New Economics Papers
on Efficiency and Productivity
Issue of 2010‒03‒13
seventeen papers chosen by

  1. Productivity Changes and Risk Management in Indonesian Banking: An Application of a New Approach to Constructing Malmquist Indices By Muliaman D. Hadad; Maximilian J. B. Hall; Wimboh Santoso; Karligash Kenjegalieva; Richard Simper
  2. Performance-Related Pay, Unions and Productivity in Italy: evidence from quantile regressions By Mirella Damiani; Andrea Ricci
  3. Accounting for environmental factors, bias and negative numbers in efficiency estimation: A bootstrapping application to the Hong Kong banking sector By Maximilian J. B. Hall; Karligash Kenjegalieva; Richard Simper
  4. Productivity, welfare and reallocation : theory and firm-level evidence By Basu, Susanto; Pascali, Luigi; Schiantarelli, Fabio; Serven, Luis
  5. Technical Change and Total Factor Productivity Growth: The Case of Chinese Provinces By Almas Heshmati; Subal C. Kumbhakar
  6. Does Material and Service Offshoring Improve Domestic Productivity? Evidence from Japanese manufacturing industries By ITO Keiko; TANAKA Kiyoyasu
  7. The Effect of Foreign Investments on European Regional Productivity By Davide Castellani; Fabio Pieri
  8. International and domestic technology transfers and productivity growth: Firm level evidence. By Belderbos, Rene; Van Roy, Vincent; Duvivier, Florence
  9. Learning-by-exporting: what we know and what we would like to know By Armando Silva; Ana Paula Africano; Óscar Afonso
  10. The productivity of the public sector in OECD countries: eGovernment as driver of efficiency and efficacy By Corsi, Marcella; D'Ippoliti, Carlo
  11. Capital Accumulation, Vintage, and Productivity:The Japanese Experience from 1980 to 2007 By Taiji Hagiwara; Yoichi Matsubayashi
  12. A Stochastic Frontier Model for Discrete Ordinal Outcomes: A Health Production Function By William Griffiths; Xiaohui Zhang; Xueyan Zhao
  13. Infrastructure and productivity in Latin America: Is there a relationship in the long run? By Teles, Vladimir Kuhl; Mussolini, Caio Cesar
  14. Identifying the Best Buys in U. S. Higher Education. By E. Anthon Eff; Christopher C. Klein; Reuben Kyle
  15. Workforce reduction and firm performance: Evidence from French firm data By Bénédicte Reynaud
  16. Technological activities and their impact on the financial performance of the firm: Exploitation and exploration within and between firms. By Belderbos, Rene; Faems, Dries; Leten, Bart; Van Looy, Bart
  17. Does Private Equity change the performance of a European firm in which it invests? By Oleg Badunenko; Christopher F. Baum; Dorothea Schäfer

  1. By: Muliaman D. Hadad (Bank Indonesia, Jakarta, Indonesia); Maximilian J. B. Hall (Dept of Economics, Loughborough University); Wimboh Santoso (Bank Indonesia, Jakarta, Indonesia); Karligash Kenjegalieva (Dept of Economics, Loughborough University); Richard Simper (Dept of Economics, Loughborough University)
    Abstract: In this study, we utilise a new, non-parametric efficiency measurement approach which combines the semi-oriented radial measure data envelopment analysis (SORM-SBM-DEA) approach for dealing with negative data (Emrouznejad et al., 2010) with the slacks-based efficiency measures of Tone (2001, 2002) to analyse productivity changes for Indonesian banks over the period Quarter I 2003 to Quarter II 2007. Having constructed the Malmquist indices, using data provided by Bank Indonesia (the Indonesian central bank), for the banking industry and different bank types (i.e., listed and Islamic) and groupings, we then decomposed the industry’s Malmquist into its technical efficiency change and frontier shift components. Finally, we analysed the banks’ risk management performance, using Simar and Wilson’s (2007) truncated regression approach, before assessing its impact on productivity growth. The first part of the Malmquist analysis showed that average productivity changes for the Indonesian banking industry tended to be driven, over the sample period, by technological progress rather than by frontier shift, although a relatively stable pattern was exhibited for most of the period. However, at the beginning of the considered period, state-owned and foreign banks, as well as Islamic banks, exhibited volatile productivity movements, mainly caused by shifts in the technological frontier. With respect to the risk management analysis, most of the balance sheet variables were shown to have had the expected impact on risk management efficiency. While the risk management decomposition of technical efficiency change and frontier risk components demonstrated that, by the end of the sample period, the change in risk management efficiency and risk management effects had the same dynamic pattern, resulting in the analogous dynamics for technical efficiency changes. Therefore, a strategy based on the gradual adoption of newer technology, with a particular focus on internal risk management enhancement, seems to offer the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks.
