New Economics Papers
on Efficiency and Productivity
Issue of 2012‒05‒15
twenty-six papers chosen by

  1. Input, Output Technical Efficiencies and Total Factor Productivity of Cereal Production in Tunisia By Dhehibi, Boubaker; Bahri, Haithem; Annabi, Mohamed
  2. Environmental efficiency indices: towards a new approach to green-growth accounting By Peroni, Chiara
  3. A new unit labour cost changes decomposition Four pillars of cost competitiveness recovery By Peroni, Chiara; DiMaria, Charles Henri
  4. Efficiency and Productivity in the Operational Units of the Armed Forces By Torbjørn, Hanson
  5. A geographically weighted approach in measuring efficiency in panel data: the case of US saving banks By Benjamin M. Tabak; Rogério B. Miranda; Dimas M. Fazio
  7. Productivity and Resource Misallocation in Latin America By Matias Busso; Lucia Madrigal; Carmen Pages-Serra
  8. Does Institutional Quality Affect Firm Performance? Insights from a Semi-Parametric Approach By Sumon Bhaumik; Ralitza Dimova; Subal C. Kumbhakar; Kai Sun
  9. Monitoring Bank Performance in the Presence of Risk By Mircea Epure; Esteban Lafuente
  10. Land Fragmentation, Market Integration and Farm Efficiency: Empirical Evidence from Kosovo By Sauer, Johannes; Davidova, Sophia; Gorton, Matthew
  11. Firm Efficiency: Domestic Owners, Coalitions, and FDI By Jan Hanousek; Evzen Kocenda; Michal Masika
  12. Innovation and Foreign Technology in Italy,1861-2011 By Federico Barbiellini Amidei; John Cantwell; Anna Spadavecchia
  13. Gender Gaps in Performance: Evidence from Young Lawyers By Ghazala Azmat; Rosa Ferrer
  14. Producing Innovations: Determinants of Innovativity and Efficiency By Jaap W.B. Bos; Ryan C.R. van Lamoen; Mark W.J.L. Sanders
  15. Productivity and the Welfare of Nations By Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
  16. Human Capital and Regional Development By Nicola Gennaioli; Rafael Laporta; Florencio López-de-Silanes; Andrei Schleifer
  17. Mapping local productivity advantages in Italy: industrial districts, cities or both? By Valter Di Giacinto; Matteo Gomellini; Giacinto Micucci; Marcello Pagnini
  18. Intangible training capital and productivity in Europe By O’Mahony, Mary; Peng, Fei
  19. Measuring and explaining the cost efficiency of municipal household waste collection and processing: A case study of Flemish municipalities By Rogge, Nicky; de Jaeger, Simon
  20. Measuring Efficiency in the Public Sector By Førsund, Finn R.
  21. Firm Size and Judicial Efficiency in Italy: Evidence from the Neighbour's Tribunal By Silvia Giacomelli; Carlo Menon
  22. Evidence from a UK supermarket chain By Paul C. Cheshire; Christian A. L. Hilber; Ioannis Kaplanis
  23. Industry segment effects and firm effects on firm performance in single industry firms By Houthoofd, Noël; Hendrickx, Jef
  24. A Microfoundation for Normalized CES Production Functions with Factor-Augmenting Technical Change By Jakub Growiec
  25. A Note on Schooling in Development Accounting By Francesco Caselli; Antonio Ciccone
  26. Banks and Development: Jewish Communities in the Italian Renaissance and Current Economic Performance By Luigi Pascali

  1. By: Dhehibi, Boubaker; Bahri, Haithem; Annabi, Mohamed
    Abstract: In this paper, farm level technical efficiency of production and its determinants are investigated in a sample of 51 cereal producing farms located in the main cereal production region in Tunisia using a stochastic frontier production model. Empirical findings show that labor input factor appears with a minimal effect on the production. The hypothesis of constant returns to scale is rejected at the 5% level of significance, and returns to scale were found to be decreasing. Moreover, the estimated coefficients in the technical inefficiency model are also as expected. The estimated coefficients of the instruction level of farmer and the rotation, technical variable, are negatives and statistically significant at 5% level, which indicates their positive effect on technical efficiency. In addition, results indicated that estimated technical efficiency of cereal production in the sample varied widely, ranging from 52.63% to 94.62, with a mean value of 77%. This suggests that, on average, cereal producing farmers could increase their production by as much as 23% through more efficient use of production inputs. On a second step, Timmer and Kopp indexes of technical inefficiency were estimated for the same farms using a Cobb–Douglas frontier production function with a composite error term, and a developed relationship between these two indices. Results show that the mean values of the Timmer and Kopp TE indices were over 0.80, but one half of the farms were below 0.80 for the Timmer index and below 0.83 for the Kopp index. The level of inefficiency was found to be related to farm size: small and large farms were shown to be more technically efficient than medium-sized farms. With the given inputs, the production of cereals could be increased by 20% on average through making all farms 100% efficient. Alternatively, inputs could be reduced by 17% on average to produce the same amount of cereal output. Finally, the lower level of efficiency but higher yield and total factor productivity in the medium-sized farms means that more cereals can potentially be produced in these farms. The findings revealed that significant factors related to TFP were age, education level and the share of wheat crops into total cropped area. These results calls for policies aimed at provision of training programs, extensions services. In addition, the encouragement of experienced farmers by applying improved input management on these farms can be recommended alongside appropriate new technologies, especially for wheat farmers.
