New Economics Papers
on Efficiency and Productivity
Issue of 2008‒03‒15
eleven papers chosen by

  1. Impact of Reforms on Plant-Level Productivity and Technical Efficiency: Evidence from the Indian Manufacturing Sector By Bhaumik, Sumon K.; Kumbhakar, Subal C.
  2. The relationship between farm size and productivity: empirical evidence from the Nepalese mid-hills By Thapa, Sridhar
  3. Technology Flows between Sectors and its Impact on Large-Scale Firms By Jürgen Antony; Thomas Grebel
  4. The Impact of Training on Productivity: Evidence from a Large Panel of Firms By Emilio Colombo; Luca Stanca
  5. Performance and financing of the corporate sector: the role of foreign direct investment By Adam Geršl
  6. Productivity differences: the importance of intra-state black-white schooling differences across the United States, 1840-2000 By Turner, Chad; Tamura, Robert; Mulholland, Sean
  7. How important are human capital, physical capital and total factor productivity for determining state economic growth in the United States: 1840-2000? By Turner, Chad; Tamura, Robert; Mulholland, Sean
  8. Using Firm Optimization to Evaluate and Estimate Returns to Scale By Gorodnichenko, Yuriy
  9. Productivity Differences in an Interdependent World By Fadinger, Harald
  10. Labour Market Rigidity and Economic Efficiency with Non-General Purpose Technical Change By Grimalda, Gianluca
  11. R&D and Productivity: Testing Sectoral Peculiarities Using Micro Data By Potters, Lesley; Ortega-Argilés, Raquel; Vivarelli, Marco

  1. By: Bhaumik, Sumon K. (Brunel University); Kumbhakar, Subal C. (Binghamton University, New York)
    Abstract: It is generally believed that the structural reforms that usher in competition and force companies to become more efficient were introduced later in India following the macroeconomic crisis in 1991. However, whether the post-1991 growth is an outcome of more efficient use of resources or greater use of factor inputs, especially capital, remains an open empirical question. In this paper, we use plant-level data from 1989-90 and 2000-01 to address this question. Our results indicate that while there was an increase in the productivity of factor inputs during the 1990s, most of the growth in value added is explained by growth in the use of factor inputs. We also find that median technical efficiency declined in all but one of the industries between the two years, and change in technical efficiency explains a very small proportion in the change in gross value added.
    Keywords: efficiency, growth decomposition, productivity, manufacturing
    JEL: C13 O12
    Date: 2008–02
  2. By: Thapa, Sridhar
    Abstract: This paper examines the farm size and productivity relationship using data from Nepalese mid hills. The household data used has been drawn from a survey conducted by the author and financed by the Norwegian University of Life Science. The analysis uses models both allowing for and not allowing for village dummies(as cluster controls), the ratio of irrigated land (as proxy for land quality), and other socio-economic variables such as households, belonging to caste groups, and family size (as proxy for access to resources). The result supported the almost ‘stylized fact’ of inverse relationship (IR) between farm size and output per hectare. Total cash input use and labour hours per hectare were found to be higher on small farms. The findings of regression equations allowing for village dummies and other socio-economic variables do not support the explanation that the IR between farm size and productivity is due to variation in regions as well as access to resources. Nevertheless, family size and caste dummies show some effects on farm value added. The paper further investigates returns to scale in Nepalese agriculture, applying the Cobb-Douglas (CD) production function. The result shows constant returns to scale. Labour input seems more influential in farm production, followed by manure, in the sample farms. The overall result shows that the IR between farm size and output per hectare is perhaps due to the result more of other inputs used by small farms rather than diseconomies of scale.
    Keywords: inverse relationship; farm size; productivity; returns to scale; Nepal
    JEL: Q15 O13
    Date: 2007–03
  3. By: Jürgen Antony (Economics Department, University of Augsburg); Thomas Grebel (Economics Department, University of Jena)
    Abstract: In this paper we highlight the importance of technology flows between sectors and their impact on the labor productivity of large-scale corporations. Based on theoretical considerations, we explore technological spillovers between the sectors of an economy. Large-scale corporations usually focus on certain sectors but make use of a wide range of technological knowledge from other sectors. Thereby, technological knowledge built up in sectors by continuous R+D activities does not spill over without bounds but is directed by ?rms' absorptive capacities. We use ?rms' patent portfolio to empirically calculate the sector affiliation and therewith the ?rms' absorptive capacities in order to estimate the impact of technology diffusion on labor productivity. Fortune 500 ?rms serve as data base.
