New Economics Papers
on Efficiency and Productivity
Issue of 2009‒01‒24
nineteen papers chosen by

  1. Creating Innovations, Productivity and Growth - the efficiency of Icelandic firms By Ho, Dong-huyn; Lööf, Hans
  2. Creative Destruction and Regional Productivity Growth: Evidence from the Dutch Manufacturing and Services Industries By Niels Bosma; Erik Stam; Veronique Schutjens
  3. The Impact of Public Infrastructure on Canadian Multifactor Productivity Estimates By Gu, Wulong; Macdonald, Ryan
  4. The Quality-Complementarity Hypothesis: Theory and Evidence from Colombia By Kugler, Maurice; Verhoogen, Eric
  5. Comparative Output and Labour Productivity in Manufacturing for China, Japan, Korea and the United States in Circa 1935 by a Production PPP Approach By Kyoji Fukao; Harry X. Wu; Tangjun Yuan
  6. Are Young and Old WorkersS Harmful for Firm Productivity ? By Thierry Lallemand; François Rycx
  7. Quality in work and aggregate productivity By Vicente Royuela; Jordi Suriñach
  8. Exporter Performance in the German Business Services Sector: First Evidence from the Services Statistics Panel By Alexander Vogel
  9. Is aid the capital component making countries efficient? By Veiderpass, Ann; Andersson, Per-Åke
  10. Frontier Analysis of UK Distribution Networks and the Question of Mergers: A Critique of Ofgem By Ziver Olmez
  11. Investment in British Columbia: Current Realities and the Way Forward By Andrew Sharpe; Jean-François Arsenault; Peter Harrison
  12. Non-linear technological progress and the substitutability of energy for capital: an application using the translog cost function. By David C. Broadstock
  13. Performance of business groups: Evidence from post-crisis Russia By Shumilov, Andrei
  14. Risk-taking by Russian banks: Do location, ownership and size matter? By Fungácová , Zuzana; Solanko, Laura
  15. Productivity Drivers in British Columbia: Strategic Areas for Improvement By Andrew Sharpe; Jean-François Arsenault
  16. Public sector efficiency according to COFOG classification in the European Union By Donath , Liliana; Milos, Marius
  17. Innovation, R&D and Productivity - assessing alternative specifications of CDM-models By Johansson, Börje; Lööf, Hans
  18. The Relationship between Productivity and Real Wage Growth in Canada and OECD Countries, 1961-2006 By Andrew Sharpe; Jean-François Arsenault; Peter Harrison
  19. When Does Domestic Saving Matter for Economic Growth? By Philippe Aghion; Diego Comin; Peter Howitt; Isabel Tecu

  1. By: Ho, Dong-huyn (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Iceland is one of the smallest European economies and the country was hit severely by the 2008-financial crisis. This paper considers the economy in the period preceding the collapse. Applying a Data Envelopment Analysis on 204 randomly selected firms, the results suggest that a substantial fraction of the Icelandic firms can be classified as non-efficient in their production process. The production scale of many manufacturing firms is too small to be technically efficient, while service firms typically use excessive resources in their production process. A remarkably weak performance in transforming R&D and labour efforts into successful innovations is observed.
    Keywords: Technical efficiency; R&D; Innovation; Productivity
    JEL: C14 D24 O14 O33
    Date: 2009–01–15
  2. By: Niels Bosma (Urban and Regional research Centre Utrecht (URU), Utrecht University, Utrecht, The Netherlands); Erik Stam (Tjalling Koopmans Institute, Utrecht School of Economics, Utrecht University, Utrecht, The Netherlands; Centre for Technology Management, University of Cambridge, Cambridge, United Kingdom; Scientific Council for Government Policy (WRR), The Hague, The Netherlands; Max Planck Institute of Economics - Entrepreneurship, Growth and Public Policy group, Jena, Germany); Veronique Schutjens (Urban and Regional research Centre Utrecht (URU), Utrecht University, Utrecht, The Netherlands)
    Abstract: Do firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, measured by total factor productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988-2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities.
