New Economics Papers
on Efficiency and Productivity
Issue of 2010‒11‒27
fourteen papers chosen by

  1. A review of frontier approaches to efficiency and productivity measurement in urban water utilities By Andrew C Worthington
  2. Total Factor Productivity Growth and Its Decomposition: An Assessment of the Indian Banking Sector in the True Liberalised Era By Anup Kumar Bhandari
  3. Parametric Estimation Of Technical And Scale Efficiencies In Italian Citrus Farming By Madau, Fabio A.
  4. Banks’ Efficiency and Productivity Analysis Using the Hicks-Moorsteen Approach: A Case Study of Iran By Arjomandi, Amir; Valadkhani, Abbas
  5. Identifying and Measuring Technical Inefficiency Factors:Evidence from Unbalanced Panel Data for Thai Listed Manufacturing Enterprises By Amornkitvikai, Yot; Harvie, Charles
  6. An Analysis of Productivity Changes in the Iranian banking Industry: a Bootstrapped Malmquist Approach By Arjomandi, Amir; Valadkhani, Abbas; Harvie, Charles
  7. Firm Performance in Vietnam:Evidence from Manufacturing Small and Medium Enterprises By Le, Viet; Harvie, Charles
  8. Climate Policy and Profit Efficiency By Lundgren, Tommy; Marklund, Per-Olov
  9. Understanding Productivity During the Argentine Crisis By Pablo Andrés Neumeyer; Guido Sandleris
  10. Untested Assumptions and Data Slicing: A Critical Review of Firm-Level Production Function Estimators By Markus Eberhardt; Christian Helmers
  11. Assessing farming eco-efficiency: A Data Envelopment Analysis approach By Andrés J. Picazo-Tadeo; José A. Gómez-Limón; Ernest Reig-Martínez
  12. Offshoring bias in U.S. manufacturing: implications for productivity and value added By Susan Houseman; Christopher Kurz; Paul Lengermann; Benjamin Mandel
  13. Banking Efficiency in Emerging Market Economies By Matthews, Kent
  14. Production Under Uncertainty: A Simulation Study By S.Shankar; C.J. O’Donnell; John Quiggin

  1. By: Andrew C Worthington
    Keywords: urban water utilities, efficiency, productivity, stochastic frontiers, data envelopment analysis
    JEL: D24 L95 Q25
    Date: 2010–10
  2. By: Anup Kumar Bhandari
    Abstract: Assessments of the performance of Indian commercial banks are not new in the literature. However, most of the earlier studies consider relatively partial measures such as technical efficiency of the banks in assessing their performance. In this paper they have considered overall (Malmquist) total factor productivity improvement achieved by 68 Indian commercial banks from 1998-99 to 2006-07, the true liberalised era in some senses, and decomposed it into the three of its economically meaningful components, namely technical change, technical efficiency change and scale (efficiency) change factor using Data Envelopment Analysis (DEA) methodology. [Working Paper No. 435]
    Keywords: Total Factor Productivity; Technical Change; Technical Efficiency Change; Scale (Efficiency) Change Factor; Data Envelopment Analysis; Liberalisation
    Date: 2010
  3. By: Madau, Fabio A.
    Abstract: Ray (1998) has proposed a model for estimating scale efficiency using a parametric approach. Following this methodology, a scale efficiency measure is obtained from the estimated parameters of the production frontier function and from the estimated scale elasticities. This study aims to estimate technical and scale efficiencies achieved by the Italian citrus fruit-growing farms. A stochastic frontier production model is considered in order to estimate technical and scale efficiencies. The analysis is expected to estimate the role of both technical and scale efficiencies in conditioning productivity. Particular attention is put on determining the (technical and scale) inefficiency effects associated with a set of structural and environmental variables that should affect efficiency and on the relationship between technical and scale efficiency scores. Empirical findings suggest that the greater portion of overall inefficiency in the sample might depend on producing below the production frontier than on operating under an inefficient scale. Indeed, room for improving technical efficiency is, on average, larger (29%) than the margin due to scale inefficiency (18.2%). Results also indicate a weak relationship between the two efficiency measures.