    Keywords: Technical efficiency, Timmer index, Kopp index, TFP, Cereal farms, Tunisia, Agricultural and Food Policy, Farm Management, Production Economics, Productivity Analysis, Research Methods/ Statistical Methods, C43, O47, Q12,
    Date: 2012
  2. By: Peroni, Chiara
    Abstract: This article analyses the link between environmental and productive efficiency in a group of EU member states and the US using data from the UN Framework Convention on Climate Change. Its main indicator, carbon intensity, is defined as the ratio of total greenhouse gases emissions to output. A non-parametric frontier approach enables modelling a multiple output technology in which greenhouse gas emissions are an undesirable outcome of a production process. A DEA method is used to compute environmental efficiency indices, which grade countries according to their ability to increase production while reducing pollutants, under minimal assumptions. The only assumptions are that bad outputs are costly to dispose of and that returns to scale are variable. The study shows that productive efficiency is considerably lowered when environmental degradation are taken into account. Only two (Luxembourg and Sweden) out of 16 countries are environmentally efficient. Malmquist indices, however, show that environmental performances improved over the period considered in nearly all countries. A decomposition of carbon intensity, which links emission performance to technical progress, is also presented; this highlights the positive contribution of labour productivity on the reduction in carbon intensity. Finally, no evidence of a DEA-based environmental Kuznet curve is found.
    Keywords: Carbon intensity; data envelopment analysis; Malmquist index; decomposition; Kuznet curve
    JEL: Q50 C44 Q56 O40
    Date: 2012–02–01
  3. By: Peroni, Chiara; DiMaria, Charles Henri
    Abstract: This article presents a new decomposition of unit labour costs into compensation per worker and labour productivity, which, in turn, is decomposed into efficiency gains, technical progress and capital deepening. Data for Western European countries and the US show that the evolution of labour productivity components counteracts the deterioration in countries' cost competitiveness caused by increases in nominal wages. The policy implication is that efforts aimed at reducing nominal labour costs should be accompanied by policies fostering capital deepening. Further improvements in countries' cost competitiveness can be achieved by enhancing efficiency gains and technical progress, which has been mostly negative during the period under study.
    Keywords: unit labour cost; internal devaluation; labour productivity; technical change; capital deepening
    JEL: C44 J01 O40 E60
    Date: 2012–04–30
  4. By: Torbjørn, Hanson (Dept. of Economics, University of Oslo)
    Abstract: Most nations spend a considerable part of their gross domestic product (GDP) on defense. However, no previous study has addressed the productivity and efficiency of the core area of the armed forces, operational units, using Data Envelopment Analysis (DEA). Introducing a model for the production process of an operational unit, productivity and efficiency are estimated by DEA for units of one branch of the Norwegian armed forces. Small samples are a characteristic of DEA studies in the military, and the public sector in general, resulting in a lion’s share of the units being estimated as fully efficient. We find that, by using the bootstrap technique to estimate confidence intervals, we can point at the uncertainty of the estimates and reduce the number of candidates for best practice.
    Keywords: Military; Productivity; Efficiency; DEA; Bootstrap
    JEL: C60 D24 H40
    Date: 2012–02–28
  5. By: Benjamin M. Tabak; Rogério B. Miranda; Dimas M. Fazio
    Abstract: The objective of this article is to discuss a new approach to control for the environment when one estimates efficiency by the stochastic frontier model. By introducing geographical weights and estimating local frontiers for each US saving bank for 2001-09, we find that bank technical performance is higher for most banks in comparison to a fixed-effects approach. This result highlights the importance of explicitly considering local environment and constraints while analyzing banks' behavior. All in all, this model has been proved very promising and viable for future empirical studies.
