New Economics Papers
on Efficiency and Productivity
Issue of 2009‒03‒14
twenty papers chosen by

  1. Impact of Foreign Direct Investments on Industrial Productivity: A Subnational Study of India By Vadlamannati, Krishna Chaitanya
  2. Regulation and UK Retailing Productivity: Evidence from Micro Data By Haskel, Jonathan; Sadun, Raffaella
  3. Distribution of Labour Productivity in Japan over the Period 1996–2006 By Souma, Wataru; Ikeda, Yuichi; Iyetomi, Hiroshi; Fujiwara, Yoshi
  4. Regulations and productivity growth in banking By Delis, Manthos D; Molyneux, Philip; Pasiouras, Fotios
  5. Second Thoughts on Exporter Productivity By Philipp J.H. Schröeder; Allan Sørensen
  6. The persistence of innovation : the italian evidence By Antonelli Cristiano
  7. The joint estimation of firm-level market power and efficiency By Delis, Manthos D; Tsionas, Efthymios
  8. Cost Competitiveness of Chinese and Finnish Paper and Paper Product Manufacturing By Harri Ahveninen; Paavo Suni; Yanyun Zhao; Yilin Wu
  9. Cost Structure, Efficiency and Heterogeneity in US Higher Education: An Empirical Analysis By Geraint Johnes; T Agasisti
  10. The productivity advantages of large cities: Distinguishing agglomeration from firm selection By Combes, Pierre-Philippe; Duranton, Gilles; Gobillon, Laurent; Puga, Diego; Roux, Sébastien
  11. Determinants of bank efficiency: Evidence from a semi-parametric methodology By Delis, Manthos D; Papanikolaou, Nikolaos I
  12. Are Workers with A Long Commute Less Productive? An Empirical Analysis of Absenteeism By Jos van Ommeren; Eva Gutièrrez-i-Puigarnau
  13. Intersectoral Wage Differentials and the Change of the Composition of Urban Employment in Mexico during 2001-2004. By Carlo Alcaraz; Daniel Chiquiar; Manuel Ramos Francia
  14. Considerations concerning the analysis of the wage costs efficiency By BONDOC, Maria-Daniela; RADU, Florea
  15. The structural transformation between manufacturing and services and the deline in the U.S. GDP volatility By Alessio Moro
  16. Duality Theory for Variable Costs in Joint Production By Jeffrey LaFrance; Rulon Pope
  17. Wage Dispersion and Firm Productivity in Different Working Environments By Benoît Mahy; François Rycx; Mélanie Volral
  18. R&D Productivity and Intellectual Property Rights Protection Regimes By Joanna Poyago-Theotoky; Khemarat Talerngsri Teerasuwannajak
  19. Does Liberalisation cause more Electricity Blackouts? Evidence from a Global Study of Newspaper Reports By Yu, W.; Pollitt, M.G.
  20. Bank ties and firm performance in Japan: some evidence since FY2002 By Patrick McGuire

  1. By: Vadlamannati, Krishna Chaitanya
    Abstract: The paper uses unique aggregate industry-level dataset at subnational level from India to measure the effects of foreign investments on the productivity of domestic firms. Using pooled regression analysis with fixed effects for the period 2002 – 2005, we find that: (a) foreign investments have significant positive effect on productivity of domestic firms. However, the coefficient values of FDI are smaller, suggesting that the positive effects are marginal. (b) When FDI inflows are controlled for in the cross-section productivity regression, the relationship between the share of foreign technical collaborations and productivity of domestic firms increases significantly. This supports the argument that foreign technical collaborations increase productivity in part through its effect on the FDI inflows. (c) Another interesting finding is that there is no strong evidence to show that this positive effect is state-heterogeneous. In turn, we find partial effects of FDI are marginally higher in non-industrial states. Thus, we suggest that domestic firms can reap rich dividends if the FDI inflows are evenly distributed across the regions, particularly concentrating the efforts on attracting FDI into non-industrial states.