    Keywords: Indonesian Finance and Banking; Productivity; Efficiency.
    JEL: C23 C52 G21
    Date: 2010–02
  2. By: Mirella Damiani; Andrea Ricci
    Abstract: Purpose – This study analyses the effects on productivity of Performance-Related Payments (PRP) and unions, and examines to what extent heterogeneity between firms characterises these influences. Design - For the Italian economy, the study presents firm-level quantile regressions for Total Factor Productivity (TFP) and controls for various observed characteristics of firms, worker composition and labour relations. Findings - The paper shows the significant effect of PRP and unions on the whole economy and on firms operating in the manufacturing industries. In these industries, the uniform incentive effects of PRP but the increasing impact of unions are estimated along the productivity distribution. Conversely, the role of management - significant in all sectors- is more efficacious in prospering large firms operating in services. Research limitations – The adoption of PRP schemes and the presence of unions maybe endogenous to firms’ productivity, and our estimates do not prove causal links but simply suggest correlations. Practical implications - The limited incentive effects of PRP schemes in services contribute towards explaining the slowdown in Italian productivity, whereas the role of unions is quite uniform among sectors. Originality- The paper addresses the hitherto poorly developed issue of firm heterogeneity and TFP, and offers the first Italian study of PRP and unions, which covers all dimensional classes of firms and non-agricultural sectors of the Italian economy.
    Keywords: Performance – related pay, productivity.
    JEL: J33 D24
    Date: 2010–01–01
  3. By: Maximilian J. B. Hall (Dept of Economics, Loughborough University); Karligash Kenjegalieva (Dept of Economics, Loughborough University); Richard Simper (Dept of Economics, Loughborough University)
    Abstract: This paper examines the evolution of Hong Kong’s banking industry’s technical efficiency, and its macroeconomic determinants, during the period 2000-2006 through the prism of two alternative approaches to efficiency estimation, namely the intermediation and production approaches. Using a modified (Sharp, Meng and Liu, 2006) slacks-based model (Tone, 2001), and purging the efficiency estimates for random errors (Simar and Zelenyuk, 2007) , we firstly analyse the trends in bank efficiency. We then identify the ‘environmental’ factors that significantly affect the efficiency scores using an adaptation (Kenjegalieva et al. 2009) of the truncated regression approach suggested by Simar and Wilson. 2007). The first part of the analysis reveals that the Hong Kong banking industry suffered a severe downturn in estimated technical efficiency during 2001. It subsequently recovered, posting average efficiency scores of 92 per cent and 85 percent under the intermediation and production approaches respectively by the end of 2006. As for the sub-group analysis, commercial banks are, on average, shown to be the most efficient operators, while the investment bank group are shown to be the least efficient. Finally, with respect to the truncated regression analysis, the results suggest that smaller banks are more efficient than their larger counterparts, although larger banks are still able to enjoy gains from scale economies and benefit from the export of financial services. Moreover, private housing rent and the net export of goods and services are found to be negatively correlated with bank efficiency, while private consumption is shown to be positively correlated.
    Keywords: Hong Kong Banks; DEA; Slacks; Environmental factors, Negative numbers; Bias.
    JEL: C23 C52 G21
    Date: 2010–02
  4. By: Basu, Susanto; Pascali, Luigi; Schiantarelli, Fabio; Serven, Luis
    Abstract: A considerable literature has focused on the determinants of total factor productivity (TFP), prompted by the empirical finding that TFP accounts for the bulk of long-term growth. This paper offers a deeper reason for such focus: the welfare of a representative consumer is summarized by current and anticipated future Solow productivity residuals. The equivalence holds for any specification of technology and market structure, as long as the representative household maximizes utility while taking prices parametrically. This result justifies total factor productivity 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 data. Based on this finding, the authors compute firm and industry contributions to welfare for a set of European countries (Belgium, France, Great Britain, Italy, Spain) using industry-level and firm-level data. With additional assumptions about technology and market structure (specifically, that firms minimize costs and face common factor prices), the authors show that welfare change can be further decomposed into three components that reflect, respectively, technical change, aggregate distortions, and allocative efficiency. Then, using the appropriate firm-level data, they assess the importance of each of these components as sources of welfare improvement in the same set of European countries.
