New Economics Papers
on Efficiency and Productivity
Issue of 2010‒10‒16
fourteen papers chosen by

  1. Total Factor Productivity Estimates: Some Evidence from European Regions By Maria Gabriela Ladu
  2. Competition and Productivity: Evidence from the Post WWII U.S. Cement Industry By Timothy Dunne; Shawn Klimek; James Schmitz, Jr.
  3. Computer Networks and Productivity Revisited: Does Plant Size Matter? Evidence and Implications By Henry Hyatt; Sang Nguyen
  4. Efficiency Effects of Quality of Service and Environmental Factors: Experience from Norwegian Electricity Distribution By Growitsch, C.; Jamasb, T.; Wetzel, H.
  5. Product, Process and Organizational Innovation: Drivers, Complementarity and Productivity Effects By Michael Polder; George van Leeuwen; Pierre Mohnen; Wladimir Raymond
  6. Local Environmental Regulation and Plant-Level Productivity By Randy Becker
  7. Risk-return Efficiency, Financial Distress Risk, and Bank Financial Strength Ratings By Changchun Hua; Li-Gang Liu
  8. Productivity and the density of human capital By Jaison R. Abel; Ishita Dey; Todd M. Gabe
  9. Austrian Exporters: A Firm-Level Analysis By Johannes Pöschl; Robert Stehrer; Roman Stöllinger
  10. Labor Productivity and the Law of Decreasing Labor Content By Peter Flaschel, Reiner Franke and Roberto Veneziani
  11. The Direct Costs and Benefits of US Electric Utility Divestitures By Triebs, T.P.; Pollitt, M.G.; Kwoka, J.E.
  12. Relative performance of SRI equity funds: An analysis of European funds using Data Envelopment Analysis By Antonella Basso; Stefania Funari
  13. Technological Progress, Factor Endowments and Structural Change:A Note By Quibria, M.G; Srinivasan, T.N.
  14. A Cross-Sectional Performance Measure for Portfolio Management By Monica Billio; Ludovic Calès; Dominique Guegan

  1. By: Maria Gabriela Ladu (Università degli Studi di Sassari and CRENoS)
    Abstract: This paper analyses the economic performance of European Regions and computes the Total Factor Productivity (TFP) using a panel cointegration approach. The main idea behind this choice is that this approach allows to directly estimate differences across economies in the production function and also to test for the presence of scale economies and market imperfections. In fact, recent studies (de la Fuente, 1995, 1996B, and de la Fuente – Doménech, 2000) show that TFP differences across countries and regions are substantial and highlight the importance of TFP dynamics as crucial in the evolution of productivity.
    Keywords: Total Factor Productivity, Panel Unit Root Test, Panel Cointegration, Fully Modified OLS
    Date: 2010–09–29
  2. By: Timothy Dunne; Shawn Klimek; James Schmitz, Jr.
    Abstract: In the mid 1980s, the U.S. cement industry faced a large increase in foreign competition. Foreign cement producers began offering cement at very large discounts on U.S. prices. We show that productivity (measured by TFP) in the industry was falling during the 1960s and 1970s, but that following the increase in competition, productivity has reversed course and is growing strongly. When foreign competition was weak, productivity fell. When it was strong, productivity grew robustly. We explore the reasons for the large productivity increase. We argue that a large share of the productivity gains resulted from significant changes in management practices at plants.
    Date: 2010–09
  3. By: Henry Hyatt; Sang Nguyen
    Abstract: Numerous studies have documented a positive association between information technology (IT) investments and business- and establishment-level productivity, but these studies usually pay sole or disporportionate attention to small- or medium-sized entities. In this paper, we revisit the evidence for manufacturing plants presented in Atrostic and Nguyen (2005) and show that the positive relationship between computer networks and labor productivity is only found among small- and medium-sized plants. Indeed, for larger plants the relationship is negative, and employment-weighted estimates indicate computer networks have a negative relationship with the productivity of employees, on average. These findings indicate that computer network investments may have an ambiguous relationship with aggregate labor productivity growth.
    JEL: L6 O3
    Date: 2010–09
  4. By: Growitsch, C.; Jamasb, T.; Wetzel, H.
    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. 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 multi-collinearity. 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. 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: 2010–10–01
  5. By: Michael Polder; George van Leeuwen; Pierre Mohnen; Wladimir Raymond
    Abstract: We propose a model where both R&D and ICT investment feed into a system of three innovation output equations (product, process and organizational innovation), which ultimately feeds into a productivity equation. We find that ICT investment and usage are important drivers of innovation in both manufacturing and services. Doing more R&D has a positive effect on product innovation in manufacturing. The strongest productivity effects are derived from organizational innovation. We find positive effects of product and process innovation when combined with an organizational innovation. There is evidence that organizational innovation is complementary to process innovation.
