New Economics Papers
on Efficiency and Productivity
Issue of 2009‒02‒14
thirteen papers chosen by

  1. A Global Malmquist-Luenberger Productivity Index - an application to OECD countries 1990-2004 By Oh, Dong-Huyn
  2. Dynamic Analysis of Structural Change and Productivity Measurement By Førsund, Finn R.; Hjalmarsson, Lennart
  3. Clean and Productive? Evidence from the German Manufacturing Industry By Böhringer, Christoph; Moslener, Ulf; Oberndorfer, Ulrich; Ziegler, Andreas
  4. Costs and Efficiency of Higher Education Institutions in England: A DEA Analysis By Geraint Johnes; Jill Johnes; E Thanassoulis; Mika Kortelainen
  5. The role of production technology for productivity spillovers from multinationals: Firm-level evidence for Hungary By Holger Görg; Alexander Hijzen; Balazs Muraközy
  6. Do Productivity Improvements Move Us Along the Environmental Kuznets Curve? By Karen Turner; Nick Hanley; Janine De Fence
  7. Is Fair Trade Honey Sweeter? An empirical analysis on the effect of affiliation on productivity By Leonardo Becchetti; Stefano Castriota
  8. Water services in Italy: implementation of the reform and efficiency of providers By Michele Benvenuti; Elena Gennari
  9. North-South Trade-related Technology Diffusion, Brain Drain and Productivity Growth: Are Small States Different? By Schiff, Maurice; Wang, Yanling
  10. Determinants of Soil Capital By Ekbom, Anders
  11. Good Modelling of Bad Outputs: Pollution and Multiple-Output Production By Førsund, Finn R.
  12. Omitted variables in the measure of a labour quality index: the case of Spain By Aitor Lacuesta; Sergio Puente; Pilar Cuadrado
  13. Regulation and efficiency in Italian local public transport: the regional differences By Chiara Bentivogli; Roberto Cullino; Diana Marina Del Colle

  1. By: Oh, Dong-Huyn (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: The aim of this paper is to introduce an alternative measure that incorporates the concept of a global Malmquist productivity index with a directional distance function. Unlike a conventional geometric mean form of the Malmquist-Luenberger productivity index, this global index is circular and free from linear programming (LP) infeasibility. It can also be decomposed into certain sources of productivity growth such as efficiency change and technical change. The suggested methodology is employed in the analysis of 28 OECD countries over the period of 1990-2004. The empirical result shows that the northern European countries are found to have a higher productivity growth rate when compared with the rest of the OECD countries. Furthermore, we found that the main source of the productivity growth is technical change.
    Keywords: Global Malmquist-Luenberger productivity index; Directional distance function; Productivity; Circularity
    JEL: C43 O47 Q53
    Date: 2009–01–28
  2. By: Førsund, Finn R. (Dept. of Economics, University of Oslo); Hjalmarsson, Lennart (Department of Economics, University of Gothenburg)
    Abstract: A dynamic analysis of structural change is reviewed based on a vintage model of substitutability between inputs including capital before investment, but no substitution possibilities after investment, and ex post production possibilities characterised by fixed input coefficients. Key elements in understanding structural change are the entering of capacity embodying new technology and exiting of capacity no longer able to yield positive quasi-rent. Three production function concepts are identified: the ex ante micro unit production function as relevant when investing in new capacity, the ex post micro production function, and the short-run industry production function giving the production possibilities at the industry level. Productivity measurement, taking these types of production functions into consideration, leads to different interpretations of productivity change than traditional approaches not being clear about which production function concept is used.
    Keywords: Structural change; productivity measurement; putty-clay; ex ante production function; short-run industry production function
    JEL: C43 D24 L61
    Date: 2008–10–01
  3. By: Böhringer, Christoph; Moslener, Ulf; Oberndorfer, Ulrich; Ziegler, Andreas
    Abstract: We analyze the productivity effects of environmental (green) investment as well as of environmental expenditures and energy expenditures. For this purpose, we follow a production function approach where we account for these investment and expenditure categories as inputs. Based on a panel dataset for the German manufacturing industry between 1996 and 2002 we find that both environmental and energy expenditures do not contribute to production growth. In contrast, environmental investment positively impinges upon production growth as a productivity driver. We thus conclude that environmental regulation should stimulate investment in order to be compatible with economic goals such as productivity.
