nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2008‒02‒09
twelve papers chosen by
Angelo Zago
University of Verona

  1. R&D and productivity : estimating production functions when productivity is endogenous By Ulrich Doraszelski; Jordi Jaumandreu
  2. Does exporting lead to productivity spillovers in horizontal or vertical industries? Evidence from Indonesia By Prasanna Guru Sethupathy
  3. The Contribution of Pollution to Productivity Growth. By Pantelis Kalaitzidakis; Theofanis P. Mamuneas; Thanasis Stengos
  4. Productivity and environmental regulations - A long run analysis of the Swedish industry By Brännlund, Runar
  5. Performance of the Dutch non-life insurance industry: competition, efficiency and focus By Jacob A. Bikker; Janko Gorter
  6. The Effects of Human Resource Management Practices on Firm Performance - Preliminary Evidence from Finland By Derek C. Jones; Panu Kalmi; Takao Kato; Mikko Mäkinen
  7. Financial Integration, Productivity and Capital Accumulation By Alessandra Bonfiglioli
  8. Economics and Olympics: An Efficiency Analysis By Alexander Rathke; Ulrich Woitek
  9. Income distribution determinants and public spending efficiency By António Afonso; Ludger Schuknecht; Vito Tanzi
  10. Product Quality at the Plant Level: Plant Size, Exports, Output Prices and Input Prices in Colombia By Maurice Kugler; Eric A. Verhoogen
  11. Does the Chinese Banking System Promote the Growth of Firms? By Panicos O. Demetriades; Jun Du; Sourafel Girma; Chenggang Xu
  12. The Impact of Banks and Non-Bank Financial Institutions on Local Economic Growth in China By Cheng , Xiaoqiang; Degryse, Hans

  1. By: Ulrich Doraszelski; Jordi Jaumandreu
    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. By endogenizing the productivity process we build on the recent literature on structural estimation of production functions. 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 manufacturing firms in nine industries during the 1990s. Our findings indicate that the link between R&D and productivity is subject to a high degree of uncertainty, nonlinearity, and heterogeneity across firms. By accounting for uncertainty and nonlinearity, we extend the knowledge capital model. Moreover, capturing heterogeneity gives us the ability to assess the role of R&D in determining the differences in productivity across firms and the evolution of firmlevel productivity over time.
    Date: 2007–12
  2. By: Prasanna Guru Sethupathy (Columbia University)
    Abstract: This paper investigates the presence of productivity spillovers due to exporting. In particular, it examines whether productivity gains from exporting spill over upstream (to suppliers), downstream (to customers) or horizontally (to competitors). Using plant-level data on Indonesian manufacturing sectors, we find productivity gains to downstream firms of approximately 2.5-3.5% during the period 1990-1996. We do not find the presence of spillovers upstream or horizontally.
    Date: 2007
  3. By: Pantelis Kalaitzidakis (University of Crete, Greece and The Rimini Centre for Economic Analysis, Rimini, Italy.); Theofanis P. Mamuneas (University of Cyprus, Cyprus and The Rimini Centre for Economic Analysis, Rimini, Italy.); Thanasis Stengos (University of Guelph, Canada and The Rimini Centre for Economic Analysis, Rimini, Italy.)
    Abstract: In this paper we examine the effect of pollution, as measured by CO2 emissions, on economic growth among a set of OECD countries during the period 1981-1998. We examine the relationship between total factor productivity (TFP) growth and pollution using a semiparametric smooth coefficient model that allow us to directly estimate the output elasticity of pollution. The results indicate that there exists a nonlinear relationship between pollution and TFP growth. The output elasticity of pollution is small with an average sample value of 0.008. In addition we find an average contribution of pollution to productivity growth of about 1 percent for the period 1981-1998. JEL Classifications: C14, O13, O40
    Keywords: TFP Growth, Pollution, Semiparametric Estimation.