    Keywords: Technical efficiency Scale efficiency Stochastic Frontier Analysis Citrus farming Italy
    JEL: C13 Q12
    Date: 2010–11–18
  4. By: Arjomandi, Amir (University of Wollongong); Valadkhani, Abbas (University of Wollongong)
    Abstract: This study is the first to use the Hicks-Moorsteen TFP index developed by O’Donnell (2008,2009, 2010c) to analyse efficiency and productivity changes in the banking system. The advantage of this approach over the popular Malmquist productivity index is that it is free from any assumptions concerning firm optimising behaviour, the structure of markets, or returns to scale. The effects of Iranian government regulations launched in 2005 on the Iranian banking industry are investigated through an analysis of performance over the period 2003-2008 assuming variable returns to scale. The results obtained show that although the Iranian banking industry has been inefficient over the entire period of the study, the industry’s technical efficiency level - which had improved over the period 2003-2006 - deteriorated considerably after the regulatory changes were introduced. The industry experienced its highest negative efficiency growth in 2006 which was 43% and became more mix inefficient after 2005, with a considerably negative productivity change after 2007. Overall, changes of production possibility set and scale efficiency changes exerted dominant effects on productivity changes.
    Keywords: Regulation, Productivity, Banking, Data envelopment analysis, Malmquist index,Hicks-Moorsteen index
    JEL: G28 O47
    Date: 2010
  5. By: Amornkitvikai, Yot; Harvie, Charles (University of Wollongong)
    Abstract: This study employs stochastic frontier analysis (SFA) and two-stage DEA approaches to predict firm technical efficiency and analyse an inefficiency effects model. Aggregate translog stochastic frontier production functions are estimated under the SFA approach using an unbalanced panel data of 178 Thai manufacturing enterprises listed in the Stock Exchange of Thailand (SET), covering the period 2000 to 2008. The maximum-likelihood Tobit model is used to conduct the second-stage of the two-stage DEA model to investigate the relationship between technical inefficiency and environmental variables. Both parametric and nonparametric approaches are found to produce consistent results. The empirical evidence from both approaches highlight that Thai listed manufacturing firms had been operating under decreasing returns to scale over the period 2000 to 2008. The SFA approach reports that technical progress decreased over time, and relied on labour input. Both estimation approaches suggest that leverage (financial constraints), executive remuneration, managerial ownership, exports, some types of listed firms (i.e., family-owned firm and foreign-owned firm), and firm size have a negative (positive) and significant effect on technical inefficiency (technical efficiency). The empirical results obtained from both approaches also suggest that liquidity, external financing, and research & development (R&D) have a significantly positive (negative) effect on technical inefficiency (technical efficiency)
    Keywords: Stochastic Frontier Analysis (SFA); Data Envelopment Analysis (DEA);Technical Efficiency; Manufacturing; Thailand
    JEL: C14 C23 D24
    Date: 2010
  6. By: Arjomandi, Amir (University of Wollongong); Valadkhani, Abbas (University of Wollongong); Harvie, Charles (University of Wollongong)
    Abstract: This study employs various bootstrapped Malmquist indices and efficiency scores to investigate the effects of government regulation on the performance of the Iranian banking industry over the period 2003-2008. An alternative decomposition of the Malmquist index, introduced by Simar and Wilson (1998a), is also applied to decompose technical changes further into pure technical change and changes in scale efficiency. A combination of these approaches facilitates a robust and comprehensive analysis of Iranian banking industry performance. While this approach is more appropriate than the traditional Malmquist approach, for the case of banking efficiency studies, it has not previously been conducted for any developing country’s banking system. The results obtained show that although, in general, the regulatory changes had different effects on individual banks, the efficiency and productivity of the overall industry declined after regulation. We also find that productivity had positive growth before regulation mainly due to improvements in pure technology, and that government ownership had an adverse impact on the efficiency level of state-owned banks. The bootstrap approach demonstrates that the majority of estimates obtained in this study are statistically significant.