    Keywords: environmental performance, environmental regulation, productivity
    JEL: D24 Q28 Q58
    Date: 2008
  4. By: Geraint Johnes; Jill Johnes; E Thanassoulis; Mika Kortelainen
    Abstract: As student numbers in the UK's higher education sector have expanded substantially during the last 15 years, it has become increasingly important for government to understand the structure of costs in higher education, thus allowing it to evaluate the potential for expansion and associated cost implications. This study applies Data Envelopment Analysis (DEA) to higher education institutions (HEIs) in England in the period 2000/01-2002/03 to assess the cost structure and the performance of various HEI groups. The paper continues and complements an earlier study by Johnes, Johnes and Thanassoulis (forthcoming), who used parametric regression methods to analyse the same panel data. Interestingly, the DEA analysis provides estimates of subject-specific unit costs that are in the same ballpark as those provided by the parametric methods. We then extend the previous analysis by examining potential cost savings and output augmentations in different HEI groups using several different DEA models. The findings include a suggestion that substantial gains of the order of 20-27% are feasible if all potential savings are directed at raising student numbers so that each HEI exploits to the full not only operating and scale efficiency gains but also adjusts its student mix to maximise student numbers. Finally we use a Malmquist index approach to assess productivity change in UK HEIs. The results reveal that for a majority of HEIs productivity has actually decreased during the study period.
    Keywords: higher education; data envelopment analysis; performance measurement; productivity; cost function
    Date: 2009
  5. By: Holger Görg; Alexander Hijzen; Balazs Muraközy
    Abstract: This paper analyses the potential for productivity spillovers from inward foreign direct investment using administrative panel data on firms for Hungary. We hypothesise that the potential for spillovers is related to observable characteristics of the production process of foreign affiliates, and evaluate this empirically. We further explore the role of competition in explaining productivity spillovers within industries. Our empirical analysis yields a number of important findings. First, we show that the potential for spillovers is importantly related to the production technology of the sectors and foreign affiliates. Firms that relocate labour-intensive activities to Hungary to exploit differences in labour costs are unlikely to generate productivity spillovers, while spillovers increase in the capital intensity of foreign affiliates. Second, we find that spillovers differ markedly in the early and later stages of transition, and that there are differences between small and large firms. Furthermore, foreign presence tends to affect the productivity of domestic firms negatively whenever MNEs produce for the domestic market
    Keywords: foreign direct investment, productivity spillovers, exporting, competition
    JEL: F23
    Date: 2009–02
  6. By: Karen Turner (Department of Economics, University of Strathclyde); Nick Hanley (Department of Economics, University of Stirling); Janine De Fence (Department of Economics, University of Strathclyde)
    Abstract: The Environmental Kuznets Curve (EKC) hypothesis focuses on the argument that rising prosperity will eventually be accompanied by falling pollution levels as a result of one or more of three factors: (1) structural change in the economy; (2) demand for environmental quality increasing at a more-than-proportional rate; (3) technological progress. Here, we focus on the third of these. In particular, energy efficiency is commonly regarded as a key element of climate policy in terms of achieving reductions in economy-wide CO2 emissions over time. However, a growing literature suggests that improvements in energy efficiency will lead to rebound (or backfire) effects that partially (or wholly) offset energy savings from efficiency improvements. Where efficiency improvements are aimed at the production side of the economy, the net impact of increased efficiency in any input to production will depend on the combination and relative strength of substitution, output/competitiveness, composition and income effects that occur in response to changes in effective and actual factor prices, as well as on the structure of the economy in question, including which sectors are targeted with the efficiency improvement. In this paper we consider whether increasing labour productivity will have a more beneficial, or more predictable, impact on CO2/GDP ratios than improvements in energy efficiency. We do this by using CGE models of the Scottish regional and UK national economies to analyse the impacts of a simple 5% exogenous (and costless) increase in energy or labour augmenting technological progress.
