New Economics Papers
on Efficiency and Productivity
Issue of 2010‒07‒10
twelve papers chosen by

  1. Decomposition of Labor Productivity Growth: A Multilateral Production Frontier Approach By Konstantinos Chatzimichael; Vangelis Tzouvelekas
  2. Does history matter for the relationship between R&D, Innovation and Productivity? By Huergo , E; Moreno, L
  4. Climate Policy and Profit Efficiency By Lundgren, Tommy; Marklund, Per-Olov
  5. Export Market Dynamics and Plant-level Productivity: Impact of Tariff Reductions and Exchange Rate Cycles By Baldwin, John R.; Yan, Beiling
  6. Human Resource Management and Productivity By Nicholas Bloom; John Van Reenen
  7. An analysis of the efficiency of public spending and national policies in the area of R&D By Conte, Andrea; Schweizer, Philip; Dierx , Adriaan; Ilzkovitz, Fabienne
  8. The Productivity Impacts of de Jure and de Facto Land Rights By Bellemare, Marc F.
  9. Measuring the impact of international R&D cooperation: the case of Spanish firms participating in the EU Framework Programme By Barajas, A; Huergo, E; Moreno, L
  10. US Elasticities of Substitution and Factor-Augmentation at the Industry Level By Andrew T. Young
  11. Democratic Reforms, Foreign Aid and Production Inefficiency By Christopoulos, Dimitris; Siourounis, Gregorios; Vlachaki, Irene
  12. The Impact of Competition on Management Quality: Evidence from Public Hospitals By Nicholas Bloom; Carol Propper; Stephan Seiler; John Van Reenen

  1. By: Konstantinos Chatzimichael (Dept of Economics, University of Crete, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece)
    Abstract: This paper develops a parametric decomposition framework of labor productivity growth relaxing the assumption of labor-specific efficiency. The decomposition analysis is applied to a sample of 52 developed and developing countries from 1965-90. A generalized Cobb-Douglas functional specification is used taking into account differences in technological structures across group of countries to approximate aggregate production technology using Jorgenson and Nishimizu (1978) bilateral model of production. Measurement of labor efficiency is based on Kopp�s (1981) orthogonal non-radial index of factor-specific efficiency modified in a parametric frontier framework. The empirical results indicate that the weighted average annual rate of labor productivity growth was 1.43 per cent over the period analyzed. Technical change was found to be the driving force of labor productivity, while improvements in labor efficiency and human capital account approximately for the 22 per cent of that productivity growth.
    Keywords: labor efficiency and productivity growth, multilateral production frontier
    JEL: J24 O40 C23
    Date: 2010–07–01
  2. By: Huergo , E; Moreno, L
    Abstract: This paper analyzes the relationship between R&D expenditures, innovation and productivity growth, taking into account the possibility of persistence in firms’ behaviour. We study this relationship for a sample of Spanish manufacturing firms between 1990 and 2005, estimating a model with four equations: participation in technological activities, R&D intensity, the generation of innovations and the impact of these technological outputs on total factor productivity growth. Our results reflect the existence of true state dependence both in the decision of R&D investment and in the production of innovations. The omission of this persistence leads to an overestimation of the current impact of innovations on productivity growth. However, the presence of persistence in technological inputs and outputs entails current R&D activities having long–run effects on a firm’s productivity.
    Keywords: CDM model; productivity growth; persistence in R&D and innovation.
    JEL: L6 D24 O3
    Date: 2010–05–10
  3. By: Giannis Karagiannis (Department of Economics, University of Macedonia, Greece); Vangelis Tzouvelekas (Department of Economics, University of Crete, Greece)
    Abstract: The present paper extents the existing literature providing a theoretically consistent framework for decomposing TFP growth taking into account the indirect effect of pesticides use on farm production. The theoretical framework for modeling the effect of damage control agents is based on Fox and Weersink output damage approach which allows for both increasing and decreasing returns on pesticide use while, on the other hand, it provides consistent econometric estimates of the production technology when pesticides are applied in a preventive way. The model is extended accounting for spillover effects in damage control input use as well as on changes in abatement technology per se. The empirical model is applied to a panel of 60 olive-growing farms in Crete, Greece during the 1999-03 period. The results suggest that Cretan farmers enjoyed significant TFP growth stemming mainly from technological improvement in farming technology. Further, improvement of farmer�s know-how seems to account for a significant part of TFP growth. The damage-control effect is present accounting for the 5.0% of the observed TFP improvements in the surveyed farms.
    Date: 2010–07–03
  4. By: Lundgren, Tommy (Umeå School of Business at Umeå University, Umeå, Sweden); Marklund, Per-Olov (Centre for Environmental and Resource Economics (CERE), Umeå University and Swedish University of Agricultural Science, Umeå Sweden)
    Abstract: As widely recognized, human mankind stands before the most challenging problem of preventing anthropogenic climate change. As a response to this, the European Union advocates an ambitious climate policy mix. However, there is no consensus concerning the impact of stringent environmental policy on firms’ competitiveness and profitability. From the traditional ‘static’ point of view there are productivity losses to be expected. On the other hand, the so called Porter hypothesis suggests the opposite; i.e., due to ‘dynamic’ effects, ambitious climate and energy policies within the EU could actually be beneficial to firms in terms of enhanced profitability and competitiveness. Based on Sweden’s manufacturing industry, our main purpose is to specifically assess the impact of the CO2 tax scheme of Sweden on firms’ profit efficiency. The empirical methodology is based on stochastic frontier estimations and, in general, the results suggest we can neither reject nor confirm the Porter hypothesis across industry sectors. Therefore, we do not generally confirm the argument of stringent environmental policies having positive dynamic effects that potentially offset costs related to environmental policy.
