New Economics Papers
on Efficiency and Productivity
Issue of 2009‒08‒08
thirteen papers chosen by

  1. The efficiency of Islamic and conventional banks in the Gulf Cooperation Council (GCC) countries: An analysis using financial ratios and data envelopment analysis By Jill Johnes; Marwan Izzeldin; Vasilleios Pappas
  2. Performance Measure for the Commercial Banks in Bangladesh: An Application of Total Factor Productivity By A A Rushdi
  3. R&D Intensity, Technology Transfer and Absorptive Capacity By Md. Rabiul Islam
  5. Unobserved Heterogeneity and International Benchmarking in Public Trasport By Cullmann, Astrid; Farsi, Mehdi; Filippini Massimo
  6. Productivity shocks and real exchange rates - a reappraisal. By Tuomas A. Peltonen; Michael Sager
  7. Trade Complexity and Productivity By Carlo Altomonte; Gabor Bekes
  8. Who Earns Their Keep? An Estimation of the Productivity-Wage Gap in Hungary 1986-2005 By Anna Lov sz; Mariann Rig¢
  10. The Impact of Trade Liberalization on Productivity Within and Across Industries: Theory and Evidence By Josh Ederington; Phillip McCalman
  11. Identifying the elasticity of substitution with biased technical change. By Miguel A. León-Ledesma; Peter McAdam; Alpo Willman
  13. How do young innovative companies innovate? By Gabriele Pellegrino; Mariacristina Piva; Marco Vivarelli

  1. By: Jill Johnes; Marwan Izzeldin; Vasilleios Pappas
    Abstract: The purpose of this paper is to provide an in-depth analysis, using both financial ratio analysis and data envelopment analysis (DEA), of a consistent sample of Islamic and conventional banks located in the GCC region over the period 2004 to 2007. Results from the financial ratio analysis indicate that Islamic banks are less cost efficient but more revenue and profit efficient than conventional banks. Differences in performance between Islamic and conventional banks are significant in the case of four of the six ratios. The DEA results indicate that gross efficiency (i.e. the efficiency of each bank relative to the whole banking sector) is significantly higher, on average, amongst conventional compared to Islamic banks. Gross efficiency is decomposed into a component which reflects managerial inadequacies and a component which is a consequence of the constraints caused by bank type. When equity is included as an input into the DEA model (to reflect risk-taking attitudes of banks), there is evidence that the difference in gross performance is more a consequence of the latter than the former since net efficiency (which takes out the inefficiency caused by bank type) is not significantly different, on average, between the two groups. When equity is excluded from the model, however, the inferior performance by Islamic banks is caused by a mix of managerial inefficiency and the rules under which Islamic banks operate. A comparison of the rankings of banks based on DEA efficiencies and financial ratios finds a consistently significant positive relationship only in the case of the gross DEA efficiency scores and the cost ratios. The DEA and financial ratio measures (particularly the revenue and profit ratios) therefore offer different information, and the methods are complements rather than substitutes. Finally, productivity has grown only slightly over the four-year period. This is caused by a fall in efficiency combined with an increase in technology. The magnitude of the components of productivity change is particul
    Keywords: Banking sector, Efficiency, Output distance function, Data Envelopment Analysis, Financial ratio analysis, Gulf region
    Date: 2009
  2. By: A A Rushdi (American International University-Bangladesh (AIUB))
    Abstract: The performance evaluation of business has taken high profile in the climate of micro-economic reform in the recent past. The real wealth of Bangladesh can be increased by increasing the inputs available to the country. That is by discovering new resources and using the existing resources more efficiently. Efficiency gains in the banking sector of the country will make the country domestically and internationally more competitive and capable of generating more income and employment opportunities in the country. An adequate assessment of efficiency gains requires a range of financial, operational and economic indicators to be applied including Partial Factor Productivity (PFP) and Total Factor Productivity (TFP). Productivity growth is considered to be the best way to measure international competitiveness and economic growth. Estimates of TFP measures will provide rates of growth in the productive efficiency of labour and capital. Relative growth rates will suggest whether TFP growth was predominantly biased towards saving labour or saving capital and other inputs. To date there has not been any serious study on TFP in the Banking sector of Bangladesh. The present study is an attempt to bridge this gap.
