nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2010‒08‒21
fifteen papers chosen by
Angelo Zago
University of Verona

  1. Competitive, but too small - productivity and entry-exit determinants in European business services By Kox, Henk L.M.; Leeuwen, George van; Wiel, Henry van der
  2. Tourism productivity: incentives and obstacles to fostering growth By Stefania Lionetti
  3. Competition and Innovation: Pushing Productivity Up or Down? By Brouwer, E.; Wiel, H.P. van der
  4. Financial Deregulation and Profit Efficiency: A Non-parametric Analysis of Indian Banks By Ghosh, Saibal
  5. Efficiency effects of quality of service and environmental factors: experience from Norwegian electricity distribution By Growitsch, Christian; Jamasb, Tooraj; Wetzel, Heike
  6. Livestock Production Systems Impact on the Nicaragua Sustainable Local Development, 1998-2005: Malmquist DEA Index with an oriented Output By Zuniga Gonzalez, Carlos Alberto
  7. Exports and productivity selection effects for Dutch firms By Kox, Henk L.M.; Rojas Romasgosa, Hugo
  8. A note on the nonlinear wages-productivity nexus for Malaysia By Tang, Chor Foon
  9. How Do Different Motives for R&D Investment in Foreign Locations Affect Domestic Firm Performance? An Analysis Based on Swiss Panel Micro Data By Spyros Arvanitis; Heinz Hollenstein
  10. Sectoral Productivity Trends:Convergence Islands in Oceans of Divergence By Vries, Gaaitzen J. de; Los, Bart; Castellacci, Fulvio
  11. Current Trends in the Analysis of Canadian Productivity Growth By Simon van Norden
  12. Competition, Efficiency, and Soundness in Banking: An Industrial Organization Perspective By Schaeck, K.; Cihák, M.
  13. Risk-return Efficiency, Financial Distress Risk, and Bank Financial Strength Ratings By Hua, Changchun; Liu, Li-Gang
  14. An Analysis of Energy Intensity in Indonesian Manufacturing By Tony Irawan; Djoni Hartono; Noer Azam Achsani
  15. What Determines the Long run Growth in Kenya? By Kumar, Saten; Pacheco, Gail

  1. By: Kox, Henk L.M.; Leeuwen, George van; Wiel, Henry van der
    Abstract: The paper investigates whether scale effects, market structure, and regulation determine the poor productivity performance of the European business services industry. We apply parametric and nonparametric methods to estimate the productivity frontier and subsequently explain the distance of firms to the productivity frontier by market characteristics, entry- and exit dynamics and national regulation. The frontier is assessed using detailed industry data panel for 13 EU countries. Our estimates suggest that most scale advantages are exhausted after reaching a size of 20 employees. This scale inefficiency is persistent over time and points to weak competitive selection. Market and regulation characteristics explain the persistence of X-inefficiency (sub-optimal productivity relative to the industry frontier). More entry and exit are favourable for productivity performance, while higher market concentration works out negatively. Regulatory differences also appear to explain part of the business services' productivity performance. In particular regulation-caused exit and labour reallocation costs have significant and large negative impacts on the process of competitive selection and hence on productivity performance. Overall we find that the most efficient scale in business services is close to 20 employees and that scale inefficiencies show a hump-shape pattern with strong potential scale economies for the smallest firms and diseconomies of scale for the largest firms. The smallest firms operate under competitive conditions, but they are too small to be efficient. And since this conclusion holds for about 95 out of every 100 European business services firms, this factor weighs heavily for the overall productivity performance of this industry.
    Keywords: productivity; frontier models; scale; industry dynamics; regulation; European Union; business services
    JEL: L8 C34 L1 R38
    Date: 2010–07–01
  2. By: Stefania Lionetti (Institute of Economic Research, University of Lugano)
    Abstract: This paper intends firstly to estimate tourism productivity in 208 countries in the years 1990, 1995, 2000 and 2004. Secondly, it analyzes if the differential of productivity across countries could be due to some structural characteristics of the countries themselves. The study uses a stochastic production frontier approach and a technical efficiency model to analyze the determinants of efficiency across countries. Private capital and labour result to be more influential than public capital on the number of arrivals. The results suggest that the tertiary school enrolment, the level of communication technologies, the country openness to international trade all significantly contribute to efficiency.