    Keywords: Economic Theory&Research,E-Business,Economic Growth,Labor Policies,Technology Industry
    Date: 2010–03–01
  5. By: Almas Heshmati; Subal C. Kumbhakar (TEMEP, School of Industrial and Management Engineering College of Engineering, Seoul National University)
    Abstract: In the literature technical change is mostly assumed to be exogenous and specified as a function of time. However, some exogenous external factors other than time can also affect technical change. In this paper we model technical change via time trend (purely external non-economic) as well as other exogenous (external economic) factors (technology shifters). We define technology index based on the external economic factors which are indicators of ¡®technology¡¯. Thus our definition of production function is amended to accommodate everal technology shifters which are not separable from the traditional inputs. That is, these technology shifters allow for non-neutral shift in the production function. In doing so we are able to decompose technical change (a component of TFP change) into two parts. One part is driven by time (manna from heaven) and the other part is related to producer specific external economic factors. These exogenous technology shifters are aggregated (via hedonic aggregator functions) into several groups (technology indices) for parsimonious parametric specification. The empirical model uses panel data on Chinese provinces. We identify a number of key technology shifters and their effect on technical change and TFP growth of provinces.
    Keywords: technical change, total factor productivity growth, technology indicator, technology shifter, Chinese provinces
    JEL: C33 C43 D24 O18 O47
    Date: 2010–02
  6. By: ITO Keiko; TANAKA Kiyoyasu
    Abstract: An increasing number of manufacturers are shifting some stages of the production process offshore. This study investigates the effects of offshoring on productivity in Japanese manufacturing industries for the period 1988-2004. Material offshoring, as measured by an import share of intermediate material inputs, has steadily increased during the period, with a pronounced increase in offshoring to Asian countries. In a wide range of specifications, we find significantly positive correlations between material offshoring and productivity at the industry level. The estimates are particularly robust for offshoring to Asia. These results suggest that Japanese manufacturing firms have developed an extensive international division of labor in East Asia, which in turn may have enhanced domestic productivity. In contrast, service offshoring, as measured by an import ratio of service inputs, is not associated with industry-level productivity. We find a positive correlation between offshoring and productivity only for information services, suggesting that in this segment, offshoring offers potential benefits.
    Date: 2010–02
  7. By: Davide Castellani; Fabio Pieri
    Abstract: Differences in productivity among regions have been mainly attributed to agglomeration economies, technology and human capital, while almost no evidence has been provided on the role of internationalization. In this paper we build unique measures of outward and inward foreign direct investment (FDI) counts at the NUTS 2 level and we assess the relationship between regional productivity and foreign investments in the Enlarged Europe. Regions with larger flows of foreign investment projects show higher productivity levels, but this correlation fades down as we control for a set of relevant regional characteristics. However, inward and outward FDIs exert a positive and significant effect on regional productivity growth. We also find that the type of investment matters. In particular, inward and outward investments in R&D have a positive effect on regional productivity, while incoming investments in Sales activities are detrimental for productivity growth..
    Keywords: Regional productivity, foreign investments, Europe.
    JEL: F23 O47 O52 R11
    Date: 2010–02–01
  8. By: Belderbos, Rene; Van Roy, Vincent; Duvivier, Florence
    Abstract: We examine the drivers of international and domestic technology transfer strategies of firms and the impact of these transfers on firms’ productivity performance in a sample of 440 Flemish innovating firms during 2003-2006. Technology transfers may occur through R&D contracting, purchase of licenses and know how, purchase of specialized machinery, hiring of specialized personnel, and various informal channels. Analysis of the drivers of technology sourcing strategies shows that combined technology sourcing strategies are more likely to be adopted by firms that 1) face resource limitations in their innovative effort 2) have a basic research orientation and conduct more R&D 3) successfully use various technology protection strategies to appropriate the benefits of innovation efforts 4) are engaged in international R&D collaboration. Estimates of a dynamic productivity model show that firms engaging in international knowledge sourcing strategies record substantially and significantly higher productivity growth. The largest impact is found for firms combining foreign transfer strategies with local technology acquisition, suggesting that a diverse external technology strategy combining local technologies as well as know how from abroad is most likely to improve firm performance.