    Date: 2008–01
  4. By: Brännlund, Runar (Department of Economics, Umeå University)
    Abstract: The aim with this study is to evaluate the potential effects on productivity development in the Swedish manufacturing industry due to changes in environmental regulations over a long time period. The issue is closely related to the so called Porter hypothesis, i.e. whether environmental regulations (the right kind) that usually is associated with costs triggers mechanisms that enhances efficiency and productivity that finally outweighs the initial cost increase. To test our hypothesis we use historical data spanning over the period 1913-1999 for the Swedish manufacturing sector. The model used is a two stage model were the total factor productivity is calculated in the first stage, and is then used in a second stage as the dependent variable in a regression analysis where one of the independent variables is a measure of regulatory intensity. The results show that the productivity growth has varied considerably over time. The least productive period was the second world war period, whereas the period with the highest productivity growth was the period after the second world war until 1970. Development of emissions follows essentially the same path as productivity growth until 1970. After 1970, however, there is a decoupling in the sense that emissions are decreasing, both in absolute level and as emissions per unit of value added. A rather robust conclusion is that there is no evident relationship between environmental regulations and productivity growth. One explanation is that regulations and productivity actually is unrelated. Another potential explanation is that the regulatory measure used does not capture perceived regulations in a correct way.
    Keywords: Environmental regulations; productivity; Porter hypothesis
    JEL: Q52 Q55 Q56
    Date: 2008–02–01
  5. By: Jacob A. Bikker; Janko Gorter
    Abstract: This paper investigates competition in the Dutch non-life insurance industry indirectly by measuring scale economies and X-inefficiency, assuming that strong competition would force insurance firms to exploit unused scale economies and to push down inefficiencies. We observe substantial economies of scale (on average 11%) that are larger for smaller firms. Despite considerable consolidation in the industry over the last decade, scale economies have increased, as the optimal scale has outgrown the actual one. Comparing estimates across aggregation levels, we find that scale economies are smaller for groups and lines of business than they are for firms. Besides scale, focus and organizational form are important cost determinants as well: generally, specialized insurers have lower costs and face greater economies of scale. Estimates of thick frontier efficiency point to huge cost differences across firms and within lines of business. Overall, our results suggest that there is a lack of competitive pressure in the Dutch non-life insurance industry.
    Keywords: Non-life insurance, economies of scale, market structure, concentration, competition, X-efficiency, total cost function, aggregation: insurance groups, firms and lines of business
    JEL: D4 D61 G22 L1
    Date: 2008–01
  6. By: Derek C. Jones; Panu Kalmi; Takao Kato; Mikko Mäkinen
    Abstract: ABSTRACT : This paper presents the first empirical evidence on the nature and effects of human resource practices (HRM) in the Finnish manufacturing sector. In the analysis, we use the novel survey on HRM practices, based on a representative random sample from the population of the Finnish manufacturing firms who had 50 or more employees in 2005. In the sample, we have firm-level information on several HRM and employee participation practices of 398 firms, which is 38% of the firms in the population and almost 50% of the survey respondents. To study how HRM practices affect the level of firm productivity, we first combined the HRM survey data with financial statement data and then estimated cross-sectional and panel data estimators for the Cobb-Douglas production functions. We find that both the incidence of employee participation practices and the incidence of HRM tools have increased in the manufacturing sector from 2002 to 2005. The empirical findings support the view of a positive association with the HRM practices and the level of firm productivity. Perhaps more importantly, however, we find that not all forms of employee financial and decision-making participation practices have favorable productivity effects : consultative committee and profit sharing scheme has a positive effect, but other practices do not have statistically significant effects.
    Keywords: new workplace practices, HRM, employee participation, productivity
    JEL: M54 J53 L23
    Date: 2008–01–30
  7. By: Alessandra Bonfiglioli
    Abstract: Understanding the mechanism through which financial globalization affects economic performance is crucial for evaluating the costs and benefits of opening financial markets. This paper is a first attempt at disentangling the effects of financial integration on the two main determinants of economic performance: productivity (TFP) and investments. I provide empirical evidence from a sample of 70 countries observed between 1975 and 1999. The results for both de jure and de facto indicators suggest that financial integration has a positive direct effect on productivity, while it does not directly affect capital accumulation. I control for indirect effects of financial globalization through financial development and banking and currency crises. While the evidence on financial depth as an indirect channel is weak, the results are more robust for financial crises: they depress both investments and TFP, and are favored by financial integration, though only to a minor extent. The overall effect of financial liberalization is positive for productivity and negligible for investments.
    Keywords: Capital account liberalization, financial development, financial crises, growth, productivity, investments.