    Keywords: FDI; Productivity; India
    JEL: O1 O4
    Date: 2009–03–03
  2. By: Haskel, Jonathan (Imperial College London); Sadun, Raffaella (London School of Economics)
    Abstract: We use UK micro data to explore whether planning regulation reduced UK retailing productivity growth between 1997 and 2003. We document a shift to smaller shops, particularly within supermarket chains, following a regulatory change in 1996 which increased the costs of opening large stores. This might have caused a slowdown in productivity growth if firms (a) lose scale advantages, by moving to smaller stores and (b) lose scope advantages if existing organisational knowledge appropriate to larger stores is not perfectly substitutable with the organisational capital required to run smaller stores. Our micro data shows a relation, controlling for fixed effects, between chain-level TFP for multi-store chains and various measures of the size of the stores within the chain. Our results suggest the fall in within-chain shop sizes was associated with a lowering of chain TFP by about 0.4% pa, about 40% of the post-1995 slowdown in UK retail TFP growth. The foregone productivity works out at about £80,000 per small chain supermarket store.
    Keywords: productivity, retail, regulation
    JEL: D24 L81
    Date: 2009–02
  3. By: Souma, Wataru; Ikeda, Yuichi; Iyetomi, Hiroshi; Fujiwara, Yoshi
    Abstract: The distribution of labour productivity is investigated by analyzing the longitudinal micro-level data set which contains detailed financial condition of large numbers of Japanese companies over the period 1996–2006. The generalized beta function of the second kind is applied to explain the distribution. We calculate marginal labour productivity by using the fitting parameters, and show that the economy in the labour market is not in equilibrium. By comparing parameters characterizing high productivity range and low productivity range, we show that inequality of low productivity range is larger than that of high productivity range. In addition, it is shown that the change of inequality in low productivity has strong correlation with GDP.
    Keywords: Labour productivity, marginal labour productivity, inequality
    JEL: C16 E23 L60
    Date: 2009
  4. By: Delis, Manthos D; Molyneux, Philip; Pasiouras, Fotios
    Abstract: This paper examines the relationship between the regulatory and supervision framework and the productivity of banks in 22 countries over the period 1999-2006. We follow a semi-parametric two-step approach that combines Malmquist index estimates with bootstrap regressions. The results indicate that regulations and incentives that promote private monitoring have a positive impact on productivity. Restrictions on banks’ activities relating to their involvement in securities, insurance, real estate and ownership of non-financial firms also have a positive impact. However, regulations relating to the first and second pillars of Basel II, namely capital requirements and official supervisory power do not appear to have a statistically significant impact on productivity.
    Keywords: Banks; Basel II; Productivity; Regulations
    JEL: C14 G21
    Date: 2009–02–07
  5. By: Philipp J.H. Schröeder (Aarhus School of Business, University of Aarhus, Denmark); Allan Sørensen (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: Empirical literature has established a positive link between firm productivity and export status, yet notable exceptions exist. The present paper shows that the underlying theory (Melitz, 2003) is in fact able to accommodate the rule as well as the exception. The fulcrum of the argument is the tension between empirical work measuring productivity based on average cost information, and theoretical work representing productivity by marginal cost. In a heterogeneous firms trade model, we compute productivity based on average cost and find that around the export-indifferent firm, exporters will be less productive than non-exporters. Furthermore, we show that this effect may feed through at the industry level.
    Keywords: Intra-industry trade, firm productivity, monopolistic competition, heterogeneous firms
    JEL: F12 F13 F15
    Date: 2009–02–09
  6. By: Antonelli Cristiano (University of Turin)
    Abstract: This paper contributes the analysis of the persistence of innovation activities, as measured by total factor productivity (TFP) and explores its path pendent caracteristics. The empirical analysis of firm level TFP for a sample of 7020 Italian manufacturing companies observed during the years1996-2005 confirms that firms that have been able to improve the general efficiency of their production process at time t are likely to keep innovating in the following periods of time, more than firms that never innovated before. The empirical analysis is based on both transition probability matrixes and on dynamic discrete choice panel data models. The evidence suggests that innovation persistence is path dependent, as opposed to past dependent. The dynamics of the process in fact is typically non-ergodic, yet it is not exclusively determined by its but is shaped by a number of complementary and contingent factors origins that affect locally the sequence of the hysteretic effects of the early state dependence.
    Date: 2009–02
  7. By: Delis, Manthos D; Tsionas, Efthymios
    Abstract: The aim of this study is to provide a methodology for the joint estimation of efficiency and market power of individual banks. The proposed method utilizes the separate implications of the new empirical industrial organization and the stochastic frontier literatures and suggests identification using the local maximum likelihood (LML) technique. Through LML, estimation of market power of individual banks becomes feasible, while a number of restrictive theoretical and empirical assumptions are relaxed. The empirical analysis is carried out on the basis of EMU and US bank data and the results suggest small differences in the market power and efficiency levels of banks between the two samples. Market power estimates indicate fairly competitive conduct in general; however, heterogeneity in market power estimates is substantial across banks within each sample. The latter result suggests that while the banking industries examined are fairly competitive in general, the practice of some banks deviates from the average behavior, and this finding has important policy implications. Finally, efficiency and market power present a negative relationship, which is in line with the so-called “quiet life hypothesis”.
