New Economics Papers
on Efficiency and Productivity
Issue of 2010‒08‒14
ten papers chosen by

  1. Does FDI spur innovation, productivity and knowledge sourcing by incumbent firms? Evidence from manufacturing industry in Estonia By Priit Vahter
  2. Technical Efficiency of Automobiles – A Nonparametric Approach Incorporating Carbon Dioxide Emissions By Hampf, Benjamin; Krüger, Jens
  3. Innovation, R&D Investment and Productivity: Uruguayan Manufacturing Firms By Adriana Cassoni; Magdalena Ramada
  4. Identifying technology shocks in the frequency domain By Riccardo DiCecio; Michael T. Owyang
  5. Financial Crises and Labor Market Turbulence By Sangeeta Pratap; Erwan Quintin
  6. Which Foreigners Are Worth Wooing? A Meta-Analysis of Vertical Spillovers from FDI By Tomáš Havránek; Zuzana Iršová
  7. Cross-Country Evidence on Teacher Performance Pay By Woessmann, Ludger
  8. Affiliation and Firm Performance: Evidence from Indian Business Groups By Ghosh, Saibal
  9. Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises By Sangeeta Pratap; Carlos Urrutia
  10. Smoking persistence in Europe: A semi-parametric panel data analysis with selectivity By Dimitris Christelis; Anna Sanz-de-Galdeano