    Keywords: Technology Flows, Spillovers, Firm Productivity
    JEL: O33 O14
    Date: 2008–03–07
  4. By: Emilio Colombo; Luca Stanca
    Abstract: This paper investigates the e®ects of training on labor productiv- ity using a unique nationally representative panel of Italian ¯rms for the period 2002 to 2005. We ¯nd that training has a positive and signi¯cant e®ect on productivity. Using a variety of panel estimation techniques, we show that failing to account for unobserved heterogene- ity leads to overestimate the impact of training on productivity, while failing to account for endogeneity leads to substantially underestimate it. Training also has a positive and signi¯cant impact on wages, but this e®ect is about half the size of the e®ect on productivity. Within occupational groups, the e®ect of training on productivity is large and signi¯cant for blue-collars, but small and not signi¯cant for white collars.
    Keywords: On-the-Job-Training; Productivity; Wages; Panel Data
    JEL: C23 D24 J31
    Date: 2008–01
  5. By: Adam Geršl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank)
    Abstract: Foreign direct investment has been one of the main drivers of economic developments over the past few years in Central and Eastern Europe (CEE). Within the ongoing globalization and international division of labor, a large number of foreign companies have established production units in CEE countries to benefit from low labor costs and other advantages. This study looks both in theoretical and empirical terms at whether large foreign presence has also affected domestic firms. Foreign firms might both intentionally and unintentionally influence the productivity, financing and export performance of local firms within the same industry or across industries along the production chain via sub-supplier and client linkages. Economic theory does not suggest unambiguous answer to a question whether the influence is positive or negative. For answering the question, both firm-level and industry-level data on performance, financing and exports and interactions of firms within production chain in the Czech Republic are analyzed.
    Keywords: foreign direct investment; productivity; corporate finance; export performance
    JEL: F21 D24 L60 G32 F40
    Date: 2008–03
  6. By: Turner, Chad; Tamura, Robert; Mulholland, Sean
    Abstract: Using newly created data containing real output per worker, real physical capital per worker, and human capital per worker for US states from 1840 to 2000, Turner et. al (2007) analyze the growth rates of aggregate inputs and total factor productivity (TFP). We continue this line of work by documenting the importance of TFP differences in explaining cross sectional variation in the levels of (log) output. We construct plausible upper bounds on the fraction of the variance in output levels that can be explained by TFP and inputs. Similar to the growth rate analysis, we find that TFP can, on average, explain nearly 90% of output variance while inputs can explain up to only 50% of output variance. We then consider the possibility that one major institutional difference across states, the extent to which blacks were denied access to formal education, might explain TFP differences across states. To this end, we generate and present a years of schooling measures, by race, at the state level from 1840 to 2000. While directly exploiting this series has very little impact on the upper bound of the fraction of output variation that can be explained by inputs, we do find that the size of the gap between white and black years of schooling is negatively related to TFP in the period from 1840 to 1950. We also consider the extent to which time-varying rates of return on education alters the upper bound on the fraction of output variation that can be explained by inputs, finding that time-varying rates have little impact. Finally, we find some evidence for external effects of higher education and physical capital.
    Keywords: black-white schooling differences; state productivity differences
    JEL: J7 O4
    Date: 2008–01–31
  7. By: Turner, Chad; Tamura, Robert; Mulholland, Sean
    Abstract: This paper creates a new data set on physical capital at the state level for the United States from 1840 - 2000. Combining these new data with state level human capital and output data enables us to estimate the contribution of aggregate input growth and total factor productivity (TFP) growth to output growth across states from 1840 - 2000, and to decompose the cross-sectional variance of output growth into the component explained by variation in aggregate inputs and the compenent explained by variation in TFP. As our data are across states instead of across countries, one would expect less institutional heterogeneity in this study than in studies using cross-country comparisons. We find that that 65% of average output growth from 1840 - 2000 is accounted for by average input growth. We find a plausible upper bound of output variation explained by TFP growth is 91%, while a plausible upper bound of output variation explained by input growth is 62%. Interestingly, even at the state level where the unit of observation is more homogeneous, TFP continues to be an important determinant of both the growth of and the variation of output per worker.