    Keywords: Efficiency; market power; local maximum likelihood
    JEL: L11 C14 G21
    Date: 2009–01–07
  8. By: Harri Ahveninen; Paavo Suni; Yanyun Zhao; Yilin Wu
    Abstract: ABSTRACT : This study focuses on the labour cost competitiveness of the paper and pulp industry in China and Finland in particular, using the corresponding German, the US and Estonian industries as a point of comparison in the early 2000s. This study deepens the analysis of the earlier study of the cost competitiveness of the manufacturing industries in the same group of countries. Separate studies focusing on the labour cost competitiveness are carried out in a parallel manner on the chemical industries and metal industries. The results of these three sector studies deepen the knowledge about the change of competitiveness and its level. Large unit labour cost differences in a common currency were obviously a key factor behind exceptionally rapidly changing international production and trade structures in the late 1990s and early 2000s. The Chinese paper and pulp industry grew by about a quarter per year in 2000-2007 as the average annual growth of the value added of world manufacturing volume was only 3 per cent in 2000-2006. Nominal wages as such do not imply good international competitiveness. Chinese wages are, however, low even if their low labour productivity is taken into account and costs per unit of production are compared in a common currency. The relative levels of the Chinese unit labour costs vis-à-vis Germany, using the unit value ratios (UVR) to make the production volumes comparable, were estimated to be about 9 per cent in the paper and pulp industry. The ratio has even declined in the early 2000s and has stayed relatively stable after that until 2007. Improving labour productivity in China had compensated for the effects of rapidly rising wages and an appreciating Renminbi. The outlook of the paper and pulp industry, like the economy in general, is clouded by the difficult global financial crisis, which strongly restricts export possibilities and dampens also the domestic markets of industry. On the other hand, the stimulus packages of the government support the demand for paper and pulp products.
    Date: 2008–12–31
  9. By: Geraint Johnes; T Agasisti
    Abstract: We estimate a variety of models to evaluate costs in US higher education institutions. A novel feature of our approach involves the estimation of latent class and random parameter stochastic frontier models of the multiproduct cost function. This allows us fully to accommodate both the heterogeneity of institutions and the presence of technical inefficiencies. Our findings suggest that global economies could be achieved by effecting a reduction in the number of institutions providing undergraduate instruction, while increasing the number of institutions engaged in postgraduate activity.
    Keywords: costs, efficiency, stochastic frontier, latent class, random parameter.
    Date: 2009
  10. By: Combes, Pierre-Philippe; Duranton, Gilles; Gobillon, Laurent; Puga, Diego; Roux, Sébastien
    Abstract: Firms are more productive on average in larger cities. Two explanations have been offered: agglomeration economies (larger cities promote interactions that increase productivity) and firm selection (larger cities toughen competition allowing only the most productive to survive). To distinguish between them, we nest a generalised version of a seminal firm selection model and a standard model of agglomeration. Stronger selection in larger cities left-truncates the productivity distribution whereas stronger agglomeration right-shifts and dilates the distribution. We assess the relative importance of agglomeration and firm selection using French establishment-level data and a new quantile approach. Spatial productivity differences in France are mostly explained by agglomeration.
    Keywords: agglomeration; cities; firm selection; productivity
    JEL: C52 D24 R12
    Date: 2009–03
  11. By: Delis, Manthos D; Papanikolaou, Nikolaos I
    Abstract: In this paper, we use a semi-parametric two-stage model to examine the effect of bank-specific, industry-specific and macroeconomic determinants of bank efficiency. This method, proposed by Simar and Wilson (2007), relaxes several deficiencies of previous two-stage analyses, which regress non-parametric estimates of bank efficiency on exogenous determinants. In particular, we propose a bootstrap procedure to be used in the second stage and we compare the results obtained to the equivalents of a Tobit model. We suggest that the Tobit regressions inaccurately provide insignificant estimates for the effect of bank size, industry concentration and economic investment on bank efficiency, a fact that illustrates the power of the new method. Since the effect of these determinants has been ambiguous in previous literature, this may be a desideratum for future research.