    Keywords: Scomputable general equilibrium models; technical progress; energy efficiency; labour productivity; environmental kuznets curve
    JEL: D57 D58 R15 Q41 Q43
    Date: 2009–01
  7. By: Leonardo Becchetti (University of Rome Tor Vergata); Stefano Castriota (University of Trento)
    Abstract: We evaluate the impact of affiliation to Fair Trade on a sample of Chilean honey producers. Evidence from standard regressions and propensity score matching shows that affiliated farmers have higher productivity (income from honey per worked hour) than the control sample. We show that the productivity effect is partially explained by the superior capacity of affiliated workers to exploit economies of scale. Additional results on the effects of affiliation on training, cooperation and advances on payments suggest that affiliation contributed both to, and independently from, the economies of scale effect.
    Keywords: Fair Trade, economies of scale, productivity.
    JEL: D63 D64 O18 O19 O22
    Date: 2008
  8. By: Michele Benvenuti (Banca d'Italia); Elena Gennari (Banca d'Italia)
    Abstract: The paper investigates the organization of the Italian water sector in the light of the reforms of public utilities. The aim is to examine the degree of implementation of the water sector reform (the so-called Galli Law of 1994) and assess the performance of operators through a study of their financial indicators and a non-parametric efficiency analysis. The information sources include two Bank of Italy surveys carried out in 2007 on local public water authorities and local water service providers. Financial indicators point to a low return on equity: for more than half of the firms it is lower than the risk-free interest rate. The non-parametric efficiency analysis does not reveal significant economies of scope and highlights a certain degree of variability of technical efficiency scores. This suggests that there is room for efficiency gains through the introduction of comparative competitive mechanisms such as the yardstick competition.
    Keywords: water supply, data envelopment analysis, public utilities, natural monopoly, regulation
    JEL: K23 L95 Q25 C61 D24 H42 L51
    Date: 2008–09
  9. By: Schiff, Maurice (The World Bank); Wang, Yanling (Carleton Universit)
    Abstract: The economies of small developing states tend to be more fragile than those of large ones. This paper examines this issue in a dynamic context by focusing on the impact of the brain drain on North-South trade-related technology diffusion and total factor productivity growth in small and large states in the South. There are three main findings. First, productivity growth increases with North-South trade-related technology diffusion and education and the interaction between the two, and decreases with the brain drain. Second, the impact of North-South trade-related technology diffusion, education, and their interaction on productivity growth in small states is more than three times that for large countries, with the negative impact of the brain drain thus more than three times greater in small than in large states. And third, the greater loss in productivity growth in small states has two brain drain-related causes: a substantially greater sensitivity of productivity growth to the brain drain, and brain drain levels that are more than five times greater in small than in large states.
