New Economics Papers
on Efficiency and Productivity
Issue of 2011‒02‒26
fourteen papers chosen by

  1. Does Anti-Competitive Regulation Matter for Productivity? Evidence from European Firms By Arnold, Jens; Nicoletti, Giuseppe; Scarpetta, Stefano
  2. The Global Production Frontier of Universities By Thomas Bolli
  3. Beyond Cobb-Douglas: Estimation of a CES Production Function with Factor Augmenting Technology By Devesh Raval
  5. What Drives the Performance of Selected MENA Banks? A Meta-Frontier Analysis By Hichem Ben-Khedhiri; Barbara Casu; Sami Ben Naceur
  6. Production factor returns: the role of factor utilisation By Cette, G.; Dromel, N.; Lecat, R.; Paret, A-C.
  7. Technical efficiency of hospital psychiatric care in Bulgaria – assessment using Data Envelopment Analysis By Kundurjiev, T.; Salchev, Petko
  9. Regional Clusters of Innovative Activity in Europe: Are Social Capital and Geographical Proximity the Key Determinants? By Laura de Dominicis; Raymond J.G.M. Florax; Henri L.F. de Groot
  10. Japan and Her Dealings with Offshoring: An Empirical Analysis with Aggregate Data By Agnese, Pablo
  11. Real Output of Bank Services: What Counts Is What Banks Do, Not What They Own By Wang, J. Christina; Inklaar, Robert Christiaan
  12. Firm productivity, exchange rate movements, sources of finance and export orientationInventories and sales uncertainty By Mustafa Caglayan; Firat Demir
  13. Investing in Public Investment: An Index of Public Investment Efficiency By Annette Kyobe; Jim Brumby; Chris Papageorgiou; Zac Mills; Era Dabla-Norris
  14. Two-way interplays between capital buffers, credit and output: evidence from French banks By Coffinet, J.; Coudert, V.; Pop, A.; Pouvelle, C.

  1. By: Arnold, Jens (OECD); Nicoletti, Giuseppe (OECD); Scarpetta, Stefano (OECD)
    Abstract: Using firm-level data for a sample of European countries, we focus on the effects that product-market regulations have on firm-level TFP growth. We proxy regulatory burdens using the OECD indicators of sectoral non-manufacturing regulations. These allow accounting for both the direct effects of sectoral regulation on within-sector performance and the indirect effects of sectoral regulation on firms in other sectors through intersectoral input-output linkages. Our econometric specification of TFP is based on a "neo-Schumpeterian" empirical specification in which productivity improvements depend on growth at the global technological frontier and a catch up term. We assume that regulation can affect productivity growth both directly and by slowing down the rate of catch up. We find that product market regulations that curb competitive pressures tend to reduce the productivity performance of firms. The negative effect is particularly strong on firms characterised by an above-average productivity growth. Domestic regulations that affect all regulated firms in the same way seem to be more important than border regulations in this context.
    Keywords: total factor productivity, firm-level data, product market regulation
    JEL: D24 L11 L51
    Date: 2011–02
  2. By: Thomas Bolli (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper provides first micro-level evidence of the global university production frontier, allowing to estimate technical efficiencies of 273 top research universities across 29 countries between 2007 and 2009. Exploiting comparable international data improves the estimation of the production technology, allows to assess the distance of individual countries to the global frontier and enables comparison of university efficiencies between and across countries. The estimated input distance function uses undergraduate students, graduate students and citations to capture university outputs and staff to measure inputs. Contrasting two alternative econometric strategies to identify technical efficiency yields relatively stable results. Furthermore, the paper addresses the problem of unobserved heterogeneity by relating the obtained efficiency rankings to quality rankings and by exploiting the panel structure of the data to account for unobserved heterogeneity explicitly. The results suggest that technical efficiency rankings can be obtained in a relatively simple econometric setting.
    Keywords: University, Global Frontier, Efficiency, Stochastic Frontier, Unobserved Heterogeneity, True Random Effects Stochastic Frontier.
    JEL: D20 I20
    Date: 2011–02
  3. By: Devesh Raval
    Abstract: Both the recent literature on production function identification and a considerable body of other empirical work on firm expansion assume a Cobb-Douglas production function. Under this assumption, all technical differences are Hicks neutral. I provide evidence from US manufacturing plants against Cobb-Douglas and present an alternative production function that better fits the data. A Cobb Douglas production function has two empirical implications that I show do not hold in the data: a constant cost share of capital and strong comovement in labor productivity and capital productivity (revenue per unit of capital). Within four digit industries, differences in cost shares of capital are persistent over time. Both the capital share and labor productivity increase with revenue, but capital productivity does not. A CES production function with labor augmenting differences and an elasticity of substitution between labor and capital less than one can account for these facts. To identify the labor capital elasticity, I use variation in wages across local labor markets. Since the capital cost to labor cost ratio falls with local area wages, I strongly reject Cobb-Douglas: capital and labor are complements. Now productivity differences are no longer neutral, which has implications on how productivity affects firms’ decisions to expand or contract. Non neutral technical improvements will result in higher stocks of capital but not necessarily more hiring of labor. Specifying the correct form of the production function is more generally important for empirical work, as I demonstrate by applying my methodology to address questions of misallocation of capital.