    Keywords: firm entry, firm exit, turbulence, regional competitiveness, total factor productivity
    JEL: L10 M13 O18 R11
    Date: 2009–01–12
  3. By: Gu, Wulong; Macdonald, Ryan
    Abstract: This paper makes use of a growth accounting framework to examine the importance of public capital for private sector productivity growth. Most measures of multifactor productivity consider only the inputs of the business sector. This paper produces an alternate measure of multifactor productivity for the business sector that incorporates the impact of public capital. It uses the estimate of the elasticity of business sector output with respect to public capital derived from Macdonald (2008). Over the period, the conventional estimate of MFP growth averages 0.4% per year. About half of this growth is attributable to public capital.
    Keywords: Economic accounts, Productivity accounts
    Date: 2009–01–14
  4. By: Kugler, Maurice (University of Southampton); Verhoogen, Eric (Columbia University)
    Abstract: This paper presents a tractable formalization and an empirical investigation of the quality-complementarity hypothesis, the hypothesis that input quality and plant productivity are complementary in generating output quality. We embed this complementarity in a general-equilibrium trade model with heterogeneous, monopolistically competitive firms, extending Melitz (2003), and show that it generates distinctive implications for two simple, observable within-sector correlations − between output prices and plant size and between input prices and plant size − and for how those correlations vary across sectors. Using uniquely rich and representative data on the unit values of outputs and inputs of Colombian manufacturing plants, we then document three 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. industries. The predicted and observed correlations between export status and input and output prices are similar to those for plant size. We present additional evidence that market power of either final-good producers or input suppliers does not fully explain the empirical patterns we observe. These findings are consistent with the predictions of our model and difficult to reconcile with alternative models that impose symmetry or homogeneity of either inputs or outputs. We interpret the results as broadly supportive of the quality-complementarity hypothesis.
    Keywords: product quality, heterogeneous firms, international trade, plant size
    JEL: O1 F1 L1
    Date: 2009–01
  5. By: Kyoji Fukao; Harry X. Wu; Tangjun Yuan
    Abstract: Following the standard methodology for measuring industry-of-origin or production-side PPPs, this study compares the unit values of manufacturing products in China, Japan, Korea and the US to calculate unit value ratios (UVRs) and hence estimates PPPs for individual manufacturing industries using the US as the base country in circa 1935. Based on the products that could be matched between these countries, the estimated manufacturing production PPPs for China, Japan and Korea are only from half to two thirds of the prevailing market exchange rates, suggesting much lower cost of production in manufacturing in these countries than in the US. The estimated PPPs are used to calculate industry-level output and labour productivity in China, Japan and Korea relative to those of the US in circa 1935. The results show that the size of factory manufacturing in Japan was 12 percent of the US level whereas in China it was only one percent and even lower in Korea. In terms of comparative labour productivity, measured as PPP$ per hour worked with the US as the reference, Japanese and Korean manufacturing was 24 and 23 percent of the US level, whereas Chinese manufacturing was only 7 percent of the US level.
    Keywords: Production (industry-of-origin) purchasing power parity (PPP), unit value ratio, comparative output and labour productivity, comparative advantage, economic development
    JEL: L60 O47 P52
    Date: 2008–12
  6. By: Thierry Lallemand (DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels); François Rycx (Centre Emile Bernheim, DULBEA, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels and IZA-Bonn.)
    Abstract: This paper investigates the effects of the workforce age structure on the productivity of large Belgian firms. More precisely, it examines different scenarios of changes in the proportion of young (16-29 years), middle-aged (30-49 years) and old (more than 49 years) workers and their expected effects on firm productivity. Using detailed matched employer-employee data, we find that a higher share of young (old) workers within firms is favourable (harmful) for firm value added per capita. Results also show that age structure effects on productivity are stronger in ICT than in non-ICT firms.
