New Economics Papers
on Efficiency and Productivity
Issue of 2008‒09‒29
nineteen papers chosen by

  1. Drivers of regional efficiency differentials in Italy: technical inefficiency or allocative distortions? By Fabrizio Erbetta; Petraglia Carmelo
  2. Localized technological knowledge: Pecuniary knowledge externalities and appropriability By Antonelli Cristiano
  3. Banking Efficiency and Stock Market Performance: An Analysis of Listed Indonesian Banks By Maximilian J. B. Hall; Mulinman D. Hadad; Wimboh Santoso; Ricky Satria; Karligash Kenjegalieva; Richard Simper
  4. Learning by Exporting and High-tech Capital Deepening in Singapore Manufacturing Industries, 1974-2006 By Aekapol Chongvilaivan
  5. Export Productivity, Finance, and Economic Growth: Are the Southern Engines of Growth Different? By Guariglia, Alessandra; Santos-Paulino, Amelia U.
  6. Efficiency and Malmquist Indices of Productivity Change in Indonesian Banking By Maximilian J. B. Hall; Mulinman D. Hadad; Wimboh Santoso; Ricky Satria; Karligash Kenjegalieva; Richard Simper
  7. Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia By Kamaruddin, Badrul Hisham; Safa, Mohammad Samaun; Mohd, Rohani
  8. Modeling technology and technological change in manufacturing: how do countries differ? By Eberhardt, Markus; Teal, Francis
  9. The effect of durable goods and ICT on euro area productivity growth? By Jukka Jalava; Ilja Kristian Kavonius
  10. Technical efficiency in primary health care: does quality matter? By Murillo-Zamorano, Luis R.; Petraglia, C.
  11. The effects of biased technological change on total factor productivity.Empirical evidence from a sample of OECD countries By Quatraro Francesco; Antonelli Cristiano
  12. Ownership Reform, Foreign Competition, and Efficiency of Chinese Commercial Banks: A Non-Parametric Approach By Yao, Shujie; Han, Zhongwei; Feng, Genfu
  13. Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis By Brown, J. David; Earle, John S.
  14. Export Productivity and Specialization in China, Brazil, India and South Africa By Santos-Paulino, Amelia U.
  15. The Calibration of CES Production Functions By Jonathan R. W. Temple
  16. Driving Factors of Growth in Hungary - a Decomposition Exercise By Gábor Kátay; Zoltán Wolf
  17. Regional Assessment of Openness and Productivity Spillovers in China from 1979 to 2006: A Space-Time Model By Sélin Ozyurt
  18. Productivity Dispersion: Facts, Theory, and Implications By AOYAMA Hideaki; YOSHIKAWA Hiroshi; IYETOMI Hiroshi; FUJIWARA Yoshi
  19. Transfer-pricing and Measured Productivity of Multinational Firms By Giorgia Maffini; Socrates Mokkas

  1. By: Fabrizio Erbetta (University of Piemonte Orientale, Faculty of Economics / HERMES, Higher Education and Research on Mobility and the Economics of Public Services / CERIS-CNR, Institute for Economic Research on Firms and Growth); Petraglia Carmelo (University of Napoli "Federico II", Department of Economics)
    Abstract: This paper estimates regional economic efficiency differentials at the firm level in the Italian manufacturing sector over the period 1998-2003. We implement an input distance function approach providing measures of both technical inefficiency and allocative distortions in the choice of input mixes. Our results confirm the substantial technical efficiency gap suffered by firms located in Southern regions, thus providing empirical support to the “structural and technological gap” interpretation of the Italian dualism. On the other hand, allocative distortions in the use of inputs show less remarkable regional differences. As for policy implications, our results suggest the need for a re-allocation of public resources for development policies from business incentives measures towards public investments.
    Keywords: Technical and allocative efficiency, Input distance function, Development policies
    JEL: C44 D21 D24 O14 O20 R0
    Date: 2008–06
  2. By: Antonelli Cristiano (University of Turin)
    Abstract: Recent advances in the economics of knowledge highlight the key role of pecuniary knowledge externalities in explaining the system dynamics of total factor productivity growth. When nonexhaustible technological knowledge is an input both in the production of new goods and of further knowledge, and the acquisition of external knowledge, as a non-disposable input in the production of new knowledge, is not free, pecuniary externalities, as opposed to technological externalities, provide an important clue to understanding the key role of knowledge governance mechanisms in assessing the rate of growth of total factor productivity and economic systems at large. The negative effects upon appropriability limit the advantages of agglomeration.