    Keywords: Regulation; Productivity; Banking; Data envelopment analysis; Bootstrap; Malmquist indices
    JEL: C02 C14 C61 G21
    Date: 2010
  7. By: Le, Viet; Harvie, Charles (University of Wollongong)
    Abstract: This paper examines the performance of domestic non-state manufacturing small and medium enterprises (SMEs) in Vietnam. Specifically, it evaluates firm level technical efficiency and identifies the determinants of technical efficiency of these SMEs. The paper uses an econometric approach based on a stochastic frontier production function to analyse 5,204 observations of SMEs from three surveys conducted in 2002, 2005 and 2007. The results from the estimations reveal that manufacturing SMEs in Vietnam have relatively high average technical efficiency ranging from 84.2 percent to 92.5 percent. The paper further examines the factors influencing efficiency. It finds that firm age, size, location, ownership, cooperation with a foreign partner, subcontracting, product innovation, competition, and government assistance are significantly related to technical efficiency, albeit with varying degrees and directions. Exporting does not appear to influence technical efficiency. The paper offers some evidence-based policy recommendations to improve the technical efficiency and competitiveness of manufacturing SMEs.
    Keywords: manufacturing small and medium enterprises, firm performance, technical efficiency, stochastic frontier production function, Vietnam.
    JEL: L1 L6 O1 O12 O14
    Date: 2010
  8. By: Lundgren, Tommy (CERE); Marklund, Per-Olov (CERE)
    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
    JEL: D20 H23 Q52 Q55
    Date: 2010–06–02
  9. By: Pablo Andrés Neumeyer; Guido Sandleris
    Abstract: This paper studies resource misallocation in the Argentine manufacturing (1997-2002) sector using the methodology of Hsieh and Klenow (2008). The study shows that the potential gains in terms of aggregate total factor productivity of equalizing marginal productivities of factor inputs across firms in narrowly defined industries is between 50% and 55% in relatively normal years, slightly above the 43% found by HK for the US. During the 2002 crisis the reallocation gains climbed to 60/80%. Using HK's concept of TFPR as a measure of wedges in marginal products across firms, we find that the dispersion of wedges across firms in 1997 is similar to the USA one and in 2002 it is 20% higher; and that TFPR is strongly correlated with firm level productivity (and size). Firm productivity and TFPR are positively correlated with size, age, exporting status and foreign ownership, indicating that more productive firms are likely to be larger, older, exporters, foreign owned and have relatively higher marginal products. These results should be taken with caution due to the measurement error introduced by the coarseness of the factor input data available.
    Date: 2010
  10. By: Markus Eberhardt; Christian Helmers
    Abstract: This paper surveys the most popular parametric and semi-parametric estimators for Cobb-Douglas production functions arising from the econometric literature of the past two decades. We focus on the different approaches dealing with ‘transmission bias’ in firm-level studies, which arises from firms’ reaction to unobservable productivity realisations when making input choices. The contribution of the paper is threefold: we provide applied economists with (i) an in-depth discussion of the estimation problem and the solutions suggested in the literature; (ii) a detailed empirical example using FAME data for UK high-tech firms, emphasising analytical tools to investigate data properties and the robustness of the empirical results; (iii) a powerful illustration of the impact of estimator choice on TFP estimates, using matched data on patents in ‘TFP regressions’. Our discussion concludes that while from a theoretical point of view the different estimators are conceptually very similar, in practice, the choice of the preferred estimator is far from arbitrary and instead requires in-depth analysis of the data properties rather than blind belief in asymptotic consistency.
    Keywords: Productivity production function, UK firms, panel data estimates
    JEL: D21 D24 L25 O23
    Date: 2010
  11. By: Andrés J. Picazo-Tadeo (Universidad de Valencia. Dpto. Economía Aplicada II.); José A. Gómez-Limón (Instituto Andaluz de Investigación y Formación Agraria y Pesquera. Dpto. Economía Agraria. Córdoba.); Ernest Reig-Martínez (Universidad de Valencia. Dpto. Economía Aplicada II and Instituto Valenciano de Investigaciones Económicas (IVIE).)