    Keywords: Firm performance, Workforce age structure, Demographic changes
    JEL: J21 J31 L25
    Date: 2009–01
  7. By: Vicente Royuela (Faculty of Economics, University of Barcelona); Jordi Suriñach (Faculty of Economics, University of Barcelona)
    Abstract: We explore the relationship between quality in work and aggregate productivity in regions and sectors. Using recent Spanish aggregate data for the period 2001-2006, we find that quality in work may be an important factor to explain productivity levels in sectors and regions. We use two alternatives definitions of quality in work: one from survey data and the other from a social indicators approach. We also use two different measurements of labour productivity to test the robustness of our results. The estimates are run using a simultaneous equation model for our panel of data, and find important differences between high tech and low tech sectors: a positive relationship between quality in work and productivity in the former case, and a negative relationship in the latter. Consequently, on the one hand we see that quality in work is not only an objective per se,but may also be a production factor able to increase the wealth of regions; on the other hand, at the aggregate level, we may also find that high productivity levels coincide with lower quality in work conditions.
    Keywords: Productivity, Quality in Work, Simultaneous, Equation Models.
    Date: 2009–01
  8. By: Alexander Vogel (Institute of Economics, University of Lüneburg)
    Abstract: A wide range of empirical studies has analysed exporter performance, especially the relationship between exports and productivity in the manufacturing sector. By contrast, a detailed investigation of the services sector has remained largely neglected. To close this gap, this paper focuses on the relationship between exports and several performance characteristics in the German business services sector—average wage, productivity, size and turnover profitability—in order to determine whether export premia and self-selection into export markets exist in the business services sector. To ensure the comparability of the results with those from the manufacturing sector, empirical models used to analyse the manufacturing sector are transferred to investigate the business services.
    Keywords: export premia, self-selection into export markets, business services
    JEL: F14 L89
    Date: 2009–01
  9. By: Veiderpass, Ann (Department of Economics, School of Business, Economics and Law, Göteborg University); Andersson, Per-Åke (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Cross country regressions on aid effectiveness have failed to provide substantial evidence on the effects of foreign aid. This study focuses on country performance in a production theory context. By means of the non-parametric DEA method, we study 60 individual low and middle income countries between 1995 and 2000. Is there a systematic correlation between resource intensity and country efficiency? We find indications of a positive relation between capital intensity and country efficiency. We then investigate whether aid is the conclusive part of capital providing this correlation, but when linking country efficiency development to aid, there is no clear pattern to be found.<p>
    Keywords: Aid; efficiency; country comparison; production approach
    JEL: D24 O57
    Date: 2009–01–12
  10. By: Ziver Olmez (Independent researcher)
    Abstract: Since privatization, the 14 UK electricity distribution network operators (DNOs), being natural monopolies, have been subject to RPI-X regulation by the UK regulator (Ofgem). Mergers between the 14 DNOs have formed 7 identifiable ownerships (management teams). It is argued in this research that Ofgem has not used a sufficiently robust approach to benchmarking, and has therefore failed to accurately assess network efficiency gains. Furthermore, Ofgem has used invalid arguments against further mergers. By using more informative panel datasets, as well as a more robust estimation technique (Stochastic Frontier Analysis), this research reveals two crucial facts. Firstly, there is almost no more room for the DNOs in question to become more cost efficient, as the industry is operating close to minimum efficient scale. This suggests that Ofgem needs to widen its scope of benchmarking and regulation (e.g. quality-incorporated benchmarking). Secondly, there seems to be no increasing returns to scale in the industry, a more appropriate reason why further mergers should not take place.
    Keywords: Ofgem, Frontier Analysis, Mergers.
    JEL: L51 L52
    Date: 2008–12
  11. By: Andrew Sharpe; Jean-François Arsenault; Peter Harrison
    Abstract: Investment is one of the main drivers of productivity growth, which is the key determinant of living standards in the long run. Investment in British Columbia is lagging when compared to that of Canada, particularly in machinery and equipment and ICT investment. Going forward, a poor investment performance in BC would likely lead to below average growth in labour productivity, as was the case in the last 25 years. Weak labour productivity growth in BC would in turn translate into weak economic growth and falling relative standards of living over time. A number of measures may be taken to ensure sustained investment in physical capital in BC. This report puts forward a number of recommendations to increase investment in British Columbia.