    Date: 2012–04
  6. By: Zuniga Gonzalez, Carlos Alberto
    Abstract: Selected Paper prepared for presentation at the International Association of Agricultural Economists (IAAE) Triennial Conference, Foz do Iguaçu, Brazil, 18-24 August, 2012
    Keywords: Bio Economy Total Factor Productivity Growth, Malmquist Index, Data Envelopment Analysis, Bio-Economy, Bio-Ethanol, Productivity Analysis, D: 24, O: 13, O: 47, P: 51, Q: 10,
    Date: 2012–04–24
  7. By: Matias Busso; Lucia Madrigal; Carmen Pages-Serra
    Abstract: Total factor productivity (TFP) in Latin America has not increased since the mid- 1970s, and in many countries it has declined. Moreover, resource misallocation can lower aggregate TFP. This paper presents evidence based on firm-level data from 10 Latin American countries to quantify the heterogeneity of firm productivity and the degree of resource misallocation within countries. Productivity heterogeneity and resource misallocation are found to be much larger than in the United States. Achieving an efficient allocation of resources could boost manufacturing TFP between 45 percent and 127 percent depending on the countries and years considered.
    JEL: D24 L25 O47 O54
    Date: 2012–04
  8. By: Sumon Bhaumik; Ralitza Dimova; Subal C. Kumbhakar; Kai Sun
    Abstract: Using a novel modeling approach, and cross-country firm level data for the textiles industry, we examine the impact of institutional quality on firm performance. Our methodology allows us to estimate the marginal impact of institutional quality on productivity of each firm. Our results bring into question conventional wisdom about the desirable characteristics of market institutions, which is based on empirical evidence about the impact of institutional quality on the average firm. We demonstrate, for example, that once both the direct impact of a change in institutional quality on total factor productivity and the indirect impact through changes in efficiency of use of factor inputs are taken into account, an increase in labor market rigidity may have a positive impact on firm output, at least for some firms. We also demonstrate that there are significant intra-country variations in the marginal impact of institutional quality, such that the characteristics of “winners” and “losers” will have to be taken into account before policy is introduced to change institutional quality in any direction.
    Keywords: Institutional quality; Firm performance; Marginal effect; Textiles industry
    JEL: C14 D24 K31 O43
    Date: 2012–02–01
  9. By: Mircea Epure; Esteban Lafuente
    Abstract: This paper assesses bank performance from a monitoring perspective. We first propose a multidimensional efficiency measure that integrates credit risk and is adapted to the real banking technology. Second, accounting ratios complement the analysis and provide proximity to managerial communities. Third, the impact of different risk measures over efficiency and accounting ratios is shown. Fourth, we examine the effect of CEO turnover on future performance. An empirical application considers the Costa Rican banking industry during 1998-2007. Results reveal that performance improvements follow regulatory changes and that risk explains differences in bank performance. Specifically, non-performing loans negatively affect efficiency and return on assets, whereas the capital adequacy ratio has a positive impact on the net interest margin. This supports that incurring monitoring costs and having higher levels of capitalisation may lead to performance gains. Finally, results confirm that appointing CEOs from outside the bank significantly improves performance, thus suggesting the potential benefits of new organisational practices.
    Keywords: banking, data envelopment analysis, accounting ratios, risk, executive turnover
    JEL: G21 G28 G3
    Date: 2012–03
  10. By: Sauer, Johannes; Davidova, Sophia; Gorton, Matthew
    Abstract: This paper investigates the effect of land fragmentation on farm efficiency in Kosovo utilising agricultural household survey data. To recognise heterogeneity among agricultural production systems in Kosovo, we estimate the technology separately for different groups or “classes” of farms, identified using latent class modelling. This approach separates the data into multiple technological “classes” according to estimated probabilities of class membership based on multiple specified characteristics, relating in this case to land fragmentation and market integration. The latent class frontier method is linked to the estimation of a multi-output multi-input production function, namely a directional output distance function, and to the estimation of Morishima elasticities of substitution, based on shadow price changes indicating allocative efficiency changes. The analytical results confirm that the usual approach of using one homogenous function to estimate fragmentation effects is misleading and can lead to inappropriate policy recommendations. Three distinct classes of farm households are identified, which show different levels of efficiency and the proxies for land fragmentation and market integration show different signs over these classes.