    Keywords: CO2 tax; efficiency; stochastic frontier analysis; Swedish industry
    Date: 2010–06–28
  5. By: Baldwin, John R.; Yan, Beiling
    Abstract: This paper examines how trade liberalization and fluctuations in real exchange rates affect export-market entry/exit and plant-level productivity. It uses the experience of Canadian manufacturing plants over three separate periods that featuring different rates of bilateral tariff reduction and differing movements in bilateral real exchange rates. The patterns of entry and exit responses as well as the productivity outcomes differ markedly in the three periods. Consistent with much of the recent literature, the paper finds that plants self-select into export markets-that is, more efficient plants are more likely to enter and less likely to exit export markets. The reverse also occurs: entrants to export markets improve their productivity performance relative to the population from which they originated and plants that stay in export markets do better than comparable plants that exited, lending support to the thesis that exporting boosts productivity. Finally, we find that overall market access conditions, including real exchange rate trends, significantly affect the extent of productivity gains to be derived from participating in export markets. In particular, the increase in the value of the Canadian dollar during the post-2002 period almost completely offset the productivity growth advantages that new export-market participants would otherwise have enjoyed.
    Keywords: International trade, Business performance and ownership, Economic accounts, Business adaptation and adjustment, Productivity accounts
    Date: 2010–06–25
  6. By: Nicholas Bloom; John Van Reenen
    Abstract: In this chapter we examine the relationship between Human Resource Management (HRM)and productivity. HRM includes incentive pay (individual and group) as well as many nonpayaspects of the employment relationship such as matching (hiring and firing) and workorganization (e.g. teams, autonomy). We place HRM more generally within the literature onmanagement practices and productivity. We start with some facts on levels and trends of bothHRM and productivity and the main economic theories of HRM. We look at some of thedeterminants of HRM - risk, competition, ownership and regulation. The largest sectionanalyses the impact of HRM on productivity emphasizing issues of methodology, data andresults (from micro-econometric studies). We conclude briefly with suggestions of avenuesfor future frontier work.
    Keywords: human resource management, productivity, personnel economics
    JEL: L2 M2 O32 O33
    Date: 2010–05
  7. By: Conte, Andrea; Schweizer, Philip; Dierx , Adriaan; Ilzkovitz, Fabienne
    Abstract: Improving the quality of public finances is a major challenge for European policy makers. The economic crisis has increased budgetary pressures and accentuated the tension between the need to sustain public spending aimed at raising the EU growth potential and the increased scarcity of public resources. Rising the efficiency and effectiveness of public spending in growth-enhancing areas such as education, R&D and innovation has become, therefore, even more important. This paper reviews the innovation performance of the different EU Member States and provides estimates of the relative efficiency of their R&D spending. In doing so, it aims at moving the policy discussion from mere volume-based policy targets towards a better assessment of the quality and effects of public R&D spending. The main contribution of this paper is therefore the identification of both (1) a suitable methodology for the evaluation of efficiency levels across Member States and (2) structural and policy determinants which may contribute to raise efficiency levels of R&D spending across countries and over time. Results indicate that there exist large cross-country differences in terms of measured efficiency, which is an indication that in many Member States there remains a significant potential for further improvement. Currently, there appears to be a divide in efficiency levels between old and new Member States. However, there is some evidence that the new Member States are catching up. The estimated efficiency scores indicate that all EU Member States have improved their efficiency levels over time. There is evidence that the efficiency of R&D spending is higher in countries with a strong knowledge base which, in turn, implies that increases in R&D spending do not necessarily lead to reductions in efficiency levels. Other factors that positively affect efficiency levels include the high-tech specialisation of the economy, the level of investment in education, the employment share in science and technology, and the degree of protection of intellectual property rights. Finally, a R&D tax treatment more oriented towards fiscal incentives rather than direct subsidies appears to have a positive effect on the efficiency level of R&D spending across EU Member States. This work is based on both a quantitative measurement of efficiency levels and a qualitative analysis of the policy instruments used in the Member States to promote R&D efficiency and effectiveness. Efficiency scores are calculated by means of the Stochastic Frontier Analysis for a set of input and output indicators in order to overcome the limitations associated with each individual indicator. A complementary survey of national governments highlights some further policy instruments that could contribute to increase the efficiency of R&D and innovation policies, in particular at the national level. The results of the survey argue in favour of adopting a systemic approach to R&D, education and innovation policies, including three main elements: (i) adapting educational programmes and the research infrastructure to the needs of science and industry; (ii) making a sustained commitment to knowledge investment by adopting medium-term funding programmes; and (iii) evaluating existing R&D programmes in order to determine which policy tools are the most effective and in which areas R&D investments offer the highest returns. More recently, Member States have introduced R&D spending measures specifically targeted to deal with the consequences of the economic crisis. A closer look at these measures reveals that Member States consider direct grants and offers of tax relief as appropriate instruments to counteract the effects of the crisis. It should be clear that such policy measures should be tailored to the specific needs and strengths of every Member State.