    Keywords: Investment, British Columbia, Public Policy, Taxation, Harmonization, Infrastructure, Productivity
    JEL: E20 E22 R50 R53 R11 O40 H71 H25
    Date: 2008–12
  12. By: David C. Broadstock (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey)
    Abstract: This paper analyses the production process of four industries over four separate time periods using datasets taken form Berndt and Wood (1975, 1979), Hunt (1984a, 1986), Norsworthy and Harper (1981) and Jorgensen and Stiroh (2000). In their initial paper Berndt and Wood failed to explore the alternative options available to them to represent technological progress, a deficiency noted by Hunt (1986) who tested for alternative representations of technology (inter alia) using the Berndt and Wood data. This paper extends this line of reasoning/research by allowing technological progress to take more flexible non-linear forms using both deterministic and stochastic trend models. The results reveal that ‘non-linear trend’ models are generally preferred to ‘linear trend’ or ‘no trend’ models hence raising a question over the validity of assumptions used in much previous empirical research. Further the results reveal that the different assumptions lead to different results for the energy-capital elasticity of substitution.
    Keywords: Translog, energy-capital substitution, productivity
    JEL: O33 O47 Q49
    Date: 2008–06
  13. By: Shumilov, Andrei (BOFIT)
    Abstract: Transition economies like Russia lack properly functioning financial markets and institutions, which results in severe agency and information problems. Business groups in such markets have the potential to offer benefits to member firms, but they also may destroy value. Using a unique database on membership in Russian business groups, we analyze the relationship between group affiliation and firm performance on the basis of a large panel of manufacturing firms for the period 1999-2002. We find that group membership has a positive effect on productive efficiency, but gains from improved productivity in group affiliates do not adequately translate into higher profitability. This is consistent with the expropriation hypothesis, according to which controlling owners of groups extract private benefits by siphoning profits from their members. Among the different group categories delineated by type of controlling owner, the extent of profit dissipation is especially large in groups controlled by private domestic owners, who face a greater risk of possible future expropriation of property. Finally, we examine two potential sources of benefits of membership in business groups: mutual insurance among affiliated firms and preferential treatment from the state via subsidies and tolerated tax arrears. We find that, during the period studied, groups neither provided mutual insurance nor did they receive larger support from the state than unaffiliated firms. Together with findings from the previous literature indicating that, prior to the 1998 financial crisis, group firms benefited from more efficient allocation of capital within groups than in the rest of the economy but not after the crisis, our results suggest that the advantages of group membership recede as the economic and institutional environment gradually improves.
    Keywords: business groups; firm performance; transition economy; Russia
    JEL: G30 L20
    Date: 2009–01–13
  14. By: Fungácová , Zuzana (BOFIT); Solanko, Laura (BOFIT)
    Abstract: The Russian banking sector has experienced enormous growth rates during the last 6-7 years. The rapid growth of assets has, however, contributed to a decrease in the capital adequacy ratio, thus influencing the ability of banks to cope with risk. Using quarterly data spanning from 1999 to 2007 on all Russian banks, we investigate the relationship between bank characteristics and risk-taking by Russian banks. The analysis of financial ratios reveals that, on average, the risk levels are still below those observed in Central and Eastern Europe. Combining the group-wise comparisons of financial ratios and the results of insolvency risk analysis based on fixed effects vector decomposition, three main conclusions emerge. First, controlling for bank characteristics, large banks have higher insolvency risk than small ones. Second, foreign-owned banks exhibit higher insolvency risk than domestic banks and large state-controlled banks are, unlike other state-controlled banks, more stable. Third, we find that the regional banks engage in significantly more risk-taking than their counterparts in Moscow.
    Keywords: bank risk-taking; banks in transition; Russia
    JEL: G21 G32 P34
    Date: 2009–01–13
  15. By: Andrew Sharpe; Jean-François Arsenault
    Abstract: A brief analysis of British Columbia’s productivity performance and the state of the drivers of this performance reveals that five areas merit additional focus and research. They are, in the proposed order of completion: Education and literacy, including professional qualifications and education for targeted groups such as aboriginals and recent immigrants, credentials recognition. Public and private investment, including public infrastructure, business investment and taxation structure. Research and innovation, including R&D investment, product and process innovation, knowledge diffusion and technology adoption. Resource reallocation, including competition policy, improving market mechanisms, product market regulation and foreign ownership rules. Trade and migration, including interprovincial and international movement of goods and services, skilled and unskilled immigration and emigration and interprovincial migration.
