New Economics Papers
on Efficiency and Productivity
Issue of 2009‒12‒19
seventeen papers chosen by

  1. Measuring post-crisis productivity for Jamaican banks By Daley, Jenifer; Matthews, Kent
  2. Total Factor Productivity growth, Technological Progress, and Efficiency Changes: Empirical Evidence from Canadian Manufacturing Industries By Mahamat Hamit-Haggar
  3. Efficiency and frontier technology in the aftermath of recessions: international evidence By Dimitris Christopoulos; Miguel León-Ledesma
  4. The Impact of Plant-Level Resource Reallocations and Technical Progress on U.S. Macroeconomic Growth By Amil Petrin; T. Kirk White; Jerome P. Reiter
  5. Efficiency and Convergence in the Jamaican banking sector 1998-2007 By Daley, Jenifer; Matthews, Kent
  6. The Contribution of the Publicly Funded R&D Capital to Productivity Growth and an application to the Greek food and beverages industry By mamatzakis, e
  7. Productivity, Welfare and Reallocation: Theory and Firm-Level Evidence By Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
  8. On the Measurement of Technological Progress Across Countries By Growiec, Jakub
  9. Real Wages, Inflation and Labour Productivity in Australia By Kumar, Saten; Webber, Don J.; Perry, Geoff
  10. Bank competition, risk taking and productive efficiency: Evidence from Nigeria's banking reform experiments By Murinde, Victor; Zhao, Tianshu
  11. Heterogeneity matters: labour productivity differentiated by age and skills By Muriel Roger; Malgorzata Wasmer
  12. Quantifying Non-monotonicity in Productivity-Input Relations By Sasan Bakhtiari
  13. Can Technology Deliver on the Yield Challenge to 2050? By Fischer, R.A.; Byerlee, Derek; Edmeades, G.O.
  14. Productivity Growth and Levels in France, Japan, the United Kingdom and the United States in the Twentieth Century By Gilbert Cette; Yusuf Kocoglu; Jacques Mairesse
  15. Margins of international banking: is there a productivity pecking order in banking, too? By Buch, Claudia M.; Koch, Cathérine Tahmee; Koetter, Michael
  16. Maximum Likelihood Estimation of Censored Stochastic Frontier Models: An Application to the Three-Stage DEA Method By Wen-Jen Tsay; Cliff J. Huang; Tsu-Tan Fu; I-Lin Ho
  17. Effects of Terms of Trade Gains and Tariff Changes on the Measurement of U.S. Productivity Growth By Robert C. Feenstra; Benjamin R. Mandel; Marshall B. Reinsdorf; Matthew J. Slaughter

  1. By: Daley, Jenifer; Matthews, Kent (Cardiff Business School)
    Abstract: The study examines the changes to total factor productivity of Jamaican banks between 1998 and 2007. Using Data Envelopment Analysis with bootstrap to construct a Malmquist index, bank productivity is measured and decomposed into technical progress and efficiency. The results suggest an inconsistent growth pattern for banks between 1998 and 2007 driven mainly by efficiency gains in the immediate post-crisis period to 2002, and by technological progress towards the end of the sample period. The second largest banks along with merchant and locally-owned banks showed significant productivity growth in some models, with modest growth for commercial and foreign-owned banks.