    Date: 2009–02
  3. By: Md. Rabiul Islam
    Abstract: In the line of Schumpeterian fully endogenous growth theory, this study attempts to investigate whether differences in research intensity as well as absorptive capacity help to explain cross-country differences in productivity growth in a panel of 55 sample countries including 23 OECD and 32 developing economies over the period 1970 to 2004. Using several indicators of innovative activity and product variety empirical results from system GMM estimator confirm that research intensity has significant positive effect on productivity growth in both the OECD and developing countries. TFP growth is also found to be enhanced by the distance to technology frontier in both the group of countries. R&D based absorptive capacity seems to have significant positive impact on productivity growth in both the groups though strong in OECD countries. Human capital based technology transfer is found significant and robust in both the OECD and developing countries. Absorptive capacity appears to be sensitive to the model specification and measurement of innovative activity as well as product variety.
    Keywords: Schumpeterian growth theory, R&D intensity, TFP growth, technology transfer, human capital, absorptive capacity, system GMM, OECD, developing countries
    JEL: O10 O30 O47
    Date: 2009–08
  4. By: Jakob B. Madsen
    Abstract: Based on an asset pricing model this paper shows that traditional growth accounting exercises attribute too much weight to capital deepening and suggests a method to filter out TFP-induced capital-deepening from the estimates. Using data for 16 industrialised countries, it is shown that labour productivity and capital deepening have been driven by total factor productivity and reductions in the required stock returns over the past 137 years. Furthermore, it is shown that TFP precedes the K-L ratio and not the other way around.
    Keywords: Growth accounting, TFP growth, required stock returns, endogeneity
    JEL: E0 E2 O47
    Date: 2009–08
  5. By: Cullmann, Astrid (DIW Berlin (German Institute for Economic Research), Germany); Farsi, Mehdi (Centre for Energy Policy and Economics (CEPE), Department of Management, Technology, and Economics, ETH Zürich, Switzerland); Filippini Massimo (Istituto Mecop, Facoltà di Scienze economiche, Università della Svizzera italiana, Svizzera)
    Abstract: We analyze the technical efficiency of German and Swiss urban public transport companies by means of SFA. In transport networks we might face different network structures or complexities, not observed, but influencing the production process. The unobserved factors are typically modeled as separable factors. However, we argue that the entire production process is organized around different network structures. Therefore, they are inevitably non-separable from the observed inputs and outputs. The adopted econometric model is a random coefficient stochastic frontier model. We estimate an input distance function for the years 1991 to 2006. The results underline the presence of unobserved non-separable factors.
    Keywords: distance function, unobserved heterogeneity, technical efficiency, bus industry, panel data
    JEL: D24 L43 L92
    Date: 2009–07
  6. By: Tuomas A. Peltonen (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Michael Sager (Wellington Management, 75 State Street, Boston, MA 02109, USA.)
    Abstract: We reappraise the relationship between productivity and equilibrium real exchange rates using a panel estimation framework that incorporates a large number of countries and importantly, a dataset that allows explicit consideration of the role of non-traded, as well as traded, sector productivity shocks in exchange rate determination. We find evidence of significant correlation between real exchange rates and productivity differentials in both sectors. But our finding of a significant role for the non-traded sector in exchange rate determination, and of a relatively larger correlation between exchange rates and productivity shocks of a given size emanating from this sector, represent clear contradictions of the widely cited Balassa-Samuelson hypothesis. Our findings remain valid in the face of a number of robustness tests, including the exchange rate regime and numéraire currency. JEL Classification: F31, O47, C23.
    Keywords: Exchange rate, productivity, Balassa-Samuelson, panel data, emerging market economies.
    Date: 2009–04
  7. By: Carlo Altomonte (Department of Institutional Analysis and Public Management University Bocconi); Gabor Bekes (Institute of Economics Hungarian Academy of Sciences)
    Abstract: We exploit a panel dataset of Hungarian firms merged with product-level trade data for the period 1992-2003 to investigate the relation between firms' trading activities (importing, exporting or both) and productivity. We find important self-selection effects of the most productive firms induced by the existence of heterogeneous sunk costs of trade, for both importers and exporters. We relate these sunk costs of trade to the relationship-specific nature of the trade activities, entailing a certain degree of technological and organizational complexity as measured by a number of proxies. We also show that, to the extent that imports and exports are correlated within firms, failing to control for the importing activity leads to overstated average productivity premia of exporters.
    Keywords: trade openness, firms' heterogeneity, productivity
    JEL: F12 F14 L25
    Date: 2009–07
  8. By: Anna Lov sz (Institute of Economics Hungarian Academy of Sciences); Mariann Rig¢ (Central European University)
    Abstract: In this paper we seek to provide new empirical evidence on the relative productivities and wages of various worker groups (by gender, age, and education), based on longitudinal matched employer-employee data from Hungary covering 1986-2005. We estimate the productivity and wage gaps from firm-level production functions and wage equations, using firm-level data on productive inputs and output, wage costs, and the demographic composition of the work force obtained from the linked worker data. This methodology allows us to assess whether productive differences can account for the wage gaps between worker groups, as well as the evolution of these gaps following the transition to a free market. We take firm fixed effects into account to assess the role of selection at the firm level, and estimate the production function via the method of Levinson and Petrin to account for endogeneity of input choice. The results show that while there may be significant differences in productivities and wages between groups in the OLS specification, these mostly become insignificant within firms. We find that much of the fall in the value of skills obtained prior to the transition is due to selection of workers at the firm level.