    Date: 2008–09
  3. By: Maximilian J. B. Hall (Dept of Economics, Loughborough University); Mulinman D. Hadad (Bank Indonesia, Jakarta, Indonesia); Wimboh Santoso (Bank Indonesia, Jakarta, Indonesia); Ricky Satria (Bank Indonesia, Jakarta, Indonesia); Karligash Kenjegalieva (Dept of Economics, Loughborough University); Richard Simper (Dept of Economics, Loughborough University)
    Abstract: This paper examines the monthly efficiency and productivity of listed Indonesian banks and their market performance through the prism of two modelling techniques, efficiency and super-efficiency, over the period January 2006 to July 2007. Within this research strategy we employ Tone’s (2001) non-parametric, Slacks-Based Model (SBM) and Tone’s (2002) super-efficiency SBM combining them with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007). In the case of the SBM efficiency scores, the Simar and Wilson methodology was adapted to two truncations, whereas in the super-efficiency framework the original technique was utilised. As suggested by neo-classical theory, we find that the stock market values banks in accordance with their performance. Moreover, it is found that the JCI index of the Indonesian Stock Exchange is positively related to bank efficiency. Another interesting finding is that the coefficient for the share of foreign ownership is negative and statistically significant in the super-efficiency modelling. This suggests that Indonesian banks with foreign ownership tend to be less efficient than their domestic counterparts. Finally, Malmquist productivity results suggest that, over the study’s horizon, the sample banks displayed volatile productivity patterns in their profit-generating operations.
    Keywords: Indonesian Banking, Emerging Markets, Productivity, Efficiency.
    JEL: C23 C52 G21
    Date: 2008–08
  4. By: Aekapol Chongvilaivan (Singapore Centre for Applied and Policy Economics, Department of Economics, National University of Singapore)
    Abstract: A number of fundamental factors enhance the growth of industries’ productivity. Among others, the export-led and high-tech capital deepening strategies are widely adopted by developing economies. This paper attempts to empirically investigate the extent to which both industrial development policies affect the total factor productivity growth (TFPG) in Singapore manufacturing industries from 1974 to 2006. Using the panel data estimations, I find that both development strategies bring about TFPG via non-neutral technological growth, and the former more largely explains TFPG than does the latter. The present study captures the measure of learning by exporting by the lagged export intensity and therefore contributes to the literature, in which only whether or not firms are active in export markets is conventionally employed. Methodologically, my main contributions are a more detailed treatment of (non-neutral) technological changes, and an improved measure of export intensity.
    Keywords: Learning by exporting; High-tech Capital Deepening; Total Factor Productivity Growth; Neutral and Factor-biased Technological Progress
    JEL: F13 F14 L6
    Date: 2008–05–06
  5. By: Guariglia, Alessandra; Santos-Paulino, Amelia U.
    Abstract: Using a panel of 139 countries over the period 1992-2003, we analyse the links between export productivity, economic growth and financial development indicators. We then investigate whether the links observed in China, India and Brazil systematically differ from those observed in other countries in the sample. We find that both GDP per capita and investment generally exert a positive and significant effect on export productivity. Except for Brazil, financial development is not an important determinant of export productivity. Moreover, except for Brazil, export productivity plays a positive effect on growth, and so does financial development for both China and Brazil, but not for India. Finally, in both India and Brazil, FDI is negatively associated with growth
    Keywords: export productivity, financial development, FDI, growth
    Date: 2008
  6. By: Maximilian J. B. Hall (Dept of Economics, Loughborough University); Mulinman D. Hadad (Bank Indonesia, Jakarta, Indonesia); Wimboh Santoso (Bank Indonesia, Jakarta, Indonesia); Ricky Satria (Bank Indonesia, Jakarta, Indonesia); Karligash Kenjegalieva (Dept of Economics, Loughborough University); Richard Simper (Dept of Economics, Loughborough University)
    Abstract: In this study we utilise a non-parametric, slacks-based model (SBM) approach to analyse efficiency and productivity changes for Indonesian banks over the period January 2006 to July 2007. Efficiency scores and Malmquist productivity indices are estimated using the approach for efficiency and super-efficiency estimation suggested by Tone (2001, 2002). Additionally, the Malmquist indices are decomposed into technical efficiency change and technological shift components. Using monthly supervisory data provided by Bank Indonesia we find that, under the intermediation approach to efficiency estimation, average bank efficiency was reasonably stable during the sample period, ranging between 70% and 82%, with 92 of the 130 banks in existence at that time having efficiency scores of over 70%, including 10 with (super)efficiency scores above unity. We also find that technical efficiencies under the Intermediation approach to describing the banking production process are relatively stable. Malmquist results for the industry suggest that the main driver of productivity growth is technological progress. A strategy based on the gradual adoption of newer technology, according to our results, thus seems to have the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks.