    Keywords: Innovation; ICT; R&D; Productivity
    JEL: L25
    Date: 2010
  6. By: Randy Becker
    Abstract: This paper examines the impact of environmental regulation on the productivity of manufacturing plants in the United States. Establishment-level data from three Censuses of Manufactures are used to estimate 3-factor Cobb-Douglas production functions that include a measure of the stringency of environmental regulation faced by manufacturing plants. In contrast to previous studies, this paper examines effects on plants in all manufacturing industries, not just those in “dirty” industries. Further, this paper employs spatial-temporal variation in environmental compliance costs to identify effects, using a time-varying county-level index that is based on multiple years of establishment-level data from the Pollution Abatement Costs and Expenditures survey and the Annual Survey of Manufactures. Results suggest that, for the average manufacturing plant, the effect on productivity of being in a county with higher environmental compliance costs is relatively small and often not statistically significant. For the average plant, the main effect of environmental regulation may not be in the spatial and temporal dimensions.
    Keywords: environmental regulation, productivity, U.S. manufacturing
    Date: 2010–09
  7. By: Changchun Hua; Li-Gang Liu
    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. [ADBI Working Paper 240]
    Keywords: bank, financial, high ratings, safety, efficiency,
    Date: 2010
  8. By: Jaison R. Abel (Federal Reserve Bank of New York); Ishita Dey (University at Buffalo); Todd M. Gabe (University of Maine)
    Abstract: We estimate a model of urban productivity in which the agglomeration effect of density is enhanced by a metropolitan area’s stock of human capital. Estimation accounts for potential biases due to the endogeneity of density and industrial composition effects. Using new information on output per worker for U.S. metropolitan areas along with a measure of density that accounts for the spatial distribution of population, we find that a doubling of density increases productivity by 2 to 4 percent. Consistent with theories of learning and knowledge spillovers in cities, we demonstrate that the elasticity of average labor productivity with respect to density increases with human capital. Metropolitan areas with a human capital stock one standard deviation below the mean realize no productivity gain, while doubling density in metropolitan areas with a human capital stock one standard deviation above the mean yields productivity benefits that are about twice the average.
    Keywords: Agglomeration, productivity, density, knowledge spillovers
    JEL: R12 R30 J24 O40
    Date: 2010
  9. By: Johannes Pöschl (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: In this paper we provide detailed evidence on the importance and performance of exporters compared to non-exporters in Austrian manufacturing industries based on firm-level data. The centrepiece of the study is the issue of the export premium, i.e. the size and performance advantages of exporting firms compared to their purely domestic peers. We find evidence for the existence of large export premia for all seven size and performance premia considered. These results are largely in line with the results found for other European countries. When estimating the export premium at the level of individual industries, we find significant differences with respect to the magnitude of the export premia. Significant export premia are still found when controlling for other firm characteristics such as employment and R&D-related variables where we find lower but more plausible magnitudes for the size and performance premia of exporters. We further test the robustness of the export premium results using random and also fixed effects estimators. The random effects model delivers statistically significant export premia for all measures as well. Care has to be taken when interpreting the estimated coefficients in the firm fixed effects model as the coefficients signal differences in size and productivity for 'export switchers', i.e. firms changing their export status. Finally we employ a probit model to investigate the impact of past firm characteristics on the probability to export. The major result is that while lagged firm productivity and size matter, the most important factor influencing this probability is the past export status pointing to a strong persistence of exporting.
    Keywords: exports, firm heterogeneity, export premium, Austrian manufacturing firms
    JEL: F14 L25
    Date: 2010–07
  10. By: Peter Flaschel, Reiner Franke and Roberto Veneziani (Bielefeld University, Kiel University, Queen Mary University of London)
    Abstract: This paper analyzes labor productivity and the law of decreasing labor content (LDLC) originally formulated by Farjoun and Machover (1983). First, it is shown that the standard measures of labor productivity may be rather misleading, owing to their emphasis on monetary aggregates. Instead, the conventional classical-Marxian labor values provide the theoretically and empirically sound measures of labor productivity. The notion of labor content and the LDLC are therefore central in order to understand the dynamics of capitalist economies. Second, some rigorous theoretical relations between different forms of profit-driven technical change and productivity are derived in a general input-output framework with fixed capital, which provide deterministic foundations to the LDLC. Third, the main theoretical propositions are analyzed empirically based on a new dataset of the German economy. JEL Categories: B51, D57, O33, C67
    Keywords: labor productivity, law of falling labor content, technical change, labor values, Input-Output analysis.