    Keywords: Land fragmentation, market integration, farm households, Kosovo, Agricultural and Food Policy, Production Economics, Productivity Analysis, O13, Q12,
    Date: 2012–05
  11. By: Jan Hanousek; Evzen Kocenda; Michal Masika
    Abstract: In this paper we analyze the evolution of firm efficiency in the Czech Republic. Using a large panel of more than 190,000 Czech firm/years we study whether firms fully utilize their resources, how firm efficiency evolves over time, and how firm efficiency is determined by ownership structure. We employ a panel version of a stochastic production frontier model for the period 1996–2007 with time-varying efficiency. We differentiate among various degrees of ownership concentration and domestic or foreign origin. In a two-stage set-up we estimate the degree of firm inefficiency and then we estimate the effect of ownership structure on the distance from the efficiency frontier. Our results support the hypothesis that concentration and foreign ownership are positively related to efficiency and that FDI has beneficial effects at the microeconomic level. However, we show that a simple majority is not necessarily the best structure to improve efficiency. We further analyze the effects of ownership coalitions, and shed light on many other subtleties of how ownership and the specific industry affect firm efficiency.
    Keywords: efficiency; ownership structure; firms, panel data; stochastic frontier;
    JEL: C33 D24 G32 L60 L80 M21
    Date: 2012–04
  12. By: Federico Barbiellini Amidei (Bank of Italy); John Cantwell (Rutgers University); Anna Spadavecchia (University of Reading)
    Abstract: The paper explores the long run evolution of Italy's performance in technological innovation as a function of international technology transfer, reconstructing the different phases and dimensions of Italian innovative activity, tracking the transfer of foreign technological knowledge through a number of channels, analysing the impact of imported technology. The study is based on a newly constructed dataset, over the 1861-2009 period, composed of variables related to: innovation activity performance; foreign technology transfer; domestic absorptive and innovative capability. The analysis highlights, also by econometric assessment, the significant contribution of foreign technology both to innovation activity results and to productivity growth. Differences across channels of technology transfer and historical phases emerge, also in connection with the evolution of human capital endowment and domestic innovative capacity. Machinery imports contributed positively both to innovation activity and to productivity growth; inward FDI contributed positively to productivity growth, but not to indigenous innovation activity; the accumulation of technical human capital fuelled both. In the long Italian Golden Age, for the first time the association of foreign technological knowledge with indigenous innovation processes strengthened productivity significantly. More recently instead the dismal productivity growth is negatively associated with formalised innovation activity under-performance and reduced imports of disembodied technology
    Keywords: Italy,Technology Transfer,Innovation,Absorptive Capability,Patenting
    JEL: N10 O31 O33 F23 O19
    Date: 2011–10
  13. By: Ghazala Azmat; Rosa Ferrer
    Abstract: This paper documents and studies the gender gap in performance among associate lawyers in the United States. Unlike most high-skilled professions, the legal profession uses widely-accepted and objective methods to measure and reward lawyers productivity: the number of hours billed to clients and the amount of new client revenue generated. We find clear evidence of a gender gap in annual performance. Male lawyers bill ten-percent more hours and bring in more than double the new client revenue. We show that the differential impact across genders in the presence of young children and the differences in aspirations to become a law-firm partner account for a large part of the difference in performance. These gaps in performance have important consequences for gender gaps in earnings. While individual and firm characteristics explain up to 50 percent of the gap in earnings, the inclusion of performance measures explains most of the remainder.
    Keywords: performance measures, gender gaps, lawyers
    JEL: M52 J16 K40 J44
    Date: 2012–03
  14. By: Jaap W.B. Bos; Ryan C.R. van Lamoen; Mark W.J.L. Sanders
    Abstract: In this paper we estimate, using stochastic frontier estimation techniques, the relationship between R&D inputs a innovative output in a sample of Dutch firms. We find that over 63% of between firm variation in observed "innovativeness" can be attributed to inefficiency in the innovation process. The remainder is due to differences in the innovation production process itself. We derive our results including the usual controls and find in addition that large firms tend to look more innovative. But when considered more carefully large firms turn out to be less efficient. With standard estimation techniques this inefficiency is masked by a more productive innovation technology. We thus find evidence of economies of scale in line with the Schumpeter mark II hypothesis (large firms are more innovative), but also show that large firms tend to operate at lower levels of efficiency.
