individual level wage equation using a feasible GLS estimator. The additional information of individual workers leads to more precise estimates, especially of the wage premiums, and to a more accurate test. The results indicate that equality holds strongly for the most developed country in the sample (Zimbabwe), but not at all for the least developed country (Tanzania). Moreover, the breakdown in correct remuneration in the two least developed countries follows a distinct pattern. On the one hand, wage premiums exceed productivity premiums for general human capital characteristics (experience and schooling). On the other hand, salaries hardly increase for more firm-specific human capital characteristics (tenure and training), even though these have a clear productivity effect.
    JEL: J31 O12
    Date: 2007–08
  7. By: Yu, W.; Jamasb, T.; Pollitt, M.
    Abstract: Efficiency analysis of electricity distribution networks is often limited to technical or cost efficiency measures. However, some important non-tradable aspects of their service such as quality of service and network energy losses are generally not part of the analysis. A regulatory concern is that technical efficiency can be achieved at the expense of these measures as well as allocative efficiency. Valuation of service quality for inclusion in regulatory models is particularly difficult. This paper presents an approach to measure and incorporate service quality and energy losses in analysis of technical and allocative efficiency of the utilities. We calculate technical and allocative efficiency of the 14 distribution networks in the UK between 1990/91 and 2003/04 using the Data Envelopment Analysis technique. We find that efficiency measures improved during the first (1990/91-1994/95) and second (1995/96-1999/00) distribution price control reviews and exhibited a slight decline during the third (2000/01-2004/05) review period. We find relatively low allocative efficiency - i.e. a mismatch in allocating resources among expenditures, service quality, and energy losses. The results suggest that the utilities may not be sufficiently incentivised to achieve socially optimal input bundles under the current incentive scheme. Key words: Data Envelopment Analysis, electricity, quality of service, willingness-to-pay
    JEL: L15 L51 L94
    Date: 2007–07
  8. By: Chang-Tai Hsieh; Peter J. Klenow
    Abstract: Resource misallocation can lower aggregate total factor productivity (TFP). We use micro data on manufacturing establishments to quantify the extent of this misallocation in China and India compared to the U.S. in recent years. Compared to the U.S., we measure sizable gaps in marginal products of labor and capital across plants within narrowly-defined industries in China and India. When capital and labor are hypothetically reallocated to equalize marginal products to the extent observed in the U.S., we calculate manufacturing TFP gains of 25-40% in China and 50-60% in India.
    JEL: O11 O47 O53
    Date: 2007–08
  9. By: Alla Lileeva; Daniel Trefler
    Abstract: We weigh into the debate about whether rising productivity is ever a consequence rather than a cause of exporting. Exporting and investing to raise productivity are complimentary activities. For lower-productivity firms, incurring the fixed costs of such investments is justifiable only if accompanied by the larger sales volumes that come with exporting. Lower foreign tariffs will induce these firms to simultaneously export and invest in productivity. In contrast, lower foreign tariffs will induce higher-productivity firms to export without investing, as in Melitz (2003). We model this econometrically using a heterogeneous response model. Unique 'plant-specific' tariff cuts serve as our instrument for the decision of Canadian plants to start exporting to the United States. We find that those lower-productivity Canadian plants that were induced by the tariff cuts to start exporting (a) increased their labor productivity, (b) engaged in more product innovation, and (c) had high adoption rates of advanced manufacturing technologies. These new exporters also increased their domestic (Canadian) market share at the expense of non-exporters, which suggests that the labor productivity gains reflect underlying gains in TFP. In contrast, we find no effects for higher-productivity plants, just as predicted by our complementarity theory.
    JEL: F1
    Date: 2007–08
  10. By: Enrico Saltari; Giuseppe Travaglini
    Abstract: In this paper we address the question whether the shift in labour supply curve is the only fundamental change capturing the negative correlation between the growth rates of productivity and employment in European countries in the last fifteen years. If this explanation is correct then the labour demand curve did not shift in recent times, keeping other features of the production function unchanged. This is obviously a problem of identification. Thus, in this study we provide some empirical evidence explaining the shifts in labour demand curve over the same period. Our main conclusion is that the sluggish performance of the European economy in the last fifteen years has a common root in the large changes occurred in the labour market. We refer to these changes as technological and non technological shocks. In our model, adverse technological shocks shift the labour demand curve, while positive non technological shocks shift the labour supply curve. These two shifts contribute simultaneously to rise employment and to decrease the growth rate of productivity. Our evidence shows that labour productivity does respond positively to labour demand (technological) shocks and negatively to labour supply (non technological) shocks. Hence, the main result of our study is that both shocks are necessary to provide a complete picture of the employment-productivity trade-off in European countries during the last fifteen years.
    Keywords: Productivity slowdown, labour market, SVAR
    JEL: E32 J60 E29
    Date: 2007–08
  11. By: Coles, Jeffrey; Lemmon, Michael; Meschke, Felix
    Abstract: This paper presents a parsimonious, structural model that captures primary economic determinants of the relation between firm value and managerial ownership. Supposing that observed firm size and managerial pay-performance sensitivity (PPS) maximize value, we invert our model to panel data on size and PPS to obtain estimates of the productivity of physical assets and managerial input. Variation of these productivity parameters, optimizing firm size and compensation contract, and the way the parameters and choices interact in the model, all combine to deliver the well-known hump-shaped relation between Tobin’s Q and managerial ownership (e.g., McConnell and Servaes (1990)). Our structural approach illustrates how a quantitative model of the firm can isolate important aspects of organization structure, quantify the economic significance of incentive mechanisms, and minimize the endogeneity and causation problems that so commonly plague empirical corporate finance. Doing so appears to be essential because, by simulating panel data from the model and applying standard statistical tools, we confirm that the customary econometric remedies for endogeneity and causation can be ineffective in application.
    JEL: L20 G34 G32
    Date: 2007–02–15
  12. By: Stefanie Haller (Economic and Social Research Institute (ESRI)); Iula Traistaru-Siedschlag (Economic and Social Research Institute (ESRI))
    Abstract: This paper examines factors driving ICT adoption at firm level. We use a novel data set including information on ICT and e-commerce in Irish manufacturing firms over the period 2001-2004 and estimate a model derived from the new technology adoption literature that relates ICT adoption indicators to two sets of factors: characteristics of firms and characteristics of the environment in which firms operate. Our research results indicate that the adoption of ICT in Irish manufacturing has been uneven across firms, industries and space. On average, other things equal, firms with more skilled workers, operating in ICT producing and ICT using industries, located in the capital city region have been relatively more successful in adopting and using ICT. To a certain extent, patterns of ICT adoption have been different for domestic and foreign-owned firms, in particular with respect to the effects of international competitive pressure and firm size.
    Keywords: ICT adoption, Human capital, Industrial structure, Information spillovers
    JEL: L21 O31 O33
    Date: 2007–07
  13. By: Michael R. King; Eric Santor
    Abstract: This study examines how family ownership affects the performance and capital structure of 613 Canadian firms using a panel dataset from 1998 to 2005. In particular, we distinguish the effect of family ownership from the use of control-enhancing mechanisms. We find that freestanding family-owned firms with a single share class have similar market performance than other firms based on Tobin's q ratios, superior accounting performance based on ROA, and higher financial leverage based on debt-to-total assets. By contrast, family-owned firms that use dual-class shares have valuations that are lower by 17% on average relative to widely-held firms, despite having similar ROA and financial leverage. Finally, concentrated ownership by either a corporation or a financial institution does not significantly affect firm performance.
    Keywords: Financial markets; International topics
    JEL: G12 G15
    Date: 2007

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