    Keywords: Tourism productivity; Economic growth; Labor; Public capital; Private capital
    JEL: D24 L83 O10 O40 O50
    Date: 2010–07
  3. By: Brouwer, E.; Wiel, H.P. van der (Tilburg University, Center for Economic Research)
    Abstract: This paper examines the relationship between competition, innovation and productivity for the Netherlands. We use industry level data aggregated from micro data as well as moments from firm level data for the period 1996-2006. We match innovation data from Community Innovation Survey with accounting data to link innovative activities with performance at the industry level. We find strong evidence for a positive impact of competition on Total Factor Productivity (TFP) at the industry level. Competition directly increases TFP by reducing X-ineficiencies and removing inefficient forms from markets, but also through more innovation. Nonetheless, there exists an inverted U- curve between competition and innovation for the Netherlands, at least for manufacturing industries. Yet, our results indicate that a negative effect of competition on productivity through lower innovation expenditures arises only at very high levels of competition.
    Keywords: competition;innovation;profit elasticity;productivity
    JEL: D40 L16 O31
    Date: 2010
  4. By: Ghosh, Saibal
    Abstract: The paper investigates the performance of Indian commercial banking sector during the post reform period 1992-2004. The results indicate high levels of efficiency in costs and lower levels in profits, reflecting the importance of inefficiencies on the revenue side of banking activity. The decomposition of profit efficiency shows that a large portion of outlay lost is due to allocative inefficiency. The proximate determinants of profit efficiency appears to suggest that big state-owned banks performed reasonably well and are more likely to operate at higher levels of profit efficiency. A close relationship is observed between efficiency and soundness as determined by bank’s capital adequacy ratio. The empirical results also show that the profit efficient banks are those that have, on an average, less non-performing loans.
    Keywords: Indian Banks; Deregulation; Profit efficiency; DEA model
    JEL: G21
    Date: 2009–11
  5. By: Growitsch, Christian (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Jamasb, Tooraj (Faculty of Economics University of Cambridge); Wetzel, Heike (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: Since the 1990s, efficiency and benchmarking analysis has increasingly been used in network utilities research and regulation. A recurrent concern is the effect of environmental factors that are beyond the influence of firms (observable heterogeneity) and factors that are not identifiable (unobserved heterogeneity) on measured cost and quality performance of firms. This paper analyses the effect of geographic and weather factors and unobserved heterogeneity on a set of 128 Norwegian electricity distribution utilities for the 2001-2004 period. <p> We utilize data on almost 100 geographic and weather variables to identify real economic inefficiency while controlling for observable and unobserved heterogeneity. We use the factor analysis technique to reduce the number of environmental factors into few composite variables and to avoid the problem of multicollinearity. We then estimate the established stochastic frontier models of Battese and Coelli (1992; 1995) and the recent true fixed effects models of Greene (2004; 2005) without and with environmental variables. <p> In the former models some composite environmental variables have a significant effect on the performance of utilities. These effects vanish in the true fixed effects models. However, the latter models capture the entire unobserved heterogeneity and therefore show significantly higher average efficiency scores.
    Keywords: Efficiency; Quality of service; Input distance function; Stochastic frontier analysis
    JEL: L15 L51 L94
    Date: 2010–08–11
  6. By: Zuniga Gonzalez, Carlos Alberto
    Abstract: This paper is a postdoctoral research, that was organized by the Autonomous National University of Nicaragua, Leon and supported by ASDI.
    Keywords: LSMS Survey, MECOVI, Malmquist DEA Index, Sustainable Local Development., Productivity Analysis, P: 25, P: 36, R: 28, R: 38, R: 58,
    Date: 2010–08–04
  7. By: Kox, Henk L.M.; Rojas Romasgosa, Hugo
    Abstract: The paper investigates whether the self-selection hypothesis and other predictions from the heterogeneous-firms trade models can explain the export participation patterns for Dutch firms in manufacturing and services. The results provide strong support for the self-selection hypothesis, according to which firms need higher productivity performance to compensate for sunk entry costs in export markets. After controlling for many firm and market characteristics we robustly find higher productivity levels for exporters. The paper also tests for the reverse causality (learning-by-exporting), but finds no empirical support for it, not even after controlling for the firm's distance to a constructed international productivity frontier. This latter result may be important for the motivation of future export promotion policies. The empirical estimates are achieved by probit regressions at the plant level and at the firm level. As a robustness test we also applied the more standard OLS panel regression estimates, which provided similar results. The paper also tested whether the productivity-export link is conditional on the sectoral market structure and multinational affiliation. Services sectors with high competition and a lower degree of product differentiation have significantly higher export productivity premia than services firms in less competitive sectors. Such differences are not found in the manufacturing sector.
    Keywords: Export participation; productivity; self selection; market structure
    JEL: F23 F12 L1
    Date: 2010–07–01
  8. By: Tang, Chor Foon
    Abstract: This study is to empirically investigate the effect of real wages on productivity in Malaysia using monthly data from January 1983 to November 2009. The Johansen’s test suggests that wages and productivity are cointegrated. Moreover, productivity and real wages have a quadratic relationship in the long run (i.e., inverse-U shape curve) instead of linear relationship. Hence, the effect of real wages on productivity is not monotonic. Furthermore, the Granger causality test indicates that real wages and productivity is bilateral causality in nature.