    Keywords: Bank efficiency; semi-parametric models
    JEL: C14 G21
    Date: 2009–01
  12. By: Jos van Ommeren (VU University Amsterdam); Eva Gutièrrez-i-Puigarnau (VU University Amsterdam)
    Abstract: We hypothesize, and test for, a negative effect of the length of the commute on worker’s productivity, by examining whether the commute has a positive effect on worker’s absenteeism. Our estimates for Germany indicate that commuting distance induces absenteeism with an elasticity of about 0.07. On average, absenteeism would be about 16 percent less if all workers would have a negligible commute. These results are consistent with urban efficiency wage models.
    Keywords: absenteeism; commuting; productivity
    JEL: R23 J22 J24
    Date: 2009–02–19
  13. By: Carlo Alcaraz; Daniel Chiquiar; Manuel Ramos Francia
    Abstract: We estimate wage differentials across different sectors of the Mexican economy. The results suggest that the wage differential between the formal and informal sectors is significant and larger than the differential between industry and services. The findings suggest that significant differences in productivity levels between the formal and informal sectors could exist. This, in turn, might imply that the economy's aggregate productivity could be affected by the increase of the share of informal employment. The results also suggest that the main distortions in the Mexican labor market seem to be related more with labor regulations that affect the allocation of resources between formal and informal activities, than a result of intrinsic characteristics of the production processes in the industrial and service sectors.
    Keywords: Informal Sector, Productivity, Labor Market Distortions
    JEL: J24 J31 O17
    Date: 2008–07
  14. By: BONDOC, Maria-Daniela; RADU, Florea
    Abstract: In this article, the authors sought to study the efficiency of the staff costs and its reflection upon the main economic and financial indicators of a company. In the performed study, the application of the factor analysis models was made at the level of an industrial trading company the social object of which is manufacturing automotive subassemblies. The efficiency of the wage costs was monitored by the correlation between the average wage and the labour efficiency as well as by means of the indicators used for the general expression of their efficiency, such as: staff costs at an operating income, turnover or added value of 1,000 Lei. Moreover, highlighting the economic and financial consequences of their modification on the main key performance indicators of the company was considered. The conclusions that were drawn are useful for the management company for the substantiation of the decisions related to the improvement of the usage of the human resources, with direct positive consequences upon the reduction of the wage costs to 1,000 Lei and of the wage costs per product unit, as well as upon the profit increase.
    Keywords: staff costs; efficiency; labour efficiency; average wage
    JEL: J41 J3 G3 J24 M12
    Date: 2008–04
  15. By: Alessio Moro
    Abstract: For a single firm with a given volatility of total factor productivity at the gross output level (GTFP), the volatility of total factor productivity at the value added level (YTFP) increases with the share of intermediate goods in gross output. For a Cobb-Douglas production function in capital, labor and intermediate goods, YTFP volatility is equal to GTFP volatility divided by one minus the share of intermediate goods in gross output. In the U.S., this share is steadily around 0.6 for manufacturing and 0.38 for services during the 1960-2005 period. Thus, the same level of GTFP volatility in the two sectors implies a 55% larger YTFP volatility in manufacturing. This fact contributes to the higher measured YTFP volatility in manufacturing with respect to services. It follows that, as the services share in GDP increases from 0.53 in 1960 to 0.71 in 2005 in the U.S., GDP volatility is reduced. I construct a two-sector dynamic general equilibrium input-output model to quantify the role of the structural transformation between manufacturing and services in reducing the U.S. GDP volatility. Numerical results for the calibrated model economy suggest that the structural transformation can account for 32% of the GDP volatility reduction between the 1960-1983 and the 1984-2005 periods.
    Keywords: Volatility decline, Structural change, Real business cycle, Total factor productivity
    JEL: C67 C68 E25 E32
    Date: 2009–02
  16. By: Jeffrey LaFrance; Rulon Pope (School of Economic Sciences, Washington State University)
    Abstract: Duality methods for incomplete systems of consumer demand equations are adapted to the dual structure of variable cost functions in joint production. This allows the identification of necessary and sufficient restrictions on technology and cost so that the conditional factor demands can be written as functions of input prices, fixed inputs, and cost. These are observable when the variable inputs are chosen and committed to production, hence the identified restrictions allow ex ante conditional demands to be studied using observable data. This class of production technologies is consistent with all von Neumann-Morgenstern utility functions when ex post production is uncertain.