    Keywords: brain drain; technology diffusion; trade; productivity growth
    JEL: F22 J61
    Date: 2009–01–01
  10. By: Ekbom, Anders (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper combines knowledge from soil science and economics to estimate economic determinants of soil capital. Explaining soil capital facilitates a better understanding of constraints and opportunities for increased agricultural production and reduced land degradation. The study builds on an unusually rich data set that combines data on soil capital (represented by chemical and physical properties) and economic data on household characteristics, labour supply, crop allocation and conservation investments. The study yields both methodological and policy-relevant results. On methodology, the analysis shows that soil capital is heterogeneous with soil properties widely distributed across the farms. Likewise, farmers’ investment decisions and soil management vary widely across farms. Hence simplifications of soil capital, which are common in the economics literature, may have limited validity. On the other hand, soil science research limited to soils’ biological, physical and chemical characteristics fail to recognize that soil is capital owned and managed by farmers. They thus run the risk of omitting important socio-economic determinants of soil capital. They also exclude the possibility to explain some of the dynamics that are determined by its stock character. On policy, the study shows that farmers’ soil conservation investments, allocation of labour, manure and fertilizer input, and crop choice indeed do determine variation in farmers’ soil capital. Particularly strong positive effects on key soil nutrients (N,P,K) are observed for certain conservation technologies. Extension advice shows unexpectedly no significant effects on soil capital. The wide distribution of soil properties across farms reinforces the need to (i) tailor technical extension advice to the specific circumstances in each farm, and (ii) enhance the integration of farmers’ knowledge and experiences, expert judgment and scientific soil analysis at the farm level.<p>
    Keywords: soil fertility; soil productivity; resource management
    JEL: Q12 Q20
    Date: 2009–01–28
  11. By: Førsund, Finn R. (Dept. of Economics, University of Oslo)
    Abstract: The materials balance principle points to the crucial role of material inputs in generating residuals in production processes. Pollution modelling must be of a multi-output nature. The most flexible transformation function in outputs and inputs used in textbooks is too general to make sense in pollution modelling. Specifying bads as if they are inputs, although may be defendable on a macro level as a reduced form, hides explicit considerations of various modification activities. Extending the non-parametric efficiency approach to cover bads as outputs, assuming weak disposability of the bads as the only change in the modelling of the technology, has serious weaknesses. A complete taxonomy of inputs as to the impact on both residuals and marketed products as joint outputs is derived, based on factorially determined multi-output production, thus providing information for choice of policy instruments.
    Keywords: Multiple-output production; pollution; bads; purification; DEA
    JEL: D62 Q50
    Date: 2008–12–01
  12. By: Aitor Lacuesta (Banco de España); Sergio Puente (Banco de España); Pilar Cuadrado (Banco de España)
    Abstract: Traditional measures of labour quality might have the shortcoming of missing some features of the very important increase in labour utilization within European countries. In particular, we explore the case of Spain. Despite showing one of the most important increases in labour quality in the EU according to standard methods, it also offers a negative increase in TFP growth. This paper computes an index of labour quality in Spain between 1988 and 2006 using microdata from the Labour Force Survey and the Structural Earnings Survey-2002 that allows the introduction of all possible interactions in a semi-parametric fashion between gender, age, education, experience in the current job and nationality. Considering those observable characteristics, the index still shows a notable growth at an average annual rate of 0.42 pp. After a period of slight decline (between 1988 and 1992) the index grows continuously until 2006 when it fell again. This is the case because education is, even by considering all possible interactions with other demographic variables, the highest contributor to the quality index’s growth. However, the paper shows the importance of considering changes in average productivities of different socio-demographic groups over time. We include in the analysis two usually omitted variables that help explaining the recent productivity slowdown in Spain: type of occupation held by the individual and unobserved heterogeneity of workers. Both the inclusion of occupation and especially the entry of individuals with below-average productivity levels compared to precedent periods decrease the labour quality growth to an average annual rate of 0.20 pp. Indeed with the addition of these two factors labour quality slightly decreases from 1997 onwards.
    Keywords: index number, labour quality, productivity slowdown, unobserved heterogeneity
    JEL: C4 J1 J3 O4
    Date: 2009–01
  13. By: Chiara Bentivogli (Banca d'Italia); Roberto Cullino (Banca d'Italia); Diana Marina Del Colle (Banca d'Italia)
    Abstract: This paper studies the effects on local public transport of the reform begun in the late nineties, using data from a recent Bank of Italy survey. There are still substantial differences across Italy&#x2019;s regions, and the level of efficiency is far from the original aims of the reform. Although almost all Italian regional councils formally aligned the local legislation to the new national rules, actual compliance with the deeper logic of the reform has been limited so far. Competitive tendering for the selection of local service providers have seldom been used, while auctions have usually been won by local public incumbents. Albeit limited, efficiency gains are larger wherever the reform has been implemented more thoroughly and the variables influencing public transport demand more carefully taken into account. The share of the population that uses public transport has not increased even in major cities, and the low share of users (by international standards) has gone hand in hand with a negative overall evaluation of service quality. Fares are still much lower than unit costs.
    Keywords: Regulation, Local Public Transport
    JEL: H40 K23 L33 L43 L92
    Date: 2008–09

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