    Keywords: Innovation, Scale Economies, Frontier
    JEL: D21 G21 L10 O3
    Date: 2011–09
  15. By: Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
    Abstract: We show that the welfare of a representative consumer can be related to observable aggregate data. To a first order, the change in welfare is summarized by (the present value of) the Solow productivity residual and by the growth rate of the capital stock per capita. We also show that productivity and the capital stock suffice to calculate differences in welfare across countries, with both variables computed as log level deviations from a reference country. These results hold for arbitrary production technology, regardless of the degree of product market competition, and apply to open economies as well if TFP is constructed using absorption rather than GDP as the measure of output. They require that TFP be constructed using prices and quantities as perceived by consumers. Thus, factor shares need to be calculated using after-tax wages and rental rates, and will typically sum to less than one. We apply these results to calculate welfare gaps and growth rates in a sample of developed countries for which high-quality TFP and capital data are available. We find that under realistic scenarios the United Kingdom and Spain had the highest growth rates of welfare over our sample period of 1985-2005, but the United States had the highest level of welfare.
    Keywords: productivity, welfare, TFP, Solow Residual
    JEL: D24 D90 E20 O47
    Date: 2012–03
  16. By: Nicola Gennaioli; Rafael Laporta; Florencio López-de-Silanes; Andrei Schleifer
    Abstract: We investigate the determinants of regional development using a newly constructed database of 1569 sub-national regions from 110 countries covering 74 percent of the worlds surface and 96 percent of its GDP. We combine the cross-regional analysis of geographic, institutional, cultural, and human capital determinants of regional development with an examination of productivity in several thousand establishments located in these regions. To organize the discussion, we present a new model of regional development that introduces into a standard migration framework elements of both the Lucas (1978) model of the allocation of talent between entrepreneurship and work, and the Lucas (1988) model of human capital externalities. The evidence points to the paramount importance of human capital in accounting for regional differences in development, but also suggests from model estimation and calibration that entrepreneurial inputs and human capital externalities are essential for understanding the data.
    Keywords: productivity, entrepreneurial education, regional externalities
    JEL: I25 O11 O15
    Date: 2011–09
  17. By: Valter Di Giacinto (Bank of Italy); Matteo Gomellini (Bank of Italy); Giacinto Micucci (Bank of Italy); Marcello Pagnini (Bank of Italy)
    Abstract: We compare the magnitude of local productivity advantages associated with two different spatial concentration patterns in Italy – urban areas and industrial districts. The former have high population density and host a wide range of economic activities, while the latter are marked by a high concentration of small firms producing relatively homogenous goods. Using data from a large sample of Italian manufacturing firms observed over the 1995-2006 period, we detect local productivity advantages for both urban areas and industrial districts. However, firms located in urban areas reap a larger productivity premium than those operating within districts. The advantages of industrial districts have declined over time; those of urban areas have remained stable. Differences in the composition of firm employees between white- and blue-collars explain a small fraction of the urban productivity premium. The quantile regressions show how more productive firms gain larger benefits by locating in urban areas. Our analysis raises the question of whether Italian industrial districts are less fit than urban areas to prosper in a world characterized by advancing globalization and the growing use of ICT.
    Keywords: urban areas, industrial districts, agglomeration economies, productivity, white- and blue-collars, Italian economy
    JEL: C52 D24 R12
    Date: 2012–01
  18. By: O’Mahony, Mary; Peng, Fei
    Abstract: This paper employs industry data, derived from linking the EU LFS to productivity accounts from EU KLEMS, to examine workforce training and productivity in European Union original members states. Training activities are modelled as intangible investments by firms and cumulated to stocks so their impact can be evaluated within a production function framework, including links to the use of information and communications technology (ICT). The results suggest significantly positive effects of training on productivity, both direct and interacted with ICT, with different impacts in services than in production industries. These results are robust to the use of instrumental variables methods, both lagged instruments and a set of variables that capture features of the operation of labour markets.
    Keywords: Training; Intangible Capital; EUKLEMS; EU LFS
    JEL: M53 J24 D24
    Date: 2011
  19. By: Rogge, Nicky (Hogeschool-Universiteit Brussel (HUB)); de Jaeger, Simon (Hogeschool-Universiteit Brussel (HUB))
    Abstract: This paper proposes an adjusted version of the popular efficiency measurement technique Data Envelopment Analysis (DEA) that makes it possible (1) to evaluate the cost efficiency of municipalities in the collection and processing of multiple household waste fractions, (2) robustifying the cost efficiency evaluations for the impact of measurement errors in the data or municipalities with outlying and atypical performances (if present in the sample set), and (3) to correct the evaluations for differences in the operating environments of municipalities (e.g., factors such as demography and median income of the municipality population). The paper illustrates the usefulness of the methodology by carrying out and analysing a cost efficiency evaluation using data on 293 municipalities in Flanders, Belgium, for the year 2009.
