New Economics Papers
on Efficiency and Productivity
Issue of 2011‒01‒03
twenty-one papers chosen by

  1. Corporate R&D and firm efficiency: Evidence from Europe’s top R&D investors By Subal C. Kumbhakar; Raquel Ortega-Argilés; Lesley Potters; Marco Vivarelli; Peter Voigt
  2. Technological regimes, Schumpeterian patterns of innovation and firm level productivity growth By Castellacci, Fulvio; Zheng, Jinghai
  3. Probabilistic Characterization of Directional Distances and their Robust Versions By Simar, Léopold; Vanhems, Anne
  4. Spatial Stochastic Frontier Models By Erniel B. Barrios; Rouselle F. Lavado
  5. Sources of Heterogeneity in the Efficiency of Indian Pharmaceutical Firms By Mainak Mazumdar; Meenakshi Rajeev; Subhash C Ray
  6. Lessons from the latest data on U.S. productivity By Jan P.A.M Jacobs; Simon van Norden
  7. Immigration and the Growing Canada-U.S. Productivity Gap By Grady, Patrick
  8. Banking Sector Performance in Some Latin American Countries: Market Power versus Efficiency By Georgios E. Chortareas; Claudia Girardone; Jesus Gustavo Garza-Garcia
  9. Education or just Creativity: what matters most for economic performance? By Emanuela Marrocu; Raffaele Paci
  10. Firm dynamics in the Cambodian garment industry: firm turnover, productivity growth, and wage profile under trade liberalization By Asuyama, Yoko; Chhun, Dalin; Fukunishi, Takahiro; Neou, Seiha; Yamagata, Tatsufumi
  11. Service Sector Productivity in Japan: The key to future economic growth By FUKAO Kyoji
  12. Technical efficiency and conversion to organic farming: the case of France By Latruffe, Laure; Nauges, Céline
  13. Ownership Structure and Productivity of Vertical Research Collaboration By NAGAOKA Sadao
  14. Evidence on the relation between public capital and Government efficiency By Francisca Guedes de Oliveira
  15. TFP convergence across European regions: a comparative spatial dynamics analysis By Adriana Di Liberto; Stefano Usai
  16. A Simple Analytic Procedure for Estimating the True Random Effects Stochastic Frontier Model By Peng-Hsuan Ke; Wen-Jen Tsay
  17. Reforms, Incentives, Welfare and Productivity Growth in Chinese Wheat Production By Patel, Vasita; Selim, Sheikh
  18. Bigger, Stronger, Farther… Relative performances of French exporting firms By Crozet, M.; Méjean, I.; Zignago, S.
  19. Does fiscal discipline towards sub-national governments affect citizens’ well-being? evidence on health By Massimiliano Piacenza; Gilberto Turati
  20. Scenarios and Options for Productivity Growth in Philippine Agriculture An Application of the AMPLE By Roehlano M. Briones
  21. The Impact of Liquidity on Bank Profitability By Étienne Bordeleau; Christopher Graham

  1. By: Subal C. Kumbhakar (State University of New York at Binghamton); Raquel Ortega-Argilés (IN+ Centre for Innovation, Technology and Policy Research, Instituto Superior Técnico); Lesley Potters (Utrecht School of Economics); Marco Vivarelli (Università Cattolica, Milano-Piacenza); Peter Voigt (JRC-IPTS)
    Abstract: The main objective of this study is to investigate the impact of corporate R&D activities on firm performance, measured by labour productivity. To this end, the stochastic frontier technique is used on a unique unbalanced longitudinal dataset on top European R&D investors over the period 2000–2005. The study quantifies technical inefficiency of individual firms. From a policy perspective, the results of this study suggest that – if the aim is to leverage firms’ productivity – emphasis should be put on supporting corporate R&D in high-tech sectors and, to some ex-tent, in medium-tech sectors. On the other hand, corporate R&D in the low-tech sector is found to have a minor effect in explaining productivity. Instead, encouraging investment in fixed assets appears important for the productivity of low-tech industries. Hence, the allocation of support for corporate R&D seems to be as important as its overall increase and an ‘erga omnes’ approach across all sectors appears inappropriate. However, with regard to technical efficiency, R&D intensity is found to be a pivotal factor in explaining firm efficiency. This is true for all industries.