    Keywords: Technology transfer; Productivity; Multinational Firms;
    Date: 2009–11–25
  9. By: Armando Silva (Faculdade de Economia, Universidade do Porto); Ana Paula Africano (CEF.UP, Faculdade de Economia, Universidade do Porto); Óscar Afonso (CEF.UP, OBEGEF, Faculdade de Economia, Universidade do Porto)
    Abstract: This paper revises the thesis that exporting firms learn to be more innovative and efficient as they have contact with certain information flows from their foreign activity (e.g., from buyers, suppliers or competitors). The paper begins by exploring the connections between two distinct concepts: Self-Selection (of more efficient firms into exports) and Learning-by-Exporting. The study then proceeds with a comparative analysis of the most recent literature and presents common facts and evidence, as well as key issues still open to debate. Learning-by-Exporting should be measured directly using firms´ innovative performance. However, given the lack of suitable data on firms’ innovative activities most studies have followed an indirect approach, using productivity measures. Several methodologies have been employed to estimate Total Factor Productivity and to test the Learning-by-Exporting hypothesis, but so far no final consensus has been reached on the best way to do it.
    Keywords: Learning-by-exporting, self selection, total factor productivity
    JEL: F10 F20 O47
    Date: 2010–02
  10. By: Corsi, Marcella; D'Ippoliti, Carlo
    Abstract: This article aims at illustrating a theoretical approach to the analysis of the dynamics of productivity in the public sector, and at presenting a preliminary application of it to the estimation of the impact on productivity of the recent development of e-Government processes in a number of OECD countries. Our analysis serves a twofold purpose: at the microeconomic level, we set out to provide individual public administrations (PAs) with an instrument to evaluate the benefits, in terms of output, of alternative projects, particularly through a more efficient organisation of the relevant information. At the macroeconomic level, the aim is to highlight a significant relationship between e-Government and economic growth, as an indicator of social wellbeing.
    Keywords: e-Government; ICT; public sector; productivity growth
    JEL: H54 O47 H11 H83 O31
    Date: 2010–03–01
  11. By: Taiji Hagiwara (Graduate School of Economics, Kobe University); Yoichi Matsubayashi (Graduate School of Economics, Kobe University)
    Abstract: In this paper we quantitatively examine the relationships between capital accumulation and vintage, as well as productivity of industries in Japan between 1980 and 2007. We based this analysis on a detailed measurement of capital stock as reported in financial data of firms listed on the Tokyo Stock Exchange and several secondary markets, like Mothers, We measured the vintage index and total factor productivity and carried out preliminary work required during empirical analysis. Subsequently, we conducted different kinds of estimations. Based on the empirical analyses, we confirmed that vintage had an effect on productivity in all industries studied. This effect was notable in the material, general machinery and transport equipment industries. In addition, by observing chronological changes of the vintage effect, we confirmed that vintage exerted a significant influence during the period of economic expansion,.particularly during the economic upturn which started in 2000, where strong vintage effects were generally observed in all the industries. It was clear that the rejuvenation of capital equipments during that period resulted out of the existence of a strong productivity effect. On the other hand, during the bubble period of late 1980s, vintage exerted no observable effects on productivity despite vivacious increases in investment.This shows that investment during this period was not necessarily productive and was likely to produce just a temporary boom. In light of this, we reconfirmed that the relationship between vintage and productivity changed in subtle ways in response to the phases of economic cycles.
    Keywords: Capital Accumulation, Vintage, Business Cycle
    JEL: F32 F41
    Date: 2010–03
  12. By: William Griffiths; Xiaohui Zhang; Xueyan Zhao
    Abstract: The stochastic frontier model used for continuous dependent variables is extended to accommodate output measured as a discrete ordinal outcome variable. Conditional on the inefficiency error, the assumptions of the ordered probit model are adopted for the log of output. Bayesian estimation utilizing a Gibbs sampler with data augmentation is applied to a convenient re-parameterisation of the model. Using panel data from an Australian longitudinal survey, demographic and socioeconomic characteristics are specified as inputs to health production, whereas production efficiency is made dependent on lifestyle factors. Posterior summary statistics are obtained for selected health status probabilities, efficiencies, and marginal effects.
    Keywords: Bayesian estimation, Gibbs sampling, ordered probit, production efficiency
    JEL: C11 C21 C23 I12
    Date: 2010
  13. By: Teles, Vladimir Kuhl; Mussolini, Caio Cesar
    Abstract: This article analyses the relationship between infrastructure and total factor productivity (TFP) in the four major Latin American economies: Argentina, Brazil, Chile and Mexico. We hypothesise that an increase in infrastructure has an indirect effect on long-term economic growth by raising productivity. To assess this theory, we use the traditional Johansen methodology for testing the cointegration between TFP and physical measures of infrastructure stock, such as energy, roads, and telephones. We then apply the Lütkepohl, Saikkonen and Trenkler Test, which considers a possible level shift in the series and has better small sample properties, to the same data set and compare the two tests. The results do not support a robust long-term relationship between the series; we do not find strong evidence that cuts in infrastructure investment in some Latin American countries were the main reason for the fall in TFP during the 1970s and 1980s.
