New Economics Papers
on Efficiency and Productivity
Issue of 2010‒04‒04
twelve papers chosen by

  1. An Analysis on the Growth Attributes of Manufacturing Industries in China By Kui-Wai Li; Tung Liu
  2. The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries By Dierk Herzer
  3. The Eff ects of Cross-border M&As on the Acquirers’ Domestic Performance – Firm-level Evidence By Joel Stiebale; Michaela Trax
  4. Estimating the Growth Attributes of Mainland China and Hong Kong SAR By Kui-Wai Li; Tung Liu; Hoi Kuan Lam; Liang Wang
  5. Catching Up to the Technology Frontier: The Dichotomy between Innovation and Imitation By Madsen, Jakob; Islam, Md Rabiul; Ang, James
  6. Excess Leverage and Productivity Growth in Emerging Economies: Is There A Threshold Effect? By Coricelli, Fabrizio; Driffield, Nigel; Pal, Sarmistha; Roland, Isabelle
  7. The effects of focus versus diversification on bank performance: Evidence from Chinese banks By Berger, Allen N.; Hasan, Iftekhar; Zhou, Mingming
  8. Trade costs, resource reallocation and productivity in developing countries By Blyde, Juan; Iberti, Gonzalo
  9. Market power in the Russian banking industry By Fungacova, Zuzana; Solanko, Laura; Weill, Laurent
  10. Bank owners or bank managers: who is keen on risk? Evidence from the financial crisis By Gropp, Reint; Köhler, Matthias
  11. Integration, resource reallocation and productivity: the cases of Brazil and Chile By Blyde, Juan; Iberti, Gonzalo; Mesquita Moreira, Mauricio
  12. Do Islamic banks have greater market power? By Weill, Laurent

  1. By: Kui-Wai Li (City University of Hong Kong, Hong Kong SAR); Tung Liu (Department of Economics, Ball State University)
    Abstract: This paper examines the growth attributes of manufacturing industries in China for the sample period of 1999-2007. A revised Solow’s growth decomposition method is used to consider four growth attributes of input growth, scale effect, technical progress, and technical efficiency change. For the aggregates of all industries, we found no technical efficiency change. The technical progress, input growth, and scale effect explain 45%, 38%, and 17% of output growth, respectively. When all manufacturing industries are disaggregated into four major groups and twenty-nine sub-manufacturing industries, we find that estimates exhibit increasing returns to scale and positive scale effect. When the manufacturing industries data are aggregated in different provinces and regions, we find that input growth is more significant in the Southern region than in other regions. Only the Southern region shows an increase in technical efficiency. Technical progress is more important in the Western and Northeastern regions than the other two regions.
    Keywords: technical progress, technical efficiency, economies of scale, human capital, China economy
    JEL: C2 D24 O4 O53
    Date: 2010–03
  2. By: Dierk Herzer (Johann Wolfgang Goethe-University, Frankfurt am Main / Germany)
    Abstract: This paper examines the long-run relationship between outward foreign direct investment (FDI) and total factor productivity for a sample of 33 developing countries over the period 1980-2005. Using panel cointegration techniques, we find that: (i) outward FDI has, on average, a positive long-run effect on total factor productivity in developing countries, (ii) increased factor productivity is both consequence and a cause of increased outward FDI, and (iii) there are large differences in the long-run effects of outward FDI on total factor productivity across countries. Cross-sectional regressions indicate that these cross-country differences in the productivity effects of outward FDI are significantly negatively related to cross-country differences in labor market regulation, whereas there is no statistically significant association between the productivity effects of outward FDI and the level of human capital, the level of financial development, or the degree of trade openness in the home country.
    Keywords: Outward FDI; total factor productivity; developing countries; panel cointegration
    JEL: F21 O11 F23 C23
    Date: 2010–02–16
  3. By: Joel Stiebale; Michaela Trax
    Abstract: This paper provides empirical evidence on the eff ects of cross-border M&As on investing fi rms’ domestic performance in the U.K. and France. We build a new fi rm-level dataset that combines a global M&A database with balance sheet data for the years 2000–2007. Combining matching techniques with a diff erence-in-diff erences estimator, we fi nd that cross-border deals boost on average domestic employment, sales, and investment, and they are not accompanied by a downsizing of the domestic labor force in neither of both countries. Further, acquisitions in knowledge-intensive industries lead to improvements in domestic productivity. Our results display some heterogeneity across industries and types of acquisitions, suggesting a connection between the motives for international acquisitions and their resulting effects.
