New Economics Papers
on Efficiency and Productivity
Issue of 2010‒05‒02
ten papers chosen by

  1. Product Diversification and Labor Productivity Dispersion in German Manufacturing Industries By Rene Söllner
  2. Bank Efficiency Amid Foreign Entry: Evidence from the Central American Region By Torsten Wezel
  3. Alternative Technical Efficiency Measures: Skew, Bias, and Scale By Qu Feng; William C. Horrace
  4. Back on the Rails -- Competition and Productivity in State-owned Industry By Rohini Somanathan; Kala Krishna; Sergey Lychagin; Sanghamitra Das
  5. Rational Cost Inefficiency in Chinese Banks By Kent Matthews; Zhiguo Xiao; Xu Zhang
  6. Comparing Productivity in the Netherlands, France, UK and US, ca. 1910:A new PPP benchmark and its implications for changing economic leadership By Woltjer, P.; Smits, Jan-Pieter; Frankema, Ewout
  8. A revenue-based frontier measure of banking competition By Santiago Carbó; David Humphrey; Francisco Rodríguez
  9. Development Accounting and the Rise of TFP By Rabah Arezki; Reda Cherif
  10. Volatility, Nonstandard Employment, and Productivity: An empirical analysis using firm-level data By MORIKAWA Masayuki