    Keywords: Productivity, Diagnosis, British Columbia,Human Capital, Physical Capital, Innovation,
    JEL: E20 E22 R50 R53 R11 O40
    Date: 2008–12
  16. By: Donath , Liliana; Milos, Marius
    Abstract: The budgetary constraints governments have to deal with on a daily bases require a new approach in public spending as well as the revision of public goods definition. Consequently the key words are efficiency and effectiveness, in order to comply with the new management approach requirements. Assessing the efficiency and performance of public expenses is a key item for analyzing the quality of public expenses because it connects the entries as public resources and their yield (efficiency) or the entries to the results obtained (performance)
    Keywords: public spending; performance; efficiency; effectiveness
    JEL: H50
    Date: 2008–12–01
  17. By: Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper applies a CDM-model framework to depict the successive links (correlations) between (i) innovation expenditure, (ii) innovation output, and (iii) firm productivity. The CDM model has become popular in many countries among scholars using data from the Community Innovation Survey (CIS). First, the study contrasts a general structural OECD version of the model against a model with country-specific design. Second, the study examines the gains from separating the labour force into ordinary and knowledge labour – as a means to avoid double counting of R&D investments. Third, the paper examines the difference between recognising a firm as a member of an unspecified company group versus a multinational group. Fourth, the paper explores how well sales per employee serves as a proxy for labour productivity proper. Fifth, the paper scrutinises the quality of CIS information by comparing key variables from the voluntary CIS survey with the same variables (for the same firms) recorded in the compulsory and audited register data in Sweden.
    Keywords: Productivity; Innovation; R&D; CDM-model
    JEL: O31 O32
    Date: 2009–01–15
  18. By: Andrew Sharpe; Jean-François Arsenault; Peter Harrison
    Abstract: The most direct mechanism by which labour productivity affects living standards is through real wages, that is, wages adjusted to reflect the cost of living. Between 1980 and 2005, the median real earnings of Canadians workers stagnated, while labour productivity rose 37 per cent. This report analyzes the reasons for this situation. It identifies four factors of roughly equal importance: rising earning inequalities; falling terms of trade for labour; a decrease in labour’s share of GDP; and measurement issues. This report also explores the relationship between labour productivity and real wages by province and by sector, as well as in the United States and in other high-income countries.
    Keywords: Productivity, Real Wages, Earnings, Labour Share, Inequalities
    JEL: E20 E25 O51 O40 J38 J39
    Date: 2008–12
  19. By: Philippe Aghion (Harvard University - Department of Economics); Diego Comin (Harvard Business School, Business, Government and the International Economy Unit); Peter Howitt (Brown University - Department of Economics); Isabel Tecu (Brown University - Department of Economics)
    Abstract: Can a country grow faster by saving more? We address this question both theoretically and empirically. In our theoretical model, growth results from innovations that allow local sectors to catch up with frontier technology. In poor countries, catching up requires the cooperation of a foreign investor who is familiar with the frontier technology and a domestic entrepreneur who is familiar with local conditions. In such a country, domestic saving matters for innovation, and therefore growth, because it enables the local entrepreneur to put equity into this cooperative venture, which mitigates an agency problem that would otherwise deter the foreign investor from participating. In rich countries, domestic entrepreneurs are already familiar with frontier technology and therefore do not need to attract foreign investment to innovate, so domestic saving does not matter for growth. A cross-country regression shows that lagged savings is positively associated with productivity growth in poor countries but not in rich countries. The same result is found when the regression is run on data generated by a calibrated version of our theoretical model.
    Keywords: Savings, growth, technology adoption, TFP, FDI
    JEL: E2 O2 O3
    Date: 2009–01

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