    Keywords: relative wage, relative productivity, quality of labor, production function, earnings equation
    JEL: J24 J31 J71
    Date: 2009–07
  9. By: Jakob B. Madsen
    Abstract: This paper examines the effect of international patent stock on total factor productivity for 16 OECD countries over the past 120 years. The results show that the international patent stock is highly influential for economic growth and, together with knowledge spillovers through the channel of imports, has contributed significantly to TFP growth and σ-convergence among the OECD countries over the past 120 years.
    Keywords: TFP growth, international diffusion of ideas, international patents, convergence.
    JEL: E13 E22 E23 O11 O3 O47
    Date: 2009–08
  10. By: Josh Ederington; Phillip McCalman
    Abstract: Numerous studies have investigated the link between trade policy and firm productivity. Despite justifying firm level analysis on the basis of considerable heterogeneity between firms within narrowly defined industries, these studies typically constrain all firms to have the same expected response to changes in trade policy. In this paper we develop a theoretical model that accounts for the existence of firm level heterogeneity within industries and predicts that the equilibrium response to changes in trade policy will also be heterogeneous in terms of both sign and size. The variation in firm level reaction is shown to be determined by both firm and industry characteristics and therefore the equilibrium response to trade policy is predicted to vary not only within industries but also across industries. These results allow us to use both sources of variation in the data. We examine these predictions on a firm level data set for the Colombian manufacturing sector in the 1980’s and find strong support for them.
    Keywords: tariffs, technology diffusion, productivity.
    JEL: F10 F12 F13 F14
    Date: 2009–08
  11. By: Miguel A. León-Ledesma (Department of Economics, Keynes College, University of Kent, Canterbury, Kent CT2 7NP, United Kingdom.); Peter McAdam (Corresponding author: Research Department, European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Alpo Willman (Research Department, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Despite being critical parameters in many economic fields, the received wisdom, in theoretical and empirical literatures, states that joint identification of the elasticity of capital-labor substitution and technical bias is infeasible. This paper challenges that pessimistic interpretation. Putting the new approach of "normalized" production functions at the heart of a Monte Carlo analysis we identify the conditions under which identification is feasible and robust. The key result is that the jointly modeling the production function and first-order conditions is superior to single-equation approaches in terms of robustly capturing production and technical parameters, especially when merged with "normalization". Our results will have fundamental implications for production-function estimation under non-neutral technical change, for understanding the empirical relevance of normalization and the variability underlying past empirical studies. JEL Classification: C22, E23, O30, 051.
    Keywords: Constant Elasticity of Substitution, Factor-Augmenting Technical Change, Normalization, Factor Income share, Identification, Monte Carlo.
    Date: 2009–01
  12. By: Shishir Saxena
    Abstract: This paper finds that technology stocks and spillovers, have significantly affected the output of Indian manufacturing firms, over the period 1994 to 2006. The technology of a firm is measured, as embodied in its recent stock of plant & machinery, as well as generated through its own R&D. Moreover, investments in both these types of capital by a firm, also generate learning and level of development effects, for all other firms in that industry.
    Keywords: Indian manufacturing, equipment, R&D, spillovers
    JEL: L6 E22 D24 D62 O30
    Date: 2009–08
  13. By: Gabriele Pellegrino (Universita Cattolica del Sacro Cuore, Piacenza and Milano); Mariacristina Piva (Universita Cattolica del Sacro Cuore, Piacenza and Milano); Marco Vivarelli (Universita Cattolica del Sacro Cuore, Piacenza and Milano; IZA, Bonn; Max Planck Institute of Economics, Jena)
    Abstract: This paper discusses the determinants of product innovation in young innovative companies (YICs) by looking at in-house and external R&D and at the acquisition of external technology in embodied and disembodied components. These input-output relationships are tested on a sample of innovative Italian firms. A sample-selection approach is applied. Results show that in-house R&D is linked to the propensity to introduce product innovation both in mature firms and YICs; however, innovation intensity in the YICs is mainly dependent on embodied technical change from external sources, while -in contrast with the incumbent firms- in-house R&D does not play a significant role.
    Keywords: R&D, product innovation, embodied technical change, CIS 3, sample selection.
    JEL: O31
    Date: 2009–08–06

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