    Keywords: Bank productivity; Malmquist Productivity index; DEA; bootstrapping; Jamaica
    JEL: G21 G28
    Date: 2009–12
  2. By: Mahamat Hamit-Haggar (Department of Economics, University of Ottawa)
    Abstract: As productivity (growth) appears to be the single most important determinant of a nation’s living standard or its level of real income over long periods of time, it is important to better understand the sources of productivity growth. In Canada, total factor productivity (TFP) growth is the major contributing factor (relative to changes in capital intensity) to labour productivity growth, particularly in manufacturing sector. However, the TFP gap is also the main source of labour productivity gap between Canada and other industrialized (OECD) countries in recent years. In this paper, a stochastic frontier production model is applied to Canadian manufacturing industries to investigate the sources of TFP growth. Using a comprehensive panel data set of eighteen industries over the period 1990-2005 and the approach proposed by Kumbhakar et al. (1991) and Kumbhakar and Lovell (2000), we decompose TFP growth into technological progress, changes in technical efficiency, changes in allocative efficiency and scale effects. The decomposition reveals that during the period under study, technological progress has been the main driving force of productivity growth, while negative efficiency changes observed in certain industries have contributed to reduce average productivity growth. In addition, our empirical results show that research and development (R&D) expenditure and information and communications technology (ICT) investment, as well as trade openness exert a positive impact on productivity growth through the channel of efficiency gains. We argue that the decomposition carried out in this study may be very helpful to elicit the correct diagnosis of Canada’s productivity problem and develop effective policies to reverse the situation, and thereby reduce Canada’s lagging productivity gap.
    Keywords: Canadian manufacturing, Stochastic frontier, TFP growth, Efficiency changes.
    JEL: L6 O16 O47
    Date: 2009
  3. By: Dimitris Christopoulos; Miguel León-Ledesma
    Abstract: The relationship between recessions and productivity has been the focus of an important body of theoretical and empirical research in the last two decades. We contribute to this literature by presenting new evidence on the evolution of productivity in the aftermath of recessions. Our method allows us to distinguish between frontier technology and (in-)efficiency effects of recessions. We present international evidence for a panel of 70 countries for the 1960-2000 period. Our results reveal that the average cumulative impact of recessions on productivity up to four years after its end is negative and signifcant. This, however, results from a mixture of mechanisms. The level of frontier productivity increases, but the rate of technical progress decreases, leading to a fall in frontier productivity. Efficiency also falls, lending support for the idea that recessions tend to reduce, rather than increase, economic restructuring. Long and deep recessions are also shown to have distinctive impacts on productivity.
    Keywords: Growth and cycles; recessions; technical efficiency; technical progress.
    JEL: F31 F37 C32
    Date: 2009–11
  4. By: Amil Petrin; T. Kirk White; Jerome P. Reiter
    Abstract: We build up from the plant level an "aggregate(d) Solow residual" by estimating every U.S. manufacturing plant's contribution to the change in aggregate final demand between 1976 and 1996. We decompose these contributions into plant-level resource reallocations and plant-level technical efficiency changes. We allow for 459 different production technologies, one for each 4- digit SIC code. Our framework uses the Petrin and Levinsohn (2008) definition of aggregate productivity growth, which aggregates plant-level changes to changes in aggregate final demand in the presence of imperfect competition and other distortions and frictions. On average, we find that aggregate reallocation made a larger contribution than aggregate technical efficiency growth. Our estimates of the contribution of reallocation range from 1:7% to2:1% per year, while our estimates of the average contribution of aggregate technical efficiency growth range from 0:2% to 0:6% per year. In terms of cyclicality, the aggregate technical efficiency component has a standard deviation that is roughly 50% to 100% larger than that of aggregate total reallocation, pointing to an important role for technical efficiency in macroeconomic fluctuations. Aggregate reallocation is negative in only 3 of the 20 years of our sample, suggesting that the movement of inputs to more highly valued activities on average plays a stabilizing role in manufacturing growth.
    Keywords: Macroeconomic Fluctuations; Aggregate Productivity Growth; Reallocation; Technical Efficiency
    JEL: E32 L6 O47
    Date: 2009–12
  5. By: Daley, Jenifer; Matthews, Kent (Cardiff Business School)
    Abstract: Deregulation, re-regulation and continuing globalisation embody an imperative that banks increase efficiency to survive. We employ non-parametric bootstrap DEA to measure technical efficiency among Jamaican banks between 1998 and 2007. In addition, we test for conditional convergence to identify pointing variables for technical efficiency. Overall, the results suggest that there has been a tendency towards improvement in bank efficiency levels for the largest banks. The findings show strong evidence of conditional convergence, which means that each bank is converging to its own steady-state and that GDP growth, ownership and size are the major influences on levels of technical efficiency.