    Abstract: This paper assesses farming eco-efficiency using Data Envelopment Analysis (DEA). Eco-efficiency scores at both farm and environmental pressurespecific levels are computed for a sample of Spanish farmers operating in the rainfed agricultural system of Campos County. The determinants of eco-efficiency are then studied using truncated regression and bootstrapping. We contribute to previous literature by including information on slacks in the assessment of the potential environmental-pressure reductions in a DEA framework. Our results reveal that farmers are quite eco-inefficient, with very few differences emerging among specific environmental pressures. Furthermore, farmers benefiting from agrienvironmental programs as well as those with university education are found to be more eco-efficient. Concerning the policy implications of these results, public expenditure in agricultural extension and farmer training could be of some help to promote integration between farming and the environment. Furthermore, Common Agricultural Policy agri-environmental programs are also an effective policy to improve eco-efficiency.
    Keywords: Farming; economic-ecological efficiency; environmental pressures; Data Envelopment Analysis; bootstrapping
    JEL: C61 D21 Q56
    Date: 2010–11
  12. By: Susan Houseman; Christopher Kurz; Paul Lengermann; Benjamin Mandel
    Abstract: The rapid growth of offshoring has sparked a contentious debate over its impact on the U.S. manufacturing sector, which has recorded steep employment declines yet strong output growth--a fact reconciled by the notable gains in manufacturing productivity. We maintain, however, that the dramatic acceleration of imports from developing countries has imparted a significant bias to the official statistics. In particular, the price declines associated with the shift to low-cost foreign suppliers are generally not captured in input cost and import price indexes. Although cost savings are a primary driver of the shift in sourcing to foreign suppliers, the price declines associated with offshoring are not systematically observed; this is the essence of the measurement problem. To gauge the magnitude of these discounts, we draw on a variety of evidence from import price microdata from the Bureau of Labor Statistics, industry case studies, and the business press. To assess the implications of offshoring bias for manufacturing productivity and value added, we implement the bias correction developed by Diewert and Nakamura (2009) to the input price index in a growth accounting framework, using a variety of assumptions about the magnitude of the discounts from offshoring. We find that from 1997 to 2007 average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage point and real value added growth by 0.2 to 0.5 percentage point. Furthermore, although the bias from offshoring represents a relatively small share of real value added growth in the computer and electronic products industry, it may have accounted for a fifth to a half of the growth in real value added in the rest of manufacturing.
    Date: 2010
  13. By: Matthews, Kent (Cardiff Business School)
    Abstract: This paper reviews the different ways to measure bank efficiency and highlight the results of research on bank efficiency in Asian emerging economies. In particular it will outline the extent of research thus far conducted on the efficiency of banks in Pakistan and comment on how to build and improve upon them.
    Keywords: bank efficiency; bootstrap; Pakistan
    JEL: G20 G21
    Date: 2010–11
  14. By: S.Shankar; C.J. O’Donnell (CEPA - School of Economics, The University of Queensland); John Quiggin (CEPA - School of Economics, The University of Queensland)
    Abstract: In this article we model production technology in a state-contingent framework. Our model analyzes production under uncertainty without regard to the nature of producer risk preferences. In our model producers? risk preferences are captured by the risk-neutral probabilities they assign to the different states of nature. Using a state-general state-contingent specification of technology we show that rational producers who encounter the same stochastic technology can make significantly different production choices. Further, we develop an econometric methodology to estimate the risk-neutral probabilities and the parameters of stochastic technology when there are two states of nature and only one of which is observed. Finally, we simulate data based on our state-general state-contingent specification of technology. Biased estimates of the technology parameters are obtained when we apply conventional ordinary least squares (OLS) estimator on the simulated data.
    Date: 2010–11

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