    Keywords: Joint production, variable cost, duality theory
    JEL: C3 D2 D8
    Date: 2008–12
  17. By: Benoît Mahy (Université de Mons-Hainaut, WRC et chercheur associé au DULBEA); François Rycx (DULBEA, Université libre de Bruxelles, Brussels, and IZA, Bonn); Mélanie Volral (Université de Mons-Hainaut et WRC.)
    Abstract: This paper investigates the impact of wage dispersion on firm productivity in different working environments. More precisely, it examines the interaction with: i) the skills of the workforce, using a more appropriate indicator than the standard distinction between white- and blue collar-workers, and ii) the uncertainty of the firm economic environment, which has, to our knowledge, never been explored on an empirical basis. Using detailed LEED for Belgium, we find a hump-shaped relationship between (conditional) wage dispersion and firm productivity. This result suggests that up to (beyond) a certain level of wage dispersion, the incentive effects of “tournaments” dominate (are dominated by) “fairness” considerations. Findings also show that the intensity of the relationship is stronger for highly skilled workers and in more stable environments. This might be explained by the fact that monitoring costs and production-effort elasticity are greater for highly skilled workers and that in the presence of high uncertainty workers have less control over their effort-output relation and associate higher uncertainty with more unfair environments.
    Keywords: Wage dispersion, labour productivity, working environments, personnel economics, linked employer-employee data.
    JEL: J31 J24 M52
    Date: 2009–02
  18. By: Joanna Poyago-Theotoky (Department of Economics, Loughborough University and RCEA); Khemarat Talerngsri Teerasuwannajak (Faculty of Economics, Chulalongkorn University)
    Abstract: We study firms' preferences towards intellectual property rights (IPR) regimes in a North-South context, using a simple duopoly model where a 'North' and a 'South' firm compete in a third market. Unlike other contributions in this field, we explicitly introduce the South's capability to undertake cost-reducing R&D, but maintain the South's inferiority in utilizing and managing its R&D. In contrast to traditional results, we show that the North may encourage lax IPR protection provided that its South rival's R&D productivity is sufficiently high, while the South may find it in its best interest to strictly enforce IPR protection if its R&D productivity is low. In this sense, our results do not support the idea of universal or uniform IPR protection regime. In addition, we find that if firms are allowed to agree on any level of information exchange when IPR protection is strictly enforced, such an exchange can always be established as long as each firm is ensured that what it gets to utilize in return is greater than a half of what it gives to its rival.
    Keywords: intellectural property rights (IPRs), cost-reducing R&D, R&D productivity, information exchange.
    JEL: O34 F13 O32 O38 L13 D43
    Date: 2009–03
  19. By: Yu, W.; Pollitt, M.G.
    Abstract: There is a public perception that electricity liberalisation is the major cause of recent electricity blackouts. This is reflected in the newspaper reporting of blackouts. By contrast, it was not listed as a cause in any official investigation reports. In this paper, we examine the common causes of a number of large blackouts worldwide by applying the qualitative content analysis technique to different investigation reports. We generate a regional blackout dataset, spanning European, Latin American and Asian regions, by using news articles derived from the Factiva database. We use the random effects model and sample means techniques in a detailed examination of the effect of liberalisation and regional factors on the number of ‘small’ electricity blackouts between 1998 and 2007. The results indicate that, contrary to what we might expect, liberalisation does not have a significant statistical effect on the frequency of small blackouts. The perception that there is an increase in the number of blackouts after liberalisation seems to be shaped by the media’s reporting of individual ‘large’ incidents rather than the number of incidents reported.
    Keywords: power outage, electricity blackouts, liberalisation
    JEL: L15 L51 L94
    Date: 2009–03
  20. By: Patrick McGuire
    Abstract: Since the mid-1990s, major Japanese banks have sold off a significant portion of their holdings of corporate equity. Using information on the identity of Japanese firms' top 10 shareholders, this paper explores the process of banks' equity disposal. There is some evidence that, after FY2001, banks' sales of equity accelerated, even holdings in firms for which the bank served as the main bank. However, affiliation with a main bank - proxied by firm-bank loan and shareholding ties - continues to be negatively associated with firm performance through FY2004. Regression estimates suggest that firms with strong bank ties are less profitable, face higher interest payments, and yet do not seem to enjoy lower stock price volatility than other firms. These effects are strongest for firms with a history of outside financing options, consistent with earlier arguments that the benefits of main bank relationships accrue to the banks themselves.
    Keywords: Cross-Shareholding; Main Bank; Japanese Banks; Firm Performance
    Date: 2009–03

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