    Keywords: Bank efficiency; DEA; bootstrap; convergence; Jamaica
    JEL: G21 G28
    Date: 2009–12
  6. By: mamatzakis, e
    Abstract: This paper follows the dual cost function methodology and develops a theoretical specification that assesses the contribution of public R&D capital to the productivity growth. The empirical application focuses on Greek food and beverages industry. For this purpose it employs a micro-aggregated annual data set over the period 1976-2002. The regression analysis shows that publicly funded R&D capital is a productive input as 8.7 percent and 7.3 percent of the total factor productivity growth in the food industry and in the beverages industry respectively is attributed to the publicly funded R&D capital. The relationship between publicly funded R&D and private purchased inputs is also examined.
    Keywords: Public R&D; Productivity Growth; Rate of return.
    JEL: L6 O32
    Date: 2009–12
  7. By: Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
    Abstract: We prove that the change in welfare of a representative consumer is summarized by the current and expected future values of the standard Solow productivity residual. The equivalence holds if the representative household maximizes utility while taking prices parametrically. This result justifies TFP as the right summary measure of welfare (even in situations where it does not properly measure technology) and makes it possible to calculate the contributions of disaggregated units (industries or firms) to aggregate welfare using readily available TFP data. Based on this finding, we compute firm and industry contributions to welfare for a set of European OECD countries (Belgium, France, Great Britain, Italy, Spain), using industry-level (EU-KLEMS) and firm-level (Amadeus) data. After adding further assumptions about technology and market structure (firms minimize costs and face common factor prices), we show that welfare change can be decomposed into three components that reflect respectively technical change, aggregate distortions and allocative efficiency. Using the appropriate firm-level data, we assess the importance of each of these components as sources of welfare improvement in the same set of European countries.
    JEL: D24 D9 E20 O47
    Date: 2009–12
  8. By: Growiec, Jakub
    Abstract: We construct 14 alternative measures of technological progress for 19 OECD countries over the period 1970--2000, distinguishing between measures of productivity gains actually obtained in a given country (TFP growth, Malmquist index) and technological progress at the world technology frontier (potential TFP growth, the "frontier shift" index). We then compare these measures according to a range of characteristics, shedding light on some of their relative weaknesses and strengths. We find that these characteristics are sensitive to the precision of estimates of the world technology frontier, and then we demonstrate that this precision can be increased substantially by allowing for imperfect substitutability between unskilled and skilled labor and using US state-level data apart from cross-country data for estimating the world technology frontier. Because none of the 14 measures dominates all others on all dimensions, we conclude that the choice of appropriate measurement method should be suited to the question addressed in each particular study.
    Keywords: technological progress; world technology frontier; country-level data; US state-level data; production function; DEA
    JEL: O11 O47 E23 O33 O14
    Date: 2009–12–14
  9. By: Kumar, Saten; Webber, Don J.; Perry, Geoff
    Abstract: This paper presents an analysis of real wages, inflation and labour productivity interrelationships using cointegration, Granger-causality and, most importantly, structural change tests. Applications of tests to Australian data over the 1965-2007 period corroborate the presence of a structural break in 1985 and show that a 1 percent increase in manufacturing sector real wages led to an increase in manufacturing sector productivity of between 0.5 and 0.8 percent. Comparable estimates for the effect of inflation on manufacturing sector productivity have limited statistical significance. Granger causality test results suggest that real wages and inflation both Granger-cause productivity in the long run.