    Keywords: state physical capital; state human capital; state real output; state total factor productivity
    JEL: E01 O4
    Date: 2008–02–11
  8. By: Gorodnichenko, Yuriy (University of California, Berkeley)
    Abstract: At the firm level, revenue and costs are well measured but prices and quantities are not. This paper shows that because of these data limitations estimates of returns to scale at the firm level are for the revenue function, not production function. Given this observation, the paper argues that, under weak assumptions, micro-level estimates of returns to scale are often inconsistent with profit maximization or imply implausibly large profits. The puzzle arises because popular estimators ignore heterogeneity and endogeneity in factor/product prices, assume perfect elasticity of factor supply curves or neglect the restrictions imposed by profit maximization (cost minimization) so that estimators are inconsistent or poorly identified. The paper argues that simple structural estimators can address these problems. Specifically, the paper proposes a full-information estimator that models the cost and the revenue functions simultaneously and accounts for unobserved heterogeneity in productivity and factor prices symmetrically. The strength of the proposed estimator is illustrated by Monte Carlo simulations and an empirical application. Finally, the paper discusses a number of implications of estimating revenue functions rather than production functions and demonstrates that the profit share in revenue is a robust non-parametric economic diagnostic for estimates of returns to scale.
    Keywords: production function, identification, returns to scale, covariance structures
    JEL: C23 C33 D24
    Date: 2008–02
  9. By: Fadinger, Harald
    Abstract: This paper studies cross country differences in productivity from an open economy perspective by using a Helpman-Krugman-Heckscher-Ohlin model. This allows to combine tools from development accounting and the trade literature. When simultaneously fitting data on income, factor prices and the factor content of trade, I find that rich countries have far higher productivities of human capital than poor ones, while differences in physical capital productivity are not systematically related to income per worker. I estimate an aggregate elasticity of substitution between human and physical capital that is significantly below one, clearly rejecting a world that consists of a collection of Cobb-Douglas economies and also one where Heckscher-Ohlin trade is important.
    Keywords: Heckscher-Ohlin; Productivity Differences; Development Accounting; Open Economy Growth
    JEL: O11 O41 O47 F11 F43
    Date: 2008–03
  10. By: Grimalda, Gianluca
    Abstract: The contrasting effects of labour market rigidity on efficiency are investigated in a model where technological change is non-general purpose and different types of skills are available to workers. Ex ante efficiency calls for high labour market rigidity, as this favours workers’ acquisition of specific skills which have higher productivity in equilibrium. Ex post efficiency calls for low market rigidity, as this allows more workers to transfer to the innovating sector of the economy. The trade-off between these two mechanisms results in an inverse-U shaped relationship between output and labour market rigidity, which implies that a positive level of labour market rigidity is in general beneficial for the economy.
    Keywords: Non-general purpose technology; labour market rigidity; specific and general human capital.
    JEL: J31 O30 J24
    Date: 1971–12–30
  11. By: Potters, Lesley (Utrecht School of Economics); Ortega-Argilés, Raquel (European Commission); Vivarelli, Marco (Università Cattolica del Sacro Cuore)
    Abstract: The aim of this study is to investigate the relationship between a firm's R&D activities and its productivity using a unique micro data panel dataset and looking at sectoral peculiarities which may emerge; more specifically, we used an unbalanced longitudinal database consisting of 532 top European R&D investors over the six-year period 2000-2005. Our main findings can be summarised along the following lines: knowledge stock has a significant positive impact on a firm's productivity, with an overall elasticity of about 0.125; this general result is largely consistent with previous literature in terms of the sign, the significance and the estimated magnitude of the relevant coefficient. More interestingly, the coefficient increases monotonically when we move from the low-tech to the medium-high and high-tech sectors, ranging from a minimum of 0.05/0.07 to a maximum of 0.16/0.18. This outcome, in contrast with recently-renewed acceptance of low-tech sectors as a preferred target of R&D investment, suggests that firms in high-tech sectors are still far ahead in terms of the impact on productivity of their R&D investments, at least as regards top European R&D investors.
    Keywords: panel data, R&D, productivity, knowledge stock, perpetual inventory method
    JEL: O33
    Date: 2008–02

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.