    Keywords: Corporate R&D, productivity, technical efficiency, stochastic frontier analysis
    JEL: L2 O3
    Date: 2010–12
  2. By: Castellacci, Fulvio; Zheng, Jinghai
    Abstract: The paper investigates the relationships between technological regimes and firm-level productivity performance, and it explores how such a relationship differs in different Schumpeterian patterns of innovation. The analysis makes use of a rich dataset containing data on innovation and other economic characteristics of a large representative sample of Norwegian firms in manufacturing and service industries for the period 1998-2004. First, we decompose TFP growth into technical progress and efficiency changes by means of data envelopment analysis. We then estimate an empirical model that relates these two productivity components to the characteristics of technological regimes and a set of other firm-specific factors. The results indicate that: (1) TFP growth has mainly been achieved through technical progress, while technical efficiency has on average decreased; (2) the characteristics of technological regimes are important determinants of firm-level productivity growth, but their impacts on technical progress are different from the effects on efficiency change; (3) the estimated model works differently in the two Schumpeterian regimes. Technical progress has been more dynamic in Schumpeter Mark II industries, while efficiency change has been more important in Schumpeter Mark I markets.
    Keywords: TFP growth; technical progress; technical efficiency; technological regimes; Schumpeterian patterns of innovation; CIS data
    JEL: L0 O1
    Date: 2010
  3. By: Simar, Léopold; Vanhems, Anne
    Abstract: In productivity analysis, the performance of production units is measured through the distance of the individual decision making units (DMU) to the technology which is defined as the frontier of the production set. Most of the existing methods, Farrell-Debreu and Shephard radial measures (input or output oriented) and hyperbolic distance functions, rely on multiplicative measures of the distance and so require to deal with strictly positive inputs and outputs. This can be critical when the data contain zero or negative values as in financial data bases for the measure of funds performances. Directional distance function is an alternative that can be viewed as an additive measure of efficiency. We show in this paper that using a probabilistic formulation of the production process, the directional distance can be expressed as simple radial or hyperbolic distance up to a simple transformation of the inputs/outputs space. This allows to propose simple methods of estimation but also to transfer easily most of the known properties of the estimators shared by the radial and hyperbolic distances. In addition, the formulation allows to define robust directional distances in the lines of alpha-quantile or order-m partial frontiers. Finally we can also define conditional directional distance functions, conditional to environmental factors. To illustrate the methodology, we show how it can be implemented using a Mutual Funds database.
    Keywords: Directional distance function; partial frontier; conditional measures of efficiency
    JEL: C13 C14
    Date: 2010–09–30
  4. By: Erniel B. Barrios; Rouselle F. Lavado (Philippine Institute for Development Studies)
    Abstract: The stochastic frontier model with heterogeneous technical efficiency explained by exogenous variables is augmented with a sparse spatial autoregressive component for a cross-section data, and a spatial-temporal component for a panel data. An estimation procedure that takes advantage of the additivity of the model is proposed, computational advantages over simultaneous maximum likelihood estimation of all parameters is exhibited. The technical efficiency estimates are comparable to existing models and estimation procedures based on maximum likelihood methods. A spatial or spatial-temporal component can improve estimates of technical efficiency in a production frontier that is usually biased downwards.
    Keywords: stochastic frontier models, technical efficiency, spatial externalities, spatial-temporal model, backfitting
    JEL: C01
    Date: 2010
  5. By: Mainak Mazumdar; Meenakshi Rajeev; Subhash C Ray
    Abstract: Using the non parametric approach of Data Envelopment Analysis (DEA) this paper examines the input and output efficiencies of the Indian pharmaceutical firms for the period 1991 to 2005. [Occasional Paper No. 17].
    Keywords: Indian, pharmaceutical, firms, non-radial, patents,non-parametric approach, data envelopment analysis, DEA, input, output efficency,
    Date: 2010
  6. By: Jan P.A.M Jacobs; Simon van Norden
    Abstract: Productivity growth is carefully scrutinized by macroeconomists because it plays key roles in understanding private savings behaviour, the sources of macroeconomic shocks, the evolution of international competitiveness and the solvency of public pension systems, among other things. However, estimates of recent and expected productivity growth rates suffer from two potential problems: (i) recent estimates of growth trends are imprecise, and (ii) recently published data often undergo important revisions. This paper documents the statistical (un)reliability of several measures of aggregate productivity growth in the U.S. by examining the extent to which they are revised over time. The authors also examine the extent to which such revisions contribute to errors in forecasts of U.S. productivity growth. The authors find that data revisions typically cause appreciable changes in published estimates of productivity growth rates across a range of different productivity measures. Substantial revisions often occur years after the initial data release, which they argue contributes significantly to the overall uncertainty policymakers face. This emphasizes the need for means of reducing the uncertainty facing policymakers and policies robust to uncertainty about current economic conditions.>
    Keywords: Productivity - United States ; Statistics ; Real-time data
    Date: 2010
  7. By: Grady, Patrick
    Abstract: This paper examines the impact of immigration on labour productivity in Canada. Immigration is a factor that has been largely ignored in the literature on Canadian productivity growth. A simplified growth accounting approach is utilized to estimate the reduction in labour productivity in Canada (as measured by GDP per worker) that can be attributed to the poor performance of post-1990 cohorts of immigrants in the labour market (as measured by average earnings as reported in the 2006 census). It is estimated that immigration accounts for 2.23 percentage points, or about a fifth, of the 10.96 percentage point post-1990 increase in the Canada-US labour productivity gap.