    JEL: G15 F43 O40 C23
    Date: 2007–12
  8. By: Alexander Rathke; Ulrich Woitek
    Abstract: Applying stochastic frontier analysis, we estimate the importance of sports in society as technical efficiency of countries in the production of Olympic success since the 1950s. Our measures of success are medal shares and a broader concept including Olympic diplomas. Following Bernard and Busse (2004), population and GDP are used as inputs. While the impact of GDP is always positive, we show that the sign of the population effect depends on wealth and population size of a country. The results show that the spread of importance is very wide over time, across countries, gender, and sports. These differences can be seen as caused by differences in financial support, training methods, organization, or culture. Using the method proposed by Battese and Coelli (1995), we confirm the result well documented in the literature that planned economies and host countries are more successful than others in terms of Olympic success (e.g. Bernard and Busse, 2004). The method allows to shed light on important aspects of recent sport history, such as the consequences of the breakdown of the former Soviet Union.
    Keywords: Olympic Games, Efficiency Analysis, Stochastic Frontier
    JEL: J8 O47
    Date: 2007–01
  9. By: António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Ludger Schuknecht (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Vito Tanzi
    Abstract: In this paper we examine the impact of public spending, education, and institutions on income distribution in advanced economies. We also assess the efficiency of public spending in redistributing income by using a DEA (Data Envelopment Analysis) nonparametric approach. We find that public policies significantly affect income distribution, notably via social spending, and indirectly via high quality education/human capital and via sound economic institutions. Moreover, for our set of OECD countries, and within a two-step approach, several so-called non-discretionary factors help explaining public social spending inefficiencies. JEL Classification: C14, H40, H50.
    Keywords: Income redistribution, public spending, efficiency, DEA.
    Date: 2008–01
  10. By: Maurice Kugler (Harvard University - John F. Kennedy School of Government); Eric A. Verhoogen (Columbia University - Department of Economics)
    Abstract: This paper uses uniquely rich and representative data on the unit values of outputs (products)and inputs of Colombian manufacturing plants to draw inferences about the extent of quality differentiation at the plant level. We extend the Melitz (2003) framework to include heterogeneity of inputs and a complementarity between plant productivity and input quality in producing output quality and we show that the resulting model carries distinctive implications for two simple reduced-form correlations ¿ between output prices and plant size and between input prices and plant size ¿ and for how those correlations vary across sectors. We then document three plantlevel facts: (1) output prices are positively correlated with plant size within industries, on average;(2) input prices are positively correlated with plant size within industries, on average; and (3) both correlations are more positive in industries with more scope for quality differentiation, as measured by the advertising and R&D intensity of U.S. firms. The correlations between export status and input and output prices are similar to those for plant size. These facts are consistent with our model of quality differentiation of both outputs and inputs, and difficult to reconcile with models that assume homogeneity or symmetry of either set of goods. Beyond recommending an amendment of the Melitz (2003) model, the results highlight shortcomings of standard methods of productivity estimation, generalize and provide an explanation for the well-known employer size-wage effect, and suggest new channels through which liberalization of trade in output markets may affect input markets and vice-versa.
    Date: 2007
  11. By: Panicos O. Demetriades; Jun Du; Sourafel Girma; Chenggang Xu
    Abstract: Using a large panel dataset of Chinese manufacturing enterprises during 1999-2005, which accounts for over 90% of China’s industrial output, and robust econometric procedures we show that the Chinese banking system has helped to support the growth of both firm value added and TFP. We find that access to bank loans is positively correlated with future value added and TFP growth. We also find that firms with access to bank loans tend to grow faster in regions with greater banking sector development. While the effects of bank loans on firm growth are more pronounced in the case of purely private-owned and foreign firms, they are positive and statistically significant even in the case of state-owned and collectively-owned firms. We show that excluding loss-making firms from the sample does not change the qualitative nature of our results.
    Keywords: Chinese banking system development; value added and TFP growth; panel dataset
    JEL: E44 O53
    Date: 2008–02
  12. By: Cheng , Xiaoqiang (BOFIT); Degryse, Hans (BOFIT)
    Abstract: This paper provides evidence on the relationship between finance and high growth in China. Employing data for 27 Chinese provinces over the period 1995–2003, we assess the impact of banks and non-bank financial institutions on local economic growth. We argue that banks have had a larger impact than non-banks on local economic growth as they benefited earlier and more profoundly from China’s financial reforms than their non-bank counterparts.
    Keywords: growth; financial development; Chinese provinces; banks
    JEL: E44 G21
    Date: 2008–02–04

This nep-eff issue is ©2008 by Angelo Zago. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.