  1. By: Rene Söllner (Friedrich Schiller University Jena, DFG-RTG "The Economics of Innovative Change")
    Abstract: Empirical research has shown tremendous productivity differences, even within narrowly defined industries. A great host of studies is explainsing this productivity disparity by factors such as idiosyncratic technology shocks, input price differences, management skills, or international trade. Although these explanations are undoubtedly important, the current paper suggests that product diversification strategies of firms can also play an important role. Using a matched producer-product panel dataset of German manufacturing industries over the period 2003-2006, we find that the average degree of product diversification across industry establishments is positively related to within-industry labor productivity dispersion.
    Keywords: Product Diversification, Productivity, Industrial Dynamics
    JEL: L11 L22 L25
    Date: 2010–04–19
  2. By: Torsten Wezel
    Abstract: This paper investigates the efficiency of domestic and foreign banks in the Central American region during 2002-07. Using two main empirical approaches, Data Envelopment Analysis and Stochastic Frontier Analysis, the paper finds that foreign banks are not necessarily more efficient than their domestic counterparts. If anything, the regional banks that were acquired by global banks in a wave of acquisitions during 2005-07 can keep up with the local institutions. The efficiency of these acquired banks, however, is shown to have dropped during the acquisition year, recovering only slightly thereafter. Finally, it is important to account for the environment in which banks operate, as country-, sector- and firm-specific characteristics are found to have a considerable influence on bank efficiency.
    Keywords: Banks , Central America , Cross country analysis , Foreign direct investment , International banking , Productivity ,
    Date: 2010–03–16
  3. By: Qu Feng (Division of Economics, School of Humanities and Social Sciences, HSS-04-48, 14 Nanyang Drive, Singapore 637332); William C. Horrace (Center for Policy Research, Maxwell School, Syracuse University, Syracuse, NY 13244-1020)
    Abstract: In the fixed-effects stochastic frontier model an efficiency measure relative to the best firm in the sample is universally employed. This paper considers a new measure relative to the worst firm in the sample. We find that estimates of this measure have smaller bias than those of the traditional measure when the sample consists of many firms near the efficient frontier. Moreover, a two-sided measure relative to both the best and the worst firms is proposed. Simulations suggest that the new measures may be preferred depending on the skewness of the inefficiency distribution and the scale of efficiency differences.
    Keywords: stochastic frontier model, relative efficiency measure, two-sided measure, bias, bootstrap confidence intervals
    JEL: C15 C23 D24
    Date: 2010–03
  4. By: Rohini Somanathan (Department of Economics, Delhi School of Economics, Delhi, India); Kala Krishna (Department of Economics, Pennsylvania State University); Sergey Lychagin (Department of Economics, Pennsylvania State University); Sanghamitra Das
    Abstract: The importance of Total Factor Productivity (TFP) in explaining output changes is widely accepted, yet its sources are not well understood. We use a proprietary data set on the oor-level operations at the Bhilai Rail and Structural Mill (RSM) in India to understand the determinants of changes in plant productivity between January 2000 and March 2003. During this period there was a 35% increase in output with minimal changes in the stock of physical capital or the number of employees, but sizable reductions in the number and duration of various types of production delays. We model interruptions to the production process as a function of worker characteristics and find that a large part of the avoidable delay reductions are attributable to training. Overall, changes in all delays account for over half the changes in productivity. Our results provide some explanation for the large within-industry dierences in productivity observed in developing countries and also suggest that specic knowledge-enhancing investments can have very high returns. Our approach also provides an example of how detailed data on production processes can be fruitfully used to better understand TFP changes, which have typically been treated as residuals in growth-accounting exercises.
    Keywords: Total Factor Productivity (TFP), Plant level data, Competitiveness and trade.
    JEL: D24 J24 L23 L61 M53
    Date: 2010–04
  5. By: Kent Matthews (Cardiff University, Hong Kong Institute for Monetary Research); Zhiguo Xiao (Fudan University,); Xu Zhang (Citigroup (China), Cardiff University)
    Abstract: According to a frequently cited finding by Berger et al (1993), X-inefficiency contributes 20% to cost-inefficiency in western banks. Empirical studies of Chinese banks tend to place cost-inefficiency in the region of 50%. Such estimates would suggest that Chinese banks suffer from gross cost inefficiency. Using a non-parametric bootstrapping method, this study decomposes cost-inefficiency in Chinese banks into X-inefficiency and allocative-inefficiency. It argues that allocative inefficiency is the optimal outcome of input resource allocation subject to enforced employment constraints. The resulting analysis suggests that allowing for rational allocative inefficiency; Chinese banks are no better or worse than their western counterparts.
    Keywords: Bank Efficiency, China, X-inefficiency, DEA, Bootstrapping
    JEL: D23 G21 G28
    Date: 2009–09
  6. By: Woltjer, P.; Smits, Jan-Pieter; Frankema, Ewout (Groningen University)
    Abstract: This paper presents a new benchmark of fisher weighted sector PPPs for agriculture, mining and five manufacturing branches in the US, UK, France and the Netherlands around 1910. The PPPs are constructed according to an industry-of-origin approach in order to assess comparative levels of labour productivity at a sector level. The estimates are subsequently used to build up a comparison of total labour productivity and GDP per capita. Our main findings are that the relative levels of labour productivity and per capita GDP in the Western European countries have been overestimated in the literature so far. A backward projection of our productivity estimates into the nineteenth century sheds new light on the timing of the take-over in productivity and income leadership between the Netherlands, UK and US. The US-UK take-over occurred between 1879 and 1899 in terms of GDP per capita, but we show that in terms of aggregate labour productivity the US was already world leader around 1850. The Dutch economy seems to have lost its economic leadership earlier than hitherto has been assumed.
    Date: 2010
  7. By: Priit Vahter
    Abstract: Does FDI affect innovation, productivity growth, and knowledge sourcing activities of domestic firms? This study employs detailed firm-level panel-data from Estonia’s manufacturing sector to investigate different channels through which FDI can affect domestic firms. Instrumental variables approach is used to identify the effects. There is no evidence of an effect of FDI entry on local incumbents’ TFP and labour productivity growth in the short term.. However, there are positive spillovers on process innovation. These effects do not depend on the local firms’ distance to the productivity frontier. The results show significant positive correlation between the entry of FDI in a sector and the more direct measures of spillovers in subsequent periods. This is consistent with the view that FDI inflow to a sector intensifies knowledge flows to domestic firms.
    Keywords: foreign direct investment, productivity, innovation, learning
    JEL: F21 F23 O31 O33
    Date: 2010
  8. By: Santiago Carbó; David Humphrey; Francisco Rodríguez
    Abstract: Measuring banking competition using the HHI, Lerner index, or H-statistic can give conflicting results. Borrowing from frontier analysis, the authors provide an alternative approach and apply it to Spain over 1992-2005. Controlling for differences in asset composition, productivity, scale economies, risk, and business cycle influences, they find no differences in competition between commercial and savings banks nor between large and small institutions, but the authors conclude that competition weakened after 2000. This appears related to strong loan demand where real loan-deposit rate spreads rose and fees were stable for activities where scale economies should have been realized.
    Keywords: Bank competition
    Date: 2010
  9. By: Rabah Arezki; Reda Cherif
    Abstract: The paper presents evidence that the contribution of differences in total factor productivity (TFP) to income differences across countries steadily increased between 1970 and 2000. We verify that our finding is neither imputable to measurement errors in input factors nor dependent on the assumption of factor neutral differences in technology. We conclude that theories explaining cross-country income differences based on institutions or on forces that are constant over time, such as geography or legal origin, should be reconsidered in the light of their consistency with the rise of the explanatory power of TFP.
    Date: 2010–04–16
  10. By: MORIKAWA Masayuki
    Abstract: This paper empirically analyzes the relationship among the volatility of sales, nonstandard employment, and firm productivity by using panel data of more than 8,000 Japanese firms from 1994 to 2006. Globalization and innovation are highlighted as the forces that increase the volatility of firm performance, which, in turn, increases the demand for flexible labor forces. After controlling for various observable firm characteristics, the volatility of a firm's sales growth is a significant determinant of the ratio of nonstandard employees. This relationship is stronger for manufacturing firms. Among the highly volatile firms, the ratio of nonstandard employees has a positive relationship with productivity. These results suggest that the desirable policy mix for the economy is a combination of the provision of sufficient safety net and training opportunities for nonstandard workers and the enactment of reasonable laws and regulations that enable firms to adjust labor input flexibly.
    Date: 2010–04

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.