    Keywords: Labour productivity; Real wages; Inflation; Cointegration; Granger causality
    JEL: C50 E23
    Date: 2009–11–16
  10. By: Murinde, Victor; Zhao, Tianshu
    Abstract: We propose a three-stage procedure for investigating the interrelationships among bank competition, risk taking and efficiency. The procedure is applied to Nigeria's banking reforms (1993-2008). Stage I measures bank productive efficiency, using Data Envelopment Analysis, and the evolution of bank competition, using Conjectural Variations (CV) methods. Stage II uses the CV estimates to test whether regulatory reforms influence bank competition. Stage III investigates the impact of the reforms and concomitant changes in competition on bank behaviour. The evidence suggests that deregulation and prudential re-regulation influence bank risk taking and bank productive efficiency directly (direct impact) and via their impact on competition (indirect impact). Further, it is found that as competition increases, excessive risk taking decreases and efficiency increases. Overall, the evidence affirms policies that foster bank competition, at least in the Nigerian context.
    Keywords: Nigeria; risk-taking; bank efficiency; bank competition
    Date: 2009–11
  11. By: Muriel Roger; Malgorzata Wasmer
    Abstract: This study aims at evaluating the actual profile of marginal productivity across the age groups within the workforce. As age-productivity profile might differ between occupations, we differentiate the workforce simultaneously by skills (low-skilled, high-skilled) and by age (young, middle-aged, old). Estimating a production function with a nested constant-elasticity-of-substitution (CES) specification in labour allows the imperfect substitution between different categories of workers. We use French dataset for manufacturing, services and trade sectors. Labour productivity is found to be the lowest for the low-skilled older workers while high-skilled senior employees in manufacturing and trade are the most productive group. Throughout the sectors, wage rates vary considerably less than productivity and wage profiles are steeper for high-skilled workers. The relative productivity over wage ratio is found to be sector-specific. It is the highest for young workers in manufacturing while in services and trade it is the highest for the mid-age employees.
    Date: 2009
  12. By: Sasan Bakhtiari (School of Economics, The University of New South Wales)
    Abstract: It is stylized that productivity and input size should relate positively and monotonically in the long run. In this paper, I present a theory that unifies the role of demand and production to investigate conditions that make this relation a bell-shape. Under the optimality assumption and when establishments operate in the same market, I quantify a simple algebraic condition on demand and production elasticities that governs the relation between productivity and input size. The case where establishments face different demands is also considered using a simple trade model and the implications are shown to be qualitatively the same. Supportive evidence is obtained from plant-level data on ready-mix concrete. Findings of this paper have important implications on how productivity dispersion and size distribution are formed within industries.
    Keywords: Productivity; Size Distribution; Demand Elasticity; Returns to Scale
    JEL: D21 D24 L11 L22 L25 L61
    Date: 2009–11
  13. By: Fischer, R.A.; Byerlee, Derek; Edmeades, G.O.
    Abstract: This paper was produced for the FAO Expert Meeting on How to Feed the World in 2050 (Rome, 24-26 June 2009).
    Keywords: Technology, productivity, yield gaps, investment in R&D, biotechnology, input efficiency, Research and Development/Tech Change/Emerging Technologies,
    Date: 2009–06
  14. By: Gilbert Cette; Yusuf Kocoglu; Jacques Mairesse
    Abstract: This study compares labor and total factor productivity (TFP) in France, Japan, the United Kingdom and the United States in the very long (since 1890) and medium (since 1980) runs. During the past century, the United States has overtaken the United Kingdom and become the leading world economy. During the past 25 years, the four countries have also experienced contrasting advances in productivity, in particular as a result of unequal investment in information and communication technology (ICT). The past 120 years have been characterized by: (i) rapid economic growth and large productivity gains in all four countries; (ii) a long decline of productivity in the United Kingdom relative to the United States, and to a lesser extent also to France and Japan, a relative decline that was interrupted by the second world war (WW2); (iii) the remarkable catching-up to the United States by France and Japan after WW2, that stopped in the case of Japan during the 1990s. Capital deepening (at least to the extent this can be measured) accounts for a large share of the variations in performance; increasingly during the past 25 years, this has meant ICT capital deepening. However, the capital contribution to growth varies considerably over time and across the four countries, and it is always less important, except in Japan, than the contribution of the various other factors underlying TFP growth, such as, among others, labor skills, technical and organizational changes and knowledge spillovers. Most recently (in 2006), before the current financial world crisis, hourly labor productivity levels were slightly higher in France than in the United States, and noticeably lower in the United Kingdom (by roughly 10%) and even lower in Japan (30%), while TFP levels are very close in France, the United Kingdom and the United States, but much lower (40%) in Japan.