    Date: 2010–09
  11. By: Triebs, T.P.; Pollitt, M.G.; Kwoka, J.E.
    Abstract: This paper studies the impact of divestiture on the efficiency and costs of electric utilities. The empirical literature shows that there exist economies of scope for electric utilities and that divestiture decreases distribution efficiency but increases generation efficiency. This paper is to bring together these different results. Our analysis covers distribution, transmission, and power sourcing. Our data is an unbalanced panel of about 138 US electric utilities for the years 1994 to 2006 over which we observe 30 divestitures between 1997 and 2003. First, we regress firmlevel efficiencies for distribution and power sourcing on various divestiture indicators. Second, we compare the weighted cost between divested and non-divested firms and calculate a net present value for the entire sample of divestitures. Last, we regress net benefits from divestiture on the distribution side on the net benefit for power sourcing to see whether individual firms successfully off-set any costs of divestiture. We find that divestiture reduces distribution efficiency but increases power sourcing efficiency. Both effects depend on the amount of own nuclear generation output but not fossil-fuel or hydro output. The net present value for all divestitures in our sample is $11.3 billion. It seems that relatively lower costs of power outweigh losses in economies of scope as well as other restructuring costs. However, lower costs of power might be the result of favourable contracts put in place at the time of divestiture. Our study complements traditional studies of economies of scope and shows that divestitures might well be worth it.
    Keywords: Electric utilities, divestiture, economies of scope, net present value
    JEL: L25 L51 L94
    Date: 2010–10–01
  12. By: Antonella Basso (Dept. of Applied Mathematics, University Ca'Foscari of Venice and SSAV); Stefania Funari (Dept. of Applied Mathematics, University Ca'Foscari of Venice)
    Abstract: The main aims of this contribution are first to analyse the ethical level of European socially responsible investment (SRI) funds, secondly to measure the overall performance of the European SRI mutual funds with an appropriate data envelopment analysis (DEA) model and, finally, to investigate the relationship between the ethical level of mutual funds and their financial performance. In order to do so, we build an ethical measure, based on the main socially responsible features usually taken into account by SRI mutual funds, which evaluate their ethical strategies. In the time period of economic recession considered in the analysis, the triennium June 2006-June 2009, the mean returns of most mutual funds are negative, preventing the usual DEA models from being applied. In order to overcome this difficulty, we apply a special modification of these DEA models which can be used regardless of the phase of business cycle.
    Keywords: performance evaluation; SRI mutual funds; data envelopment analysis.
    JEL: C65 G1 G23
    Date: 2010–09
  13. By: Quibria, M.G; Srinivasan, T.N.
    Abstract: Economic development is accompanied by structural change. The trade theoretic literature offers two major hypotheses – i. e., the factor-endowment and the total-factor-productivity-- for explaining the stylized facts of structural change. This note revisits these hypotheses. In particular, it explores, with the help of a simple geometric apparatus, the analytical implications of the two hypotheses and draws out their striking similarities. It argues that although the literature has treated these two hypotheses as distinctly different, they are indeed analytically equivalent in the sense that they are both based on a similar type of shifts in the production functions. An important implication of this analytical equivalence is that, compounded with the data problems, it makes the task of empirical testing and discriminating between the two alternative hypotheses virtually impossible.
    Keywords: nontraded good; technological progress; total-factor-productivity; factor endowment; and economic growth
    JEL: O30 F11 O40 O12
    Date: 2010–07
  14. By: Monica Billio (Università Ca' Foscari of Venice - Department of Economics); Ludovic Calès (Università Ca' Foscari of Venice - Department of Economics, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: Sharpe-like ratios have been traditionally used to measure the performances of portfolio managers. However, they are known to suffer major drawbacks. Among them, two are intricate : (1) they are relative to a peer's performance and (2) the best score is generally assumed to correspond to a "good" portfolio allocation, with no guarantee on the goodness of this allocation. Last but no least (3) these measures suffer significant estimation errors leading to the inability to distinguish two managers' performances. In this paper, we propose a cross-sectional measure of portfolio performance dealing with these three issues. First, we define the score of a portfolio over a single period as the percentage of investable portfolios outperformed by this portfolio. This score quantifies the goodness of the allocation remedying drawbacks (1) and (2). The new information brought by the cross-sectionality of this score is then discussed through applications. Secondly, we build a performance index, as the average cross-section score over successive periods, whose estimation partially answers drawback (3). In order to assess its informativeness and using empirical data, we compare its forecasts with those of the Sharpe and Sortino ratios. The results show that our measure is the most robust and informative. It validates the utility of such cross-sectional performance measure.
    Keywords: Performance measure, portfolio management, relative-value strategy, large portfolios, absolute return strategy, multivariate statistics, Generalized hyperbolic Distribution.
    Date: 2010–08

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