    Keywords: Indonesian Finance and Banking; Productivity; Efficiency.
    JEL: C23 C52 G21
    Date: 2008–08
  7. By: Kamaruddin, Badrul Hisham; Safa, Mohammad Samaun; Mohd, Rohani
    Abstract: This study presents new perspectives on performance evaluation of Islamic banking operations in Malaysia, by investigating for the first time, both cost and profit efficiency of full-fledged Islamic banks and Islamic window operations of domestic and foreign banks. The application of Data Envelopment Analysis (DEA) technique has provided several efficiency measures such as allocative, pure technical and scale efficiency that explain cost and profit efficiency differentials among banks. The findings of the study show that Islamic banking operators are relatively more efficient at controlling costs than at generating profits. The main contributor for cost efficiency of domestic and foreign banks comes from resource management and economies of scale respectively. These findings have implications on the reform process carried out in the aftermath of Asian financial crisis, particularly the Financial Sector Master Plan (FSMP).
    Keywords: Data Envelopment Analysis; allocative efficiency; technical efficiency; foreign banks
    JEL: D2
    Date: 2008–03–08
  8. By: Eberhardt, Markus; Teal, Francis
    Abstract: In this paper we ask how technological differences in manufacturing across countries can best be modeled when using a standard production function approach. We show that it is important to allow for differences in technology as measured by differences in parameters. Of similar importance are time-series properties of the data and the role of dynamic processes, which can be thought of as aspects of technological change. Regarding the latter we identify both an element that is common across all countries and a part which is country-specific. The estimator we develop, which we term the Augmented Mean Group estimator (AMG), is closely related to the Mean Group version of the Pesaran (2006) Common Correlated Effects estimator. Once we allow for parameter heterogeneity and the underlying time-series properties of the data we are able to show that the parameter estimates from the production function are consistent with information on factor shares.
    Keywords: Manufacturing Production; Parameter Heterogeneity; Nonstationary Panel Econometrics; Cross-section Dependence
    JEL: O47 C33 O14
    Date: 2008–04
  9. By: Jukka Jalava (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Ilja Kristian Kavonius (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: The present System of National Accounts (SNA93) treats durable consumption goods as consumption goods rather than investment although rentals for owner occupied households is imputed into GDP. We argue that households de facto treat the purchase of durable goods as investments and thus, the treatment of durables as capital assets conceptually does not differ from the present treatment of owner occupied dwellings. This is not captured by the economic analysis based on current statistical conventions. The purpose of this paper is to estimate the effect of durable goods and ICT on euro area economic growth and productivity change; when expenditure on consumer durables is recorded as capital investment. The capitalization of consumer durables impacts both the levels and growth rates of the capital stock, productivity and GDP. Our growth accounting computations demonstrated that the capital services of durables contributed one-tenth of economic growth and one-eight of labour productivity growth in 1995-2004. ICT's impacts were larger, i.e., one-fifth of GVA growth and one-sixth of labour productivity growth. JEL Classification: E01, E21, E22, J24, O11.
    Keywords: durable good, asset, productivity, ICT, technological transformation, user cost, household production.
    Date: 2008–09
  10. By: Murillo-Zamorano, Luis R.; Petraglia, C.
    Abstract: The accuracy required in the measurement of output is an issue that has as yet still not been satisfactorily addressed in empirical research on efficiency in primary health care. We exploit information retrieved from a newly constructed database (APEX06) for the Spanish region of Extremadura. The richness of our dataset allows us to consider original synthetic measures of output that take into account both the quantity and the quality of services provided by 85 primary care centres (PCCs) in 2006. We provide evidence that neglecting the issue of properly accounting for the quality of health services can lead to misleading results. Our main finding is that adjusting output for quality influences efficiency analysis in three senses. First, inefficiency now explains relatively more of the deviation from the potential output. Second, the average technical efficiency in the sector is lower, while its dispersion among PCCs is significantly higher. And third, the efficiency ranking of the PCCs is also affected.