  1. By: Priit Vahter
    Abstract: Does FDI affect productivity growth, innovation, 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. I use instrumental variables approach to identify the effects. I find no evidence of an effect of FDI entry on local incumbents’ TFP and labour productivityg rowth in the short term. The effect on productivity does not depend on the local firms’ distance to the productivity frontier. However, there are positive spillovers on process innovation. 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: 2010–04–01
  2. By: Hampf, Benjamin; Krüger, Jens
    Abstract: We conduct an empirical analysis of the technical efficiency of cars sold in Germany in 2010. The analysis is performed using traditional data envelopment analysis (DEA) as well as directional distance functions (DDF). The approach of DDF allows incorporating the reduction of carbon dioxide emissions as an environmental goal in the efficiency analysis. A frontier separation approach is used to gain deeper insight for different car classes and regions of origin. Natural gas driven cars and sports-utility-vehicles are also treated as different groups. The results show that the efficiency measurement is significantly influenced by the incorporation of carbon dioxide emissions. Moreover, we find that there is indeed a trade-off between technological performance and environmental performance.
    Date: 2010–06
  3. By: Adriana Cassoni; Magdalena Ramada
    Abstract: Uruguay’s inability to sustain high levels of economic growth cannot be fully explained by external shocks, the prevailing institutional setting or the level of human capital accumulation. Instead, low investment in knowledge capital stands as a most likely explanation. This hypothesis is supported by empirical evidence analyzed in this study. Returns on innovation were found to be significant, promoting a non-negligible acceleration of labor productivity gains. However, the propensity to innovate and the intensity of the effort expended critically depend on the firm’s already having a high internal efficiency level. As firms’ behavior is differentiated depending on the type of innovation output pursued, the significantly higher frequency of processes relative to product-innovative firms is matched by the larger impact of novel processes with respect to products on labor productivity. However, the degree of novelty of process innovation is significantly inferior to that of product innovation. The research points to inadequate choices of input mixes as the underlying cause. Policy recommendations center on finding adequate channels to generate and disseminate information on the optimal input mixes depending on the type of innovation output sought.
    Keywords: Innovation input, Innovation output, Productivity growth, CDM model
    JEL: O31 O32 D21
    Date: 2010–08
  4. By: Riccardo DiCecio; Michael T. Owyang
    Abstract: Since Galí [1999], long-run restricted VARs have become the standard for identifying the effects of technology shocks. In a recent paper, Francis et al. [2008] proposed an alternative to identify technology as the shock that maximizes the forecast-error variance share of labor productivity at long horizons. In this paper, we propose a variant of the Max Share identification, which focuses on maximizing the variance share of labor productivity in the frequency domain. We consider the responses to technology shocks identified from various frequency bands. Two distinct technology shocks emerge. An expansionary shock increases productivity, output, and hours at business-cycle frequencies. The technology shock that maximizes productivity in the medium and long runs instead has clear contractionary effects on hours, while increasing output and productivity.
    Keywords: Business cycles ; Technology - Economic aspects ; Productivity
    Date: 2010
  5. By: Sangeeta Pratap (Hunter College); Erwan Quintin (University of Wisconsin, Madison)
    Abstract: Financial crises cause a significant reallocation of labor as relative prices change drastically and economies confront a variety of shocks. Using household survey data for Mexico, we show that gross and net labor flows between industries and occupations increase substantially during the 1994-95 crisis. We also find significant wage losses associated with moving: individuals who switch industry or occupation during the crisis lose more than 10% of hourly earnings compared to similar workers who do not move. This suggests that crises are times of labor market turbulence, during which human capital is destroyed in the process of directing workers to different economic activities. This phenomenon could account for a significant part of the large fall in TFP that typically accompanies crises in emerging economies. We describe a map from our earnings estimates to aggregate TFP and show that productivity losses associated with occupation and industry changes can explain about 40% of the observed fall in TFPin Mexico in 1995.
    Keywords: Financial crises, labor market turbulence, total factor productivity, output fluctuations
    JEL: D14 D43 D91
    Date: 2010
  6. By: Tomáš Havránek (Czech National Bank; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Zuzana Iršová (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: The principal argument for subsidizing foreign investment is the assumed spillover of technology to local firms. Yet researchers report mixed results on spillovers. To examine the phenomenon in a systematic way, we collected 3,626 estimates from 57 empirical studies on between-sector spillovers and reviewed the literature quantitatively. Our results indicate that model misspecifications reduce the reported estimates, but that journals select rela¬tively large estimates for publication. The underlying spillover to suppliers is positive and economically significant, whereas the spillover to buyers is insignificant. Greater spillovers are generated by investors that come from distant countries and that have only slight tech¬nological advantages over local firms. In addition, greater spillovers are received by countries that have underdeveloped financial systems and that are open to international trade.
    Keywords: Foreign direct investment; Productivity; Spillovers; Meta-analysis; Publication selection bias
    JEL: F23
    Date: 2010–08
  7. By: Woessmann, Ludger (Ifo Institute for Economic Research)
    Abstract: The general-equilibrium effects of performance-related teacher pay include long-term incentive and teacher-sorting mechanisms that usually elude experimental studies but are captured in cross-country comparisons. Combining country-level performance-pay measures with rich PISA-2003 international achievement micro data, this paper estimates student-level international education production functions. The use of teacher salary adjustments for outstanding performance is significantly associated with math, science, and reading achievement across countries. Scores in countries with performance-related pay are about one quarter standard deviations higher. Results avoid bias from within-country selection and are robust to continental fixed effects and to controlling for non-performance-based forms of teacher salary adjustments.
    Keywords: student achievement, teacher performance pay, international, PISA
    JEL: I20 J33
    Date: 2010–07
  8. By: Ghosh, Saibal
    Abstract: Using data on a sample of Indian firms from 1996-2006, we examine the effect of group affiliation on firm performance. After controlling for the differences in firm size, growth opportunities and leverage, the findings indicate that group affiliation exerts a salutary impact on firm performance, measured in terms of adjusted Q or RoA. Moreover, the evidence indicates that tunneling is not an important factor driving the valuation and profitability effect of group affiliation.
    Keywords: Business groups; Adjusted Q; RoA; Tunneling; Promoter’s share; India
    JEL: G32
    Date: 2010–03
  9. By: Sangeeta Pratap (Hunter College); Carlos Urrutia (Instituto Tecnologico Autonomo de Mexico)
    Abstract: The financial crises or “sudden stops” of the last decade in emerging economies were accompanied by a large fall in total factor productivity. In this paper we explore the role of financial frictions in exacerbating the misallocation of resources and explaining this drop in TFP. We build a dynamic two-sector model of a small open economy with a cash in advance constraint where firms have to finance a part of their purchase of intermediate goods prior to production. The model is calibrated to the Mexican economy before the 1995 crisis and subject to an unexpected shock to interest rates. The financial friction can generate an endogenous fall in TFP of about 3.5 percent and can explain 74 percent of the observed fall in GDP per worker. Adding a cost of adjusting labor between the two sectors and sectoral specificity of capital also generates the sectoral patterns of output and resource use observed in the data after the sudden stop. The results highlight the interaction between interest rates and allocative inefficiencies as an explanation of the real effects of the financial crisis.
    Keywords: Financial frictions, labor market turbulence, adjustment costs, sudden stops, total factor productivity, output fluctuations
    JEL: D14 D43 D91
    Date: 2010
  10. By: Dimitris Christelis (Department of Economics, University Of Venice Cà Foscari); Anna Sanz-de-Galdeano (Department of Economics and Economic History, Universitat Autònoma de Barcelona)
    Abstract: We study smoking persistence, which can be due to both true state dependence and individual unobserved heterogeneity, in ten European countries. We distinguish between the two sources of persistence by using semi-parametric dynamic panel selection methods, applied to both smoking participation and cigarette consumption. We find that for both smoking decisions true state dependence is generally much smaller when unobserved individual heterogeneity is taken into account, and we also uncover large differences in true state dependence across countries. Finally, allowing for heaping in the reported number of cigarettes smoked considerably improves the fit of our model.
    Keywords: smoking, panel data, state dependence, selectivity
    JEL: C33 C34 D12 I10 I12
    Date: 2010

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