    Keywords: productivity; recent immigrants to Canada; immigration policy; immigrant labour; human capital
    JEL: O47 J24
    Date: 2010–11–28
  8. By: Georgios E. Chortareas; Claudia Girardone; Jesus Gustavo Garza-Garcia
    Abstract: The wave of consolidation and the rapid increase in market concentration that took place in most Latin American countries has generated concerns about the rise in banks' market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale efficiency) hypotheses for a sample of over 2,500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. Finally, capital ratios and bank size seem to be among the most important factors in explaining profits for these Latin American banks.
    Keywords: Structure-Conduct-Performance, Efficient Structure, Banking System in Some Latin American Countries, Data Envelopment Analysis (DEA)
    JEL: G21 D24
    Date: 2010–12
  9. By: Emanuela Marrocu; Raffaele Paci
    Abstract: There is a large consensus among researchers on the positive role played by human capital on economic performances although the debate on its measurement (education or creativity) is still open. This paper aims to disentangle this issue by proposing a disaggregation of human capital into three non-overlapping categories. Using a spatial error model to account for spatial dependence, we assess the concurrent effect of the human capital indicators on total factor productivity for the EU27 regions. Our results indicate that the highly educated creative group is the most relevant one in explaining production efficiency while the other two categories - non creative graduates and bohemians - exhibit negligible effects. Moreover, a relevant influence is exerted by technological capital and by the level of tolerance providing robust evidence that a highly educated, innovative, open and culturally diverse environment is becoming more and more central for productivity enhancements.
    Keywords: human capital; creativity; education; TFP; European regions
    JEL: R10 O30 J24
    Date: 2010
  10. By: Asuyama, Yoko; Chhun, Dalin; Fukunishi, Takahiro; Neou, Seiha; Yamagata, Tatsufumi
    Abstract: The international garment trade was liberalized in 2005 following the termination of the MFA (Multifibre Arrangement) and ever since then, price competition has intensified. Employing a unique firm dataset collected by the authors, this paper examines the changes in the performance of Cambodian garment firms between 2002/03 and 2008/09. During the period concerned, frequent firm turnover led to an improvement of the industry’s productivity, and the study found that the average total-factor productivity (TFP) of new entrants was substantially higher than that of exiting firms. Furthermore, we observed that thanks to productivity growth, an improvement in workers’ welfare, including a rise in the relative wages of the low-skilled, was taking place. These industrial dynamics differ considerably from those indicated by the “race to the bottom†argument as applied to labor-intensive industrialization in low income countries.
    Keywords: Cambodia, Firm turnover, Garments, Labor-intensive industrialization, Multifibre arrangement, Race to the bottom, Total factor productivity, Apparel industry, Productivity, Wages, Employment
    JEL: D24 J31 L67 O14 O53
    Date: 2010–12
  11. By: FUKAO Kyoji
    Abstract: This paper aims to examine three issues: how bad the productivity performance in Japan’s service sector has been; why it is important to accelerate TFP growth in the service sector; and why TFP has stagnated in Japan’s service sector. The main findings of the paper are as follows. First, TFP growth in the manufacturing sector is much higher than that in other sectors, although the manufacturing sector’s share is declining rapidly. For Japan, whose population is in decline, productivity growth in the service sector is key for economic growth. Second, TFP growth in ICT-using sectors declined substantially after 1995. Third, accumulation of ICT assets in Japan was very slow in comparison with other developed countries. Forth, the low level of intangible investment is probably one important cause of the stagnation of TFP; another is that Japan’s service sector has fallen behind with regard to investment in ICT. Fifth, it seems that Japan’s low metabolism also impedes productivity growth. Sixth, firms invest little in on-the-job training and off-the-job training for part-time workers, and the increase in part-time workers may have slowed down human-capital accumulation. Seventh, it appears that Japanese firms have fallen behind in terms of internationalization and economies of scale.