    JEL: E22 J24 N10 O47 O57
    Date: 2009–12
  15. By: Buch, Claudia M.; Koch, Cathérine Tahmee; Koetter, Michael
    Abstract: Modern trade theory emphasizes firm-level productivity differentials to explain the cross-border activities of non-financial firms. This study tests whether a productivity pecking order also determines international banking activities. Using a novel dataset that contains all German banks' international activities, we estimate the ordered probability of a presence abroad (extensive margin) and the volume of international assets (intensive margin). Methodologically, we enrich the conventional Heckman selection model to account for the self-selection of banks into different modes of foreign activities using an ordered probit. Four main findings emerge. First, similar to results for non-financial firms, a productivity pecking order drives bank internationalization. Second, only a few non-financial firms engage in international trade, but many banks hold nternational assets, and only a few large banks engage in foreign direct investment. Third, in addition to productivity, risk factors matter for international banking. Fourth, gravity-type variables have an important impact on international banking activities. --
    Keywords: International banking,extensive and intensive margin,productivity pecking order,ordered probit,selection models
    JEL: F3 G21
    Date: 2009
  16. By: Wen-Jen Tsay (Institute of Economics, Academia Sinica, Taipei, Taiwan); Cliff J. Huang (Department of Economics Vanderbilt University); Tsu-Tan Fu (Institute of Economics, Academia Sinica, Taipei, Taiwan); I-Lin Ho (The Institute of Physics Academia Sinica Taipei, Taiwan)
    Abstract: This paper takes issues with the appropriateness of applying the stochastic frontier analysis (SFA) technique to account for environmental effects and statistical noise in the popular three-stage data envelopment analysis (DEA). A correctly specified SFA model with a censored dependent variable and the associated maximum likelihood estimation (MLE) are proposed. The simulations show that the finite sample performance of the proposed MLE of the censored SFA model is very promising. An empirical example of farmers’ credit unions in Taiwan illustrates the comparison between the censored and standard SFA in accounting for environmental effects and statistical noise.
    Keywords: Three-stage data envelopment analysis, stochastic frontier analysis, censored stochastic frontier model
    Date: 2009–03
  17. By: Robert C. Feenstra; Benjamin R. Mandel; Marshall B. Reinsdorf; Matthew J. Slaughter
    Abstract: Since 1995, growth in productivity in the United States appears to have accelerated dramatically. In this paper, we argue that part of this apparent speed-up actually represents gains in the terms of trade and tariff reductions, especially for information-technology products. We demonstrate how unmeasured gains in the terms of trade and declines in tariffs can cause conventionally measured growth in real output and productivity to be overstated. Building on the GDP function approach of Diewert and Morrison, we develop methods for measuring these effects. From 1995 through 2006, the average growth rates of our alternative price indexes for U.S. imports are 1.5% per year lower than the growth rate of price indexes calculated using official methods. Thus properly measured terms-of-trade gain can account for close to 0.2 percentage points per year, or about 20%, of the 1995-2006 apparent increase in productivity growth for the U.S. economy. Bias in the price indexes used to deflate domestic output is a question beyond the scope of this paper, but if upward bias were also present in those indexes, this could offset some of the effects of mismeasurement of gains in terms of trade.
    JEL: F43 O47
    Date: 2009–12

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.