    Keywords: Multinational fi rms; cross-border M&A; productivity; employment growth; investment
    JEL: F23 G34 L23 D24
    Date: 2010–01
  4. By: Kui-Wai Li (City University of Hong Kong, Hong Kong SAR); Tung Liu (Department of Economics, Ball State University); Hoi Kuan Lam (City University of Hong Kong, Hong Kong SAR); Liang Wang (City University of Hong Kong, Hong Kong SAR)
    Abstract: Since Hong Kong’s reversion of political sovereignty to Mainland China in 1997, the pace of economic integration between the two economies has increased. This paper first examines the economic benefits and institutional differences between Mainland China and Hong Kong. The empirical section of the paper used a stochastic frontier model with the incorporation of a human capital variable to decompose the economic and productivity growth of Mainland China and Hong Kong into the four attributes of input growth, adjusted scale effect, technical progress, and efficiency growth.
    Keywords: technical progress, technical efficiency, returns to scale, human capital, China economy, Hong Kong economy
    JEL: O47 R11
    Date: 2010–02
  5. By: Madsen, Jakob; Islam, Md Rabiul; Ang, James
    Abstract: Using data for 55 developing and developed countries, this research examines the roles of technology transfer, research intensity, educational attainment and the ability to absorb foreign technology in explaining cross-country differences in productivity growth. The results show that innovation is an important factor for growth in OECD countries whereas growth in developing countries is driven by imitation. Furthermore the interaction between educational attainment and the distance to the frontier is a significant determinant of growth in the overall sample.
    Keywords: R&D; endogenous growth theory; absorptive capacity
    JEL: O30 O40
    Date: 2010
  6. By: Coricelli, Fabrizio (Paris School of Economics); Driffield, Nigel (Aston University); Pal, Sarmistha (Brunel University); Roland, Isabelle (London School of Economics)
    Abstract: The paper examines the relationship between leverage and growth in a group of emerging central and eastern European countries, who are at different levels of financial market development. We hypothesize a non-linear relationship in that moderate leverage could boost growth while very high leverage could lower it by increasing the likelihood of financial distress and bankruptcy. Estimates of a Threshold model confirm the non-linear relationship in our sample, after controlling for various firm, industry and financial market characteristics. We also endogenously determine a threshold level of leverage beyond which further increases in leverage could lower TFP growth.
    Keywords: excess leverage, bank efficiency, market capitalization, TFP growth, Threshold model, non-linear relationship, transition experience
    JEL: G32 O16
    Date: 2010–03
  7. By: Berger, Allen N. (BOFIT); Hasan, Iftekhar (BOFIT); Zhou, Mingming (BOFIT)
    Abstract: This paper investigates the effects of focus versus diversification on bank performance using data on Chinese banks during the 1996-2006 period. We construct a new measure, economies of diversification, and compare the results to those of the more conventional focus indices, which are based on the sum of squares of shares in different products or regions. Diversification is captured in four dimensions: loans, deposits, assets, and geography. We find that all four dimensions of diversification are associated with reduced profits and higher costs. These results are robust regardless of alternative measures of diversification and performance. Furthermore, we observe that banks with foreign ownership (both majority and minority ownership) and banks with conglomerate affiliation are associated with fewer diseconomies of diversification, suggesting that foreign ownership and conglomerate affiliation play an important mitigating role. This analysis may provide important implications for bank managers and regulators in China as well as in other emerging economies.