    Date: 2010–02–22
  14. By: E. Anthon Eff; Christopher C. Klein; Reuben Kyle
    Abstract: Consumers of higher education face a bewildering array of product and price combinations. We compare U. S. institutions with a Data Envelopment Analysis (DEA) multi-factor frontier using 2000-2001 data for 1,188 four-year institutions of higher education. The input is net price or tuition, fees, room, and board less per student financial aid. Outputs include SAT score, athletic expenditures, instructional expenditures, value of buildings, dorm capacity, and student body characteristics. The DEA efficiency scores indicate the distance of each institution from the “best buy” frontier, providing an objective means of ranking institutions as the best buys in higher education.
    Keywords: Education, Data Envelopment Analysis, Comparative advantage
    JEL: I20
    Date: 2010–02
  15. By: Bénédicte Reynaud
    Abstract: Using a large annual data base of French firms (1994-2000), this article examines the determinants of a workforce reduction of publicly-listed and non-listed companies and their consequences on firm performance. Firstly, workforce reduction appears to be a defensive response to an adverse economic shock. However, publicly-listed firms anticipate better than the others the decision to cut jobs. Secondly, using a Difference in Differences model, the estimates indicate that there has been a very small but significant improvement in the major performance indicators of the non-listed companies. For listed-companies, the estimates are no significant.
    Date: 2010
  16. By: Belderbos, Rene; Faems, Dries; Leten, Bart; Van Looy, Bart
    Abstract: This article analyzes the financial performance consequences of technology strategies categorized along two dimensions: (1) explorative versus exploitative and (2) solitary versus collaborative. The financial performance implications of firms’ positioning along these two dimensions has important managerial implications, but has received only limited attention in prior studies. Drawing on organizational learning theory and technology alliances literature, a set of hypotheses on the performance implications of firms’ technology strategies are derived. These hypotheses are tested empirically on a panel dataset (1996-2003) of 168 R&D-intensive firms based in Japan, the US and Europe and situated in five different industries (chemicals, pharmaceuticals, ICT, electronics, non-electrical machinery). Patent data are used to construct indicators of explorative versus exploitative technological activities (activities in new or existing technology domains) and collaborative versus solitary technological activities (joint versus single patent ownership). The financial performance of firms is measured via a market value indicator: Tobin’s Q index. The analyses confirm the existence of an inverted U-shape relationship between the share of explorative technological activities and financial performance. In addition, it is observed that most sample firms do not reach the optimal level of explorative technological activities. These findings point to the relevance of creating a balance between exploitation and exploration in the context of technological activities. Moreover, they suggest that, for the majority of R&D intensive firms, reaching such a balance between exploration and exploitation implies investing additional efforts and resources in exploring new knowledge domains. The analyses also show that firms, engaging more intensively in collaboration, perform relatively stronger in explorative activities. At the same time, a negative relationship between the share of collaborative technological activities and a firm’s market value is observed. Contrary to our expectations, it is collaboration in explorative technological activities, rather than collaboration in exploitative technological activities, that leads to a reduction in firm value. These findings question the relevance of open business models for technological activities. In particular, they suggest that the potential advantages of collaboration for (explorative) technological activities (i.e. access to complementary knowledge from other partners, sharing of technological costs and risks) might not compensate for the potential disadvantages, such as the incurred increase in coordination costs and the need to share innovation rewards across innovation partners.
    Date: 2009–11
  17. By: Oleg Badunenko (DIW Berlin); Christopher F. Baum (Boston College; DIW Berlin); Dorothea Schäfer (DIW Berlin)
    Abstract: The paper investigates whether or not the presence of Private Equity (PE) investors in European companies influences their performance. Previous studies documented unambiguous merit of a buyout during 1980s and 1990s in US and UK markets for listed firms. This study analyzes such influence in both listed and unlisted European firms during 2002-2007. Our major finding is that the return on assets does not meaningfully differ between firms with and without PE backing. We also show that the duration of PE investment does not have a significant effect on firm's performance.
    Keywords: Private equity financing, corporate finance
    JEL: M14 G24 G34
    Date: 2010–03–01

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