    Date: 2010–09
  12. By: Latruffe, Laure; Nauges, Céline
    Date: 2010–12
  13. By: NAGAOKA Sadao
    Abstract: This paper analyzes empirically how significantly the existence of non-contractible research effort by a vertical partner (as measured by a provision of a co-inventor) affects the ownership structure of vertical collaborative research and whether such effort also significantly enhances research productivity, exploiting rich information at the project level provided by a large scale inventor survey in Japan. Participation of a supplier co-inventor significantly enhances research productivity and is also a very significant determinant of the ownership structure, controlling for the initial knowledge contribution and the financial contribution by a supplier. On the other hand, while a user co-inventor affects the ownership structure even more predominantly, it contributes much less to the productivity of joint research. Such a gap may be partly explained by the necessity of a user to combine relevant patents. Finally, the willingness to license is not lower for a vertically co-owned patent, even if co-ownership partly substitutes a license. This suggests that co-ownership does not significantly constrain licensing, even if ex-post agreement for a license becomes necessary.
    Date: 2010–12
  14. By: Francisca Guedes de Oliveira (Faculdade de Economia e Gestão - Universidade Católica Portuguesa, Porto)
    Abstract: This paper intends to contribute to the literature by providing empirical evidence on the relation between public capital stock and government efficiency. We present some objective indicators fo government efficiency and explore the mentioned relation. we find a positive and significant relation between both variables that survives the introduction of controls and robustness checking.
    Date: 2010–12
  15. By: Adriana Di Liberto; Stefano Usai
    Abstract: This paper proposes a fixed-effect panel methodology that enables us to simultaneously take into account both TFP and traditional neoclassical convergence. We analyse a sample of 199 regions in EU15 (plus Norway and Switzerland) between 1985 and 2006 and find the absence of an overall process of TFP convergence as we observe that TFP dispersion is virtually constant across the two sub-periods. This result is proved robust to the use of different estimation procedures such as simple LSDV , spatially corrected LSDV , Kiviet-corrected LSDV, and GMM à la Arellano and Bond. However, we also show that this absence of a strong process of global TFP convergence hides interesting dynamic patterns across regions. These patterns are revealed by the use of recent exploratory spatial data techniques that enable us to obtain a complete picture of the complex EU cross-regions dynamics. We find that, between 1985 and 2006, there has been numerous regional miracles and disasters in terms of TFP performance and that polarization patterns have significantly changed along time. Overall, results seem to suggest that a few TFP leaders are emerging and are distancing themselves from the rest, while the cluster of low TFP regions is increasing.
    Keywords: TFP; technology catching up; panel data; exploratory spatial data analysis
    JEL: C23 O33 O47 R11
    Date: 2010
  16. By: Peng-Hsuan Ke (Institute of Economics, Academia Sinica, Taipei, Taiwan); Wen-Jen Tsay (Institute of Economics, Academia Sinica, Taipei, Taiwan)
    Abstract: This paper derives an analytic formula for the likelihood function of the true random effects stochastic frontier model of Greene (2005) with a time span T = 2. Numerical-integral procedure and simulation-based procedure is not required for the closed-form approach. Combining the analytic formula and a pairwise likelihood estimator (PLE), we easily can estimate the random effects stochastic frontier models with T > 2. The simulations confirm the promising performance of the analytic methodology under various configurations of data-generating processes considered in this paper. The proposed method is applied to the World Health Organization’s (WHO) panel data on national health care systems.
    Keywords: Random effects, panel stochastic frontier model
    Date: 2010–12
  17. By: Patel, Vasita; Selim, Sheikh (Cardiff Business School)
    Abstract: Following the rural reform in 1978 a series of agricultural reforms were introduced in China. The main aim of these reforms was to create incentives for the farmers to produce more. The nineties' price reform that was aimed at deregulating the agricultural market eventually resulted in a huge drop in agricultural production; this apparently motivated the government to take over the control of agricultural prices in 1998. In this paper we examine how and to what extent these reforms affected the productivity and welfare of wheat farmers in China for a dataset that covers all the major rural reforms undertaken in China. We find that the nineties' price reforms resulted in a high magnitude of effort-response from wheat farmers which led to a faster growth of the incentive component of productivity. Due to random weather shocks this response did not result in the expected level of profit and as a result the farmers suffered a huge decline in welfare. The regulations introduced in 1998 destroyed the incentive-induced growth in TFP. In general wheat farmers in China responded highly when markets were made more competitive, and their effort-response for flat subsidies (e.g. at the ones introduced in the eighties) was very marginal.