    Keywords: Causality; Cointegration; Malaysia; Wages-Productivity
    JEL: J24 C22 J30
    Date: 2010
  9. By: Spyros Arvanitis; Heinz Hollenstein (WIFO)
    Abstract: The aim of this paper is to investigate the differences between specific motives of R&D investment in foreign locations with respect to the factors influencing the likelihood of foreign R&D and to the impact of foreign presence on the parent firms' innovativeness and productivity. An econometric analysis of Swiss firm panel data shows, firstly, that factors related to firm-specific knowledge-oriented advantages are more important for explaining the likelihood of foreign R&D activities than factors reflecting disadvantages related to home location. Secondly, knowledge-oriented motives of foreign R&D are positively correlated to innovation performance of domestic firms, whereas market-oriented and resource-oriented strategies correlate positively with productivity.
    Date: 2010–07–13
  10. By: Vries, Gaaitzen J. de; Los, Bart; Castellacci, Fulvio (Groningen University)
    Abstract: In their influential study on productivity growth at the sector-level, Bernard and Jones (1996, BJ) observed convergence of aggregate labor productivity levels in 14 highly developed countries in 1970-1987. They also found evidence that this could be attributed to convergence in services productivity rather than in manufacturing. The main question this paper addresses is whether this result can be generalized to a broader set of countries. Several strands of growth theory suggest that thresholds with regard to a variety of issues can lead to multiple growth regimes, which are likely to lead to very heterogeneous patterns of convergence and divergence. To analyze this, we use econometric techniques that explicitly allow for identification of parameter heterogeneity (quantile regressions and quantile smoothing splines), both with regard to initial conditions and to performance conditional on these initial productivity levels. BJ?s data are extended in several dimensions. The recently developed sectoral dataset we use spans the period 1970-2004 and covers 49 countries, including many developing countries. Overall, our findings suggest that convergence as found by BJ only applies to limited groups of country-sectors (?convergence islands?), whereas the biggest parts of our sample spaces can be considered as ?oceans of divergence?.
    Date: 2010
  11. By: Simon van Norden
    Abstract: For more than a decade, debates over the impact of new information technologies on trend productivity growth rates have played a key role in the formulation of monetary policy in many countries, including the United States and Canada. However, the question of whether the trend growth rate of aggregate productivity has changed significantly is rarely examined formally. This paper examines the latest aggregate labour productivity data for Canada using a new testing approach specifically designed to detect recent changes in trends. In addition to showing the strength of the evidence for changes in long-run trends, it considers the effect that data revision and changing sample period has had on inference about structural changes. In an appendix, it investigates how large such changes must be before they can be detected and to what degree detection tends to lag the structural change. Evidence of a decline in the trend rate of labour productivity growth in Canada since 1990 is mixed. In particular, conclusions vary considerably from year to year as data are revised and as the accumulation of observations after purported breaks changes initial perceptions. The instability of test results suggest that policymakers need to use extreme caution in interpreting claims of changes in labour productivity trends and highlight the uncertainty that they face. <P>Pour plus d’une décennie, les débats sur l’impact des technologies de l’information sur les taux de croissance tendanciel de la productivité ont joué un rôle clé dans la formulation de la politique monétaire dans de nombreux pays, y compris les États-Unis et le Canada. Toutefois, la question de savoir si le taux de croissance tendanciel de la productivité globale a changé considérablement est rarement examinée formellement. Cet article examine les données les plus récentes de productivité du travail pour le Canada en utilisant une approche de nouveaux tests spécialement conçus pour détecter les changements récents dans les tendances. En plus de démontrer la force de la preuve aux changements des tendances à long terme, il considère l’effet que la révision des données et la variation des périodes d’échantillonnage a eu sur l’inférence au sujet des changements structurels. Dans un appendice, il examine la taille que les changements doivent avoir avant de pouvoir être détectés et dans quelle mesure la détection a tendance à entraîner des changements structurels. L’évidence pour une baisse du taux de croissance tendanciel de la productivité du travail au Canada depuis 1990 est mitigée. En particulier, les conclusions varient considérablement d’une année à l’autre à cause de la révision des données et l’accumulation d’observations. L’instabilité des résultats des tests indique que les décideurs doivent faire preuve de prudence extrême dans l’interprétation des changements dans les tendances de la productivité au travail et mettre en évidence l’incertitude à laquelle ils sont confrontés.