    Date: 2011–02
  4. By: Aminata SISSOKO (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper attempts to provide a new insight into the relationship between R&D subsidies and firm-level productivity. The empirical analysis evaluates the productivity of firms involved in a European program of public R&D grants called Eureka. The findings suggest that the Eureka firms on average experience productivity gains towards the end of the 3-years grant period. However, the average increase in productivity hides substantial firm heterogeneity. Namely it hides that low productive firms gain more from an R&D subsidy than high productive firms. The empirical analysis is conducted by using propensity score matching and a difference-in-differences estimation method to control for potential endogeneity issues.
    Keywords: R&D subsidies, Collaborative Research, Total Factors Productivity and Firm Heterogeneity
    Date: 2011–01–28
  5. By: Hichem Ben-Khedhiri; Barbara Casu; Sami Ben Naceur
    Abstract: This study examines the effect of financial-sector reform on bank performance in selected Middle Eastern and North African (MENA) countries in the period 1994 -2008. We evaluate bank efficiency in Egypt, Jordan, Morocco, Lebanon and Tunisia by means of Data Envelopment Analysis (DEA) and we employ a meta-frontier approach to calculate efficiency scores in a cross-country setting. We then employ a second-stage regression to investigate the impact of institutional, financial, and bank specific variables on bank efficiency. Overall, the analysis shows that, despite similarities in the process of financial reforms undertaken in the five MENA countries, the observed efficiency levels of banks vary substantially across markets, with Morocco consistently outperforming the rest of the region.Differences in technology seem to be crucial in explaining efficiency differences. To foster banking sector performance, policies should be aimed at giving banks incentives to improve their risk management and portfolio management techniques. Improvements in the legal system and in the regulatory and supervisory bodies would also help to reduce inefficiency.
    Keywords: Banking sector , Cross country analysis , Economic models , Egypt , Jordan , Lebanon , Middle East , Morocco , North Africa , Tunisia ,
    Date: 2011–02–14
  6. By: Cette, G.; Dromel, N.; Lecat, R.; Paret, A-C.
    Abstract: Short-term increasing returns to production factors are usually found in empirical studies. We argue they can be due to omitted variables, particularly the intensity of factor utilisation. Thanks to original French firm-level data (1992-2008), we show how increasing returns to scale disappear when working time, capacity utilisation rate and mainly capital operating time are introduced in the production function.
    Keywords: Production function, productivity, factor returns.
    JEL: D24 E22 O40
    Date: 2011
  7. By: Kundurjiev, T.; Salchev, Petko
    Abstract: The present article deals with the theme of efficiency in healthcare and especially technical efficiency in psyaciatric hospital care. We used the method of data envelopment analysis (DEA), which finds increasing application in many spheres of public life, including healthcare. We subdivided the treatment facilities in the current study in three groups and estimated technical efficiency for each group. We present a possible assesment method, which provides an opportunity for improving efficiency in the sector.
    Keywords: healthcare; efficiency; DEA; hospital
    JEL: I11 C0 C87 C12 C67
    Date: 2011–02–15
  8. By: Jaan Masso; Priit Vahter
    Abstract: The emerging literature on the characteristics of innovation processes in the service sector has paid relatively little attention to the links between innovation and productivity. In this paper we investigate how the innovation-productivity relationship differs across various sub-branches of the service sector. For the analysis we use the CDM structural model consisting of equations for innovation expenditures, innovation output, productivity and exports. We use data from the community innovation surveys for Estonia. We show that innovation is associated with increased productivity in the service sector. The results indicate surprisingly that the effect of innovation on productivity is stronger in the less knowledge-intensive service sectors, despite the lower frequency of innovative activities and the results of earlier literature. Non-technological innovation only plays a positive role in some specifications, despite its expected importance especially among the service firms. An additional positive channel of the effects of innovation on productivity may function through increased exports.