    Keywords: Public Finance; Efficiency; R&D spending; patents; innovation policy.
    JEL: H50 C23 O33
    Date: 2009–09
  8. By: Bellemare, Marc F.
    Abstract: There is an important literature on the causal relationship between the quality of institutions and macroeconomic performance. This paper studies this link at the micro level by looking at the productivity impacts of land rights. Whereas previous studies used proxies for soil quality and instruments to control for the endogeneity of land titles, the data used here include precise measures of soil quality, which allow controlling for both the heterogeneity between plots and the endogeneity of land titles. Results indicate that de jure rights (i.e., titles) have no impact on productivity and de facto rights have heterogeneous productivity impacts. Productivity is higher for plots on which landowners report having the right to plant trees, but lower for plots on which landowners report having the right to build a tomb and the right to lease out. Moreover, while the right to lease out increases both the likelihood that the landowner has the intention to seek a title for her plot and her willingness to pay to do so, whether her children will enjoy similar rights on the plot has the opposite effect.
    Keywords: Institutions; Property Rights; Land; Productivity
    JEL: Q15 K11 O12
    Date: 2010–07–03
  9. By: Barajas, A; Huergo, E; Moreno, L
    Abstract: The objective of this paper is to analyse the effects of international R&D cooperation on firms’ economic performance. Our empirical analysis, based on Spanish firms’ participation in the Framework Programme (FP) between 1995 and 2005, has confirmed that: (1) cooperation within the FP has a positive impact on the technological capacity of firms, captured through intangible fixed assets and (2) the technological capacity of firms is positively related to their economic performance, measured by labour productivity.
    Keywords: International R&D cooperation; Framework Programme; Impact assessment
    JEL: L2 H81 O3
    Date: 2009–11–17
  10. By: Andrew T. Young (Department of Economics, West Virginia University)
    Abstract: We provide industry-level estimates of the elasticity of substitution (?) between capital and labor in the US economy. We also estimate rates of factor-augmentation. Aggregate estimates are produced using the same data. Our empirical model comes from the first-order conditions associated with a CES production function. Our data represents 35 industries at roughly the 2-digit SIC level from 1960 to 2005 and covers the entire US economy. We find that aggregate US ? is less than unity and perhaps less than 0.5.The same is likely true for the large majority of individual industries. We find no consistent and/or systematic evidence that aggregate ? is either greater or less than the value-added share-weighted average of industry ?s. Also, there is still considerable variation across the industry-level ? point estimates. Technical change in the aggregate appears to be net labor-augmenting. However, at the industry-level there is little evidence that the type of technical change is uniform across industries. For many individual industries, technical change may be characterized by net capital-augmentation.
    Keywords: elasticity of substitution, factor-augmenting technical change, labor-augmenting technical change, capital-augmenting technical change, corporate taxation, industry-level studies
    JEL: O30 O31 O47 O51 E25 E23 H25
    Date: 2010
  11. By: Christopoulos, Dimitris; Siourounis, Gregorios; Vlachaki, Irene
    Abstract: We construct an endogenous growth model and we employ empirical analysis to investigate the link between foreign aid and production efficiency in the presence of different political orientations of the recipient country. Using a panel of 124 countries from 1971 to 2007 and the production frontier toolbox, we document that regardless of income stratum, decade and type, foreign aid is associated with higher production inefficiency and that this inefficiency is reduced considerably if countries switch to democratic governance. Our study contributes to the aid literature by pointing to the institutional enhancement of the recipient countries through initially the adoption of democratic ruling practices.
    Keywords: Democratic reforms, foreign aid, production inefficiency, translog function
    JEL: F35 O43 D24 C01
    Date: 2010–06
  12. By: Nicholas Bloom; Carol Propper; Stephan Seiler; John Van Reenen
    Abstract: In this paper we examine the causal impact of competition on management quality. We analyze thehospital sector where geographic proximity is a key determinant of competition, and English publichospitals where political competition can be used to construct instrumental variables for marketstructure. Since almost all major English hospitals are government run, closing hospitals in areaswhere the governing party has a small majority is rare due to fear of electoral punishment. We findthat management quality - measured using a new survey tool - is strongly correlated with financialand clinical outcomes such as survival rates from emergency heart attack admissions (AMI). Moreimportantly, we find that higher competition (as indicated by a greater number of neighboringhospitals) is positively correlated with increased management quality, and this relationshipstrengthens when we instrument the number of local hospitals with local political competition.Adding another rival hospital increases the index of management quality by one third of a standarddeviation and leads to a 10.7% reduction in heart-attack mortality rates.
    Keywords: management, hospitals, competition, productivity
    JEL: J45 F12 I18 J31
    Date: 2010–05

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