    Keywords: Primary Health Care; Stochastic Frontier Analysis; Technical Efficiency; Quality
    JEL: C10 I10
    Date: 2008–09
  11. By: Quatraro Francesco (University of Turin); Antonelli Cristiano (University of Turin)
    Abstract: Technological change is far from neutral. The empirical analysis of the rate and direction of technological change in a significant sample of 10 OECD countries in the years 1971-2001 confirms the strong bias of new technologies. The introduction of new and biased technologies affects the actual levels of total factor productivity when it matches the characteristics of local factor markets so that locally abundant inputs become more productive. In turn the matching between the bias of technological change and the relative abundance of production factors can be considered as the result of a path dependent process where the quality of the local knowledge infrastructure plays a central role in shaping the direction.
    Date: 2008–06
  12. By: Yao, Shujie; Han, Zhongwei; Feng, Genfu
    Abstract: Since China joined the WTO in 2001, the pressure for bank reforms has mounted as China ought to fully open up its financial market to foreign competition by 2006. Efficiency is key for domestic banks to survive in a liberalised environment, but it appears that the last hope for raising bank efficiency is through ownership reform. Whether ownership reform and foreign competition can solve China?s banking problem remains to be tested. This paper aims to answer this question through using a non-parametric approach to analyse the efficiency changes of 15 large commercial banks during 1998-2005. We find that ownership reform and foreign competition have forced the Chinese commercial banks to improve performance, as their total factor productivity rose by 5.6 per cent per annum. This coincides with the recent bullish Chinese stock markets led by three listed state-owned commercial banks. Despite such encouraging results, we remain cautious about the future of the Chinese banks, as the good results may have been artificially created with massive government support and the fundamentals of the banks may be still weak.
    Keywords: data envelopment analysis (DEA), efficiency, banking, China
    Date: 2008
  13. By: Brown, J. David (Heriot-Watt University, Edinburgh); Earle, John S. (Upjohn Institute for Employment Research)
    Abstract: We analyze comprehensive manufacturing firm data to measure the contribution of inter-firm employment reallocation to aggregate productivity growth during the socialist and reform periods in six transition economies. Modifying a standard decomposition technique to better reflect the role of firm entry, we find that reallocation rates and productivity contributions are very low under socialism. After reforms, they rise dramatically, and productivity contributions greatly exceed those observed in market economies. Early in transition, faster reform is associated with larger contributions from reallocation, but later, and on average over the whole transition, this relationship is reversed. Though reallocation rates are larger in faster reforming economies, higher productivity dispersion in slower reformers creates much higher productivity gains for a given volume of reallocation. The results imply that reallocation should be viewed as necessary regular maintenance for a well-functioning economy, and particularly large productivity contributions tend to reflect previous neglect more than current virtue.
    Keywords: productivity, reallocation, industry dynamics, creative destruction, reform, transition, Georgia, Hungary, Lithuania, Romania, Russia, Ukraine
    JEL: E32 O47 P23
    Date: 2008–09
  14. By: Santos-Paulino, Amelia U.
    Abstract: This paper analyses the patterns of export productivity and trade specialization profiles in the China, Brazil, India and South Africa, and in other regional groupings. In doing so, the investigation calculates a time varying export productivity measure using highly disaggregated product categories. The findings indicate that export productivity is mainly determined by real income and human capital endowments. Importantly, the study reveals significant differences in the export productivity and specialization patterns of countries with comparable per capita income levels. For instance, China?s export productivity and implied export sophistication is in line with that of countries with higher per capita incomes, including some OECD industrial economies.
    Keywords: export productivity, trade specialization, comparative advantage
    Date: 2008
  15. By: Jonathan R. W. Temple
    Abstract: This note addresses some issues that arise when using 'normalized' CES production functions, an approach that has become popular in the literature. The results of Klump and de La Grandville (2000) provide a simple way to calibrate the parameters of the CES production function when the necessary data are available. But some of the other applications of normalized CES production functions appear problematic, especially when used to argue that productivity is increasing in the elasticity of substitution.