    Keywords: innovation, services, productivity
    JEL: O31 O33 L80
    Date: 2011
  9. By: Laura de Dominicis (European Commission, Seville); Raymond J.G.M. Florax (Purdue University, W. Lafayette, and VU University Amsterdam); Henri L.F. de Groot (VU University Amsterdam)
    Abstract: Finding proper policy instruments to promote productivity growth features prominently on the Lisbon agenda and is central in many national as well as European policy debates. In view of the increased mobility of high-skilled workers in Europe, ongoing globalization and increased interregional and international co-operation, location patterns of innovative activity may be subject to drastic changes. A proper understanding of location patterns of innovative outputs can enhance the effectiveness and efficiency of national and European innovation policies. Building on the literature on the knowledge production function the aim of this paper is to explain the observed differences in the production of innovative output across European regions. Our main research question is whether geographical proximity and social capital are important vehicles of knowledge transmission for the production of innovative output in Europe. Several other variables are used to control for structural differences across European regions. We find support for the hypothesis that both social capital and geographical proximity are important factors in explaining the differences in the production of innovative output across European regions.
    Keywords: innovation; knowledge production function; social capital; spatial econometrics; European regions
    JEL: C21 I23 O18 O31
    Date: 2011–01–13
  10. By: Agnese, Pablo (IESE Business School)
    Abstract: First moves towards a real understanding of offshoring date back to very recent times. In particular for Japan, the studies conducted so far focus alone on the productivity effects of offshoring at the firm level. Here I carry out the analysis of both the employment and productivity effects at the aggregate level of the industry, covering the years 1980-2005. Moreover, I consider all industries within the economy and take account of both services and materials offshoring. My results suggest that we should expect, on average, a positive effect of services and a negative effect of materials offshoring on employment. However, the effects are rather negligible and only amount to a 1.5 to 2 percent net loss of the change in employment. On the other hand, positive effects on the growth rate of productivity are found as a result of both types of offshoring, with larger effects from services. In particular, the average offshoring industry displays 1.4 to 1.98 additional percentage points for services and 0.48 to 0.64 for materials.
    Keywords: offshoring, Japan, employment, productivity
    JEL: F16 J23 O47
    Date: 2011–02
  11. By: Wang, J. Christina; Inklaar, Robert Christiaan (Groningen University)
    Abstract: The measurement of bank output, a difficult and contentious issue, has become even more important in the aftermath of the devastating financial crisis of recent years. In this paper, we argue that models of banks as processors of information and transactions imply a quantity measure of bank service output based on transaction counts instead of balances of loans and deposits. Compiling new and comparable output measures for the United States and a range of European countries, we show that our counts?based output series exhibit significantly different growth patterns than our balances?based output series over the years 1997 to 2009. Since the U.S. official statistics rely on counts while European statistics rely on balances, this implies a potentially considerable bias in the estimate of bank output growth in Europe vis?à?vis that in the United States.
    Date: 2011
  12. By: Mustafa Caglayan (Department of Economics, The University of Sheffield); Firat Demir
    Abstract: We investigate the level and volatility effects of exchange rates on the productivity growth of manufacturing firms with heterogenous access to debt, and domestic and foreign equity markets in Turkey. We find that while exchange rate volatility affects productivity growth negatively, having access to foreign or domestic equity, or debt markets does not alleviate these effects. Furthermore, foreign owned or publicly traded companies do not appear to perform significantly better than the rest. We detect, however, that firm productivity is positively related to having access to external credit. Additionally, we find that while export (inward) oriented firms are affected less (more) by exchange rate appreciations, they are more (less) sensitive to exchange rate volatility.
    Keywords: Productivity growth, Exchange rate volatility, Source of finance, Capital structure, Export orientation
    JEL: F23 F31 F43 G31 G32 L6
    Date: 2011–02
  13. By: Annette Kyobe; Jim Brumby; Chris Papageorgiou; Zac Mills; Era Dabla-Norris
    Abstract: This paper introduces a new index that captures the institutional environment underpinning public investment management across four different stages: project appraisal, selection, implementation, and evaluation. Covering 71 countries, including 40 low-income countries, the index allows for benchmarking across regions and country groups and for nuanced policy-relevant analysis and identification of specific areas where reform efforts could be prioritized. Potential research venues are outlined.
    Date: 2011–02–17
  14. By: Coffinet, J.; Coudert, V.; Pop, A.; Pouvelle, C.
    Abstract: We assess the extent to which capital buffers (the capital banks hold in excess of the regulatory minimum) exacerbate rather than reduce the cyclical behavior of credit. We empirically study the relationships between output gap, capital buffers and loan growth with firm-level data for French banks over the period 1993—2009. Our findings reveal that bank capital buffers intensify the cyclical credit fluctuations arising from the output gap developments, all the more as better quality capital is considered. Moreover, by performing Granger causality tests at the bank level, we find evidence of a two-way causality between capital buffers and loan growth, pointing to mutually reinforcing mechanisms. Overall, those empirical results lend support to a countercyclical financial regulation that focuses on highest-quality capital and aims at smoothing loan growth.
    Keywords: Bank Capital Regulation, Procyclicality, Capital Buffers, Business Cycle Fluctuations, Basel III.
    JEL: G28 G21
    Date: 2011

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.