    Keywords: Productivity growth, detrending, breakpoints, structural change, data revision , croissance de la productivité, changements structurels, révision des données
    Date: 2010–08–01
  12. By: Schaeck, K.; Cihák, M. (Tilburg University, Center for Economic Research)
    Abstract: How can competition enhance bank soundness? Does competition improve soundness via the efficiency channel? Do banks heterogeneously respond to competition? To answer these questions, we exploit an innovative measure of competition [Boone, J., A new way to measure competition, EconJnl, Vol. 118, pp. 1245-1261] that captures the reallocation of profits from inefficient banks to their efficient counterparts. Based on two complementary datasets for Europe and the U.S., we first establish that the new competition indicator captures a broad variety of other characteristics of competition in a consistent manner. Second, we verify that competition increases efficiency. Third, we present novel evidence that efficiency is the conduit through which competition contributes to bank soundness. In a final examination of banks’ heterogeneous responses to competition, we find that smaller banks’ soundness measures respond more strongly to competition than larger banks’ soundness measures, and two-stage quantile regressions indicate that the soundness-enhancing effect of competition is larger in magnitude for sound banks than for fragile banks.
    Keywords: bank competition;efficiency;soundness;Boone indicator;quantile regression
    JEL: G21 G28
    Date: 2010
  13. By: Hua, Changchun (Asian Development Bank Institute); Liu, Li-Gang (Asian Development Bank Institute)
    Abstract: This paper investigates whether there is any consistency between banks' financial strength ratings (bank rating) and their risk-return profiles. It is expected that banks with high ratings tend to earn high expected returns for the risks they assume and thereby have a low probability of experiencing financial distress. Bank ratings, a measure of a bank's intrinsic safety and soundness, should therefore be able to capture the bank's ability to manage financial distress while achieving risk-return efficiency. We first estimate the expected returns, risks, and financial distress risk proxy (the inverse z-score), then apply the stochastic frontier analysis (SFA) to obtain the risk-return efficiency score for each bank, and finally conduct ordered logit regressions of bank ratings on estimated risks, risk-return efficiency, and the inverse z-score by controlling for other variables related to each bank's operating environment. We find that banks with a higher efficiency score on average tend to obtain favorable ratings. It appears that rating agencies generally encourage banks to trade expected returns for reduced risks, suggesting that these ratings are generally consistent with banks' risk-return profiles.
    Keywords: bank ratings; risk-return efficiency; stochastic frontier analysis
    JEL: D21 D24 G21 G24 G28 G32
    Date: 2010–08–12
  14. By: Tony Irawan (Department of Economics,Faculty of Economics and Management, Bogor Agricultural University;InterCAFE-LPPM, IPB); Djoni Hartono (Graduate Program in Economics, Faculty of Economics and Business, University of Indonesia); Noer Azam Achsani (Department of Economics,Faculty of Economics and Management, Bogor Agricultural University;InterCAFE-LPPM, IPB)
    Abstract: Many countries utilize their resources at optimal capacity in fostering countries’ economic growth without any concern on environmental impact. Even though the importance of environmental issue as one of the important aspects in sustainable development is fully understood, the economic growth still remained as the priority target. In Indonesia, industry is one of the important sectors both in term of its contribution to national output and national energy consumption. Based on Indonesian Statistic Bureau, industry is always at the top list of contributor of national energy consumption since 2000. This paper employs the decomposition analysis to calculate what factors contribute to the change in energy intensity. We also conduct a panel data analysis to investigate the determinants of energy intensity using firm level data. The result suggests that, even though the industrial sector’s energy intensity is higher than national level, it varied across sub sectors within the industry. Meanwhile, the econometric analysis suggests that wage, age, capital intensity and share of capital owned by private sector have positive impact on energy intensity, whereas size of firms, labor productivity and technology intensity has negative impact on energy intensity.
    Keywords: energy intensity, industry, firm, decomposition, panel data
    JEL: Q40
    Date: 2010–08
  15. By: Kumar, Saten; Pacheco, Gail
    Abstract: Lifting the long run growth rate is, arguably, the pursuit of every economy. What should Kenya do to enhance its long run growth rate? This paper attempts to answer this question by examining the determinants of total factor productivity (TFP) in Kenya. We utilized the theoretical insights from the Solow (1956) growth model and its extension by Mankiw, Romer and Weil (1992) and followed Senhadji’s (2000) growth accounting procedure. We find that growth in Kenya, until the 1990s was mainly due to factor accumulation. Since then, TFP has made a small contribution to growth. Our findings imply that while variables like overseas development aid, foreign direct investment and progress of financial sector improves TFP, trade openness is the key determinant. Consequently, policy makers should focus on policies that improve trade openness if long run growth rate is to be raised.
    Keywords: Solow model; growth accounting; total factor productivity
    JEL: O10 O15
    Date: 2010–08–01

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