    Keywords: diversification; focus; efficiency; Chinese banking
    JEL: G21 G28 G34
    Date: 2010–03–25
  8. By: Blyde, Juan; Iberti, Gonzalo
    Abstract: An increasing body of evidence indicates that an important share of aggregate productivity growth, in both developed and developing countries, arises from the reallocation of resources across plants of different productivity levels. New trade models with heterogeneous firms (Bernard et al., 2003; Melitz, 2003) suggest that international trade plays an important role in this reallocative process. Focusing on a developing country, Chile, we use explicit measures of trade costs to explore the existence of the channels suggested by these new trade models. We provide new key findings for developing countries: first, trade costs affect the reallocative process by protecting inefficient producers, lowering their likelihood to exit, and also by limiting the expansion of efficient plants, lowering their likelihood to export. Second, the reallocative impacts of trade arise not only from tariff barriers but also from transport costs.
    Keywords: Trade costs; productivity; resource reallocation
    JEL: F13 F14 L1
    Date: 2010–02
  9. By: Fungacova, Zuzana (BOFIT); Solanko, Laura (BOFIT); Weill, Laurent (BOFIT)
    Abstract: The aim of this paper is to analyze bank competition in Russia by measuring the market power of Russian banks and its determinants over the period 2001-2007 with the Lerner index. Earlier studies on bank competition have focused on developed countries whereas this paper contributes to the analysis of bank competition in emerging markets. We find that bank competition has only slightly improved during the period studied. The mean Lerner index for Russian banks is of the same magnitude as those observed in developed countries, which suggests that the Russian banking industry is not plagued by weak competition. Furthermore, we find no greater market power for state-controlled banks nor less market power for foreign-owned banks. We would consequently qualify the procompetitive role of foreign bank entry and privatization. Finally, our analysis of the determinants of market power enables the identification of several factors that influence competition, including market concentration and risk as well as the nonlinear influence of size.
    Keywords: market power; bank competition; Russia
    JEL: G21 P34
    Date: 2010–03–25
  10. By: Gropp, Reint; Köhler, Matthias
    Abstract: In this paper, we analyse whether bank owners or bank managers were the driving force behind the risks incurred in the wake of the financial crisis of 2007/2008. We show that owner controlled banks had higher profits in the years before the crisis, and incurred larger losses and were more likely to require government assistance during the crisis compared to manager-controlled banks. The results are robust to controlling for a wide variety of bank specific, country specific, regulatory and legal variables. Regulation does not seem to mitigate risk taking by bank owners. We find no evidence that profit smoothing drives our findings. The results suggest that privately optimal contracts aligning the incentives of management and shareholders may not be socially optimal in banks. --
    Keywords: Banks,risk taking,corporate governance,ownership structure,financial crisis
    JEL: G21 G30 G34
    Date: 2010
  11. By: Blyde, Juan; Iberti, Gonzalo; Mesquita Moreira, Mauricio
    Abstract: Most microeconometric studies available for LAC have focused on measuring the direct impact of trade on plant productivity leaving aside other effects that arise through the market selection process. Additionally, most studies have focused on tariff barriers as the only obstacle to international trade and integration. In this paper we use data from Brazil and Chile to analyze how trade affects aggregate productivity through the process of resource reallocation and to explore not only the role of tariffs but also the role of transport costs. We find that trade costs affect the reallocative process by protecting inefficient producers, lowering their likelihood to exit, and also by limiting the expansion of efficient plants, lowering their likelihood to export. We also find that the reallocative impacts of trade come not only from tariff barriers but also from transport costs.
    Keywords: Tariff barriers; transport costs; productivity; resource reallocation
    JEL: F13 F14
    Date: 2009–11
  12. By: Weill, Laurent (BOFIT)
    Abstract: The aim of this paper is to investigate whether Islamic banks have greater market power than con-ventional banks. An Islamic bank, for example, might enjoy enhanced market power if a captive clientele adhering to religious principles permits it to charge higher prices. To measure market power, we compute Lerner indices for a sample of banks from 17 countries where Islamic and conventional banks coexist. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks over the period 2000-2007. When including control variables, regression of Lerner indices even suggests that Islamic banks have less market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are no less competitive than conventional banks. Thus, any reduced market power of Islamic banks can be attributed to differences in norms and incentives.
    Keywords: Islamic banks; Lerner index; bank competition
    JEL: D43 D82 G21
    Date: 2010–02–26

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