    Keywords: CES production functions, elasticity of substitution, normalization
    JEL: D24 O40
    Date: 2008–09
  16. By: Gábor Kátay (Magyar Nemzeti Bank); Zoltán Wolf (Tinbergen Institute)
    Abstract: Applications tend to ignore that measured TFP reflects the variation of output that cannot be explained by changes in inputs. Such a change is not necessarily technological, so measured TFP differences across firms are an amalgam of technological, efficiency and other differences in attributes, which calls for further refinement in the treatment of TFP. To control for cyclical effects, we modify a standard technique in firmlevel production function estimation using a capacity utilization proxy. Based on a large panel of Hungarian manufacturing firms, we decompose value added growth to input factor, capacity utilization and estimated TFP growth contributions. We find that using an hours worked proxy, the variance of the residual drops considerably. We also find that TFP’s role has not been stable over the period: it contributed to value added growth mostly in periods when/after institutional reforms, privatization or FDI inflow took place and lost its importance several years after the shocks.
    Keywords: economic growth, production function, input factor contributions, total factor productivity, capacity utilization, aggregation, panel data.
    JEL: C14 C23 D24 O12 O47
    Date: 2008
  17. By: Sélin Ozyurt
    Abstract: This study investigates the impact of inward foreign direct investment (FDI) flows and international trade on labour productivity in 30 Chinese provinces over the period 1979-2006. Since China launched the “open door” policy in 1978, the country has been attracting a growing share of FDI flows and its international trade has been expanding considerably. China’s accession into the WTO in 2001 has also started a new era in its integration into the world economy. In this paper, we model labour productivity as dependent on FDI, foreign trade and other traditional variables such as capital intensity, infrastructure and human capital development. Our empirical analysis improves the existing wide literature by taking into account spatial effects and potential econometric issues they imply. Using recently developed spatial data analysis tools, we explore the pattern, (weather it be negative or positive) and the extent of spatial interaction of labour productivity between regions. Thereby, we extend previous research by testing the explanatory power of additional variables such as spatially lagged independent and dependent variables. The explicit consideration of spatial dependence in the modelling scheme provides us a better understanding of the regional spillovers process. Our results indicate a general trend of spatial autocorrelation in labour productivity during the study period. Put differently, in China, the productivity of a given region is highly determined by those of surrounding regions. In addition, our empirical outcomes yield support for positive and significant impacts of FDI and foreign trade on labour productivity. Furthermore, in China, FDI and trade exhibit a positive spatial pattern and give rise to interregional productivity spillovers among provinces. These findings are robust to a number of alternative spatial weighting matrix specifications.
    Date: 2008–09
  18. By: AOYAMA Hideaki; YOSHIKAWA Hiroshi; IYETOMI Hiroshi; FUJIWARA Yoshi
    Abstract: We study productivity dispersions across workers, firms and industrial sectors. Empirical study of data on Japanese firms shows that they all obey the Pareto law, and also that the Pareto index decreases with the level of aggregation. In order to explain these two stylized facts, we propose a theoretical framework built upon the basic principle of statistical physics. In this framework, we employ the concept of superstatistics, which accommodates fluctuations of aggregate demand. Our analysis demonstrates that the allocation of production factors depends crucially on the level of aggregate demand. The frontier of the production possibility set is a never-never land. The higher the level of aggregate demand is, the closer the economy is to the frontier of production possibility set.
    Date: 2008–09
  19. By: Giorgia Maffini (Oxford University Centre for Business Taxation); Socrates Mokkas (Oxford University Centre for Business Taxation)
    Abstract: This paper examines the diferences in total factor productivity (TFP) between multinationals and domestic firms before and after tax rate changes to investigate whether the host country corporate tax rate has a significant influence on the measured TFP advantage of multinational companies. Using a difference-in-differences approach on a sample of approximately 16,000 European firms (1998-2004), we find that a 10 percentage points cut in the statutory corporate tax rate would increase multinationals' measured TFP by about 10% relative to domestic firms, consistent with profit-shifting by multinationals. At the sample mean, this would imply a 44% increase in the TFP advantage of multinationals.
    Keywords: multinational firms, total factor productivity, corporate taxation, profit shifting
    JEL: D24 H25 F23
    Date: 2008

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