    Keywords: China; Incentives; TFP; Agriculture; Wheat Production
    JEL: N55 O13 O53 Q12
    Date: 2010–12
  18. By: Crozet, M.; Méjean, I.; Zignago, S.
    Abstract: This article examines the performances of French exporting firms. Using a highly detailed database, we confirm that exporting firms are much bigger, more productive and more profitable than domestic ones. This difference is particularly strong for firms exporting to non-EU markets, and for small businesses. For large businesses, the discrepancy between exporters and domestic firms is fairly small, and non-significant in some industries and for firms that only export to EU destinations. Our results suggest that export-enhancing public policies should target small businesses and firms attempting to export to remote countries.
    Keywords: Exporting firms, Productivity, Competitiveness.
    JEL: F1
    Date: 2010
  19. By: Massimiliano Piacenza (University of Torino & HERMES); Gilberto Turati (University of Torino & HERMES)
    Abstract: This paper aims at assessing the impact on citizens’ well-being of fiscal discipline imposed by Central Government to sub-national governments. Since health care policies involve strategic interactions between different layers of governments in many different countries, we focus on a particular dimension of well-being, namely citizens’ health. We model fiscal discipline by considering sub-national governments expectations of future deficit bailouts from the Central Government. We then study how these bailout expectations affect the expenditure for health care policies carried out by decentralized governments. To investigate this issue, we separate efficient health spending from inefficiencies by estimating an input requirement frontier. This allow us to assess the effects of bailout expectations on both the structural component of health expenditure and its deviations from the ‘best practice’. The evidence from the 15 Italian Ordinary Statute Regions (observed from 1993 to 2006) points out that bailout expectations do not significantly influence the position of the frontier, thus do not affect citizens’ health. However, they appear to exert a remarkable impact on excess spending.
    Keywords: Intergovernmental relationships, soft budget constraint, bailout expectations,health care policy, spending efficiency.
    JEL: H11 H75 H77 I12 I18
    Date: 2010
  20. By: Roehlano M. Briones (Philippine Institute for Development Studies)
    Abstract: Sustaining and accelerating agricultural growth remains a development imperative in view of persistent rural poverty and emerging threats to food security. While growth can be achieved by expansion of agricultural area and input intensification, growth through improvement in productivity is a promising option. However, productivity growth appears to be a relatively low priority for policy. Rather, the agricultural strategy is oriented toward domestic protection to achieve self‐sufficiency and to support production by generous subsidies. In contrast, an alternative strategy may be one that is competition‐oriented and productivity‐based, i.e., one that favors integration with the international economy through trade, as well as making domestic investments targeted at productivity growth. Scenarios for Philippine agriculture under these policy options are evaluated using a new supply and demand model (Agricultural Multi‐market Model for Policy Evaluation or AMPLE). Model simulations suggest that: rapid productivity growth, even when combined with trade liberalization, is generally favorable for farmers and consumers based on improved outlook on production, exports, and food consumption. In contrast, trade liberalization alone has a contractionary effect on agriculture; and production support is a costly instrument for promoting agricultural growth. The model experiments suggest that a back‐to‐basics strategy for agriculture, incorporating various productivity‐based instruments such as investments in R&D, extension, rural infrastructure, protection of the resource base of agriculture, and even human capital formation and institutional reforms, are key to long‐term agricultural growth.
    Keywords: Productivity growth, agriculture, scenario analysis, supply and demand, technological change
    JEL: Q10 Q11 Q16
    Date: 2010
  21. By: Étienne Bordeleau; Christopher Graham
    Abstract: The recent crisis has underlined the importance of sound bank liquidity management. In response, regulators are devising new liquidity standards with the aim of making the financial system more stable and resilient. In this paper, the authors analyse the impact of liquid asset holdings on bank profitability for a sample of large U.S. and Canadian banks. Results suggest that profitability is improved for banks that hold some liquid assets, however, there is a point at which holding further liquid assets diminishes a banks’ profitability, all else equal. Moreover, empirical evidence also suggests that this relationship varies depending on a bank’s business model and the state of the economy. These results are particularly relevant as policymakers devise new standards establishing an appropriate level of liquidity for banks. While it is generally agreed upon that banks undervalued liquidity prior to the recent financial crisis, one must also consider the tradeoff between resilience to liquidity shocks and the cost of holding lower-yielding liquid assets as the latter may impact banks’ ability to generate revenues, increase capital and extend credit.
    Keywords: Financial system regulation and policies; Financial institutions; Financial stability
    JEL: G21 G32 G33
    Date: 2010

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