    Keywords: Data Envelopment Analysis, Cost efficiency evaluation, Conditional order-m DEA, Municipal solid waste
    Date: 2012–03
  20. By: Førsund, Finn R. (Dept. of Economics, University of Oslo)
    Abstract: The distinction between the concepts outputs and outcomes can be made operational based on the consideration of the degree of control a public service producer has over its production activity. Resources are transformed into service outputs under the control of the organisation in question, while outcomes represent some higher social goals than outputs and are determined by the outputs and other exogenous variables, but these will usually be outside the control of the organisation. The link to the calculation of savings potentials and efficiency measurement is provided based on introducing the concept of a benchmark frontier technology for the type of production in question. A new measure of overall preference efficiency is introduced and its decomposition into output-oriented technical efficiency and mix efficiency is shown. The rather monumental task of providing the necessary information for calculating mix efficiency is highlighted.
    Keywords: Outputs; outcomes; Farrell efficiency measures; savings potentials; output mix efficiency
    JEL: D24 H40
    Date: 2012–03–13
  21. By: Silvia Giacomelli; Carlo Menon
    Abstract: We investigate the causal relationship between judicial efficiency and firm size across Italian municipalities, exploiting spatial discontinuities in tribunals' jurisdiction for identification. Results show that halving the length of civil proceedings, average firm size would increase by around 8-12%, everything else equal. Results are robust to a number of different specifications, based on two different databases.
    Keywords: Justice efficiency, Firm size, Spatial discontinuity approach, Italy
    JEL: K4 L11 O18
    Date: 2012–05
  22. By: Paul C. Cheshire (London School of Economics); Christian A. L. Hilber (London School of Economics & Spatial Economics Research Centre (SERC)); Ioannis Kaplanis (Universitat Rovira i Virgili & Spatial Economics Research Centre (SERC))
    Abstract: We use unique store-specific data for a major UK supermarket chain to estimate the impact of planning, which restricts both the size and location of stores, on store output. Using the quasi-natural experiment of the variation in planning policies between England and other UK countries and a difference-in-difference approach, we isolate the impact of Town Centre First (TCF) policies. We find that space contributes directly to the productivity of stores and planning policies in England directly reduce output both by reducing store sizes and forcing stores onto less productive sites. Our results suggest that since the late 1980s planning policies have imposed a loss of total output of at least 18.3 to 24.9%. This is equivalent to more than a ‘lost decade’ of output growth in a major sector generated directly by government policy.
    Keywords: Land use regulation, regulatory costs, firm productivity, retail
    JEL: D2 L51 L81 R32
    Date: 2012
  23. By: Houthoofd, Noël (Hogeschool-Universiteit Brussel (HUB)); Hendrickx, Jef (Hogeschool-Universiteit Brussel (HUB))
    Abstract: The purpose of the paper is to identify the sources of variation in firm performance. This is one of the cornerstones of strategy research, i.e. the relative importance of industry and firm level effects on firm performance. Multilevel analysis is well suited to analyze variance in performance when the data are hierarchically structured (industry segments consist of firms, firms operate within the context of industry segments). The Belgian industry studied is a service industry that consists of about 25 electrical wholesalers. Data were collected from 20 firms during the period 1998-2003 from responses to a questionnaire sent to all the firms in the market. The sample in the data set covers more than 95 percent of the market (in sales), as the missing firms were just fringe competitors. The results show that firm effects explain most of the variance in four performance variables. That bears out the importance of each firm having its own specific, idiosyncratic resources and competences. The explanatory power of firm effects varies by about 30 to 40 percent while the intra-industry effect explains around 10 percent of the variance. Even though firm effects are dominant, intra-industry effects explain a significant portion of the variance in firm level performance. The firm effect is smaller than in previous studies. The firm effect varies across the performance measures: firm effects are higher for returns on assets than for profit margins. The industry segment effect (or intra-industry effect) is more independent of the dependent variable. The industry segment effect is in line with previous studies on the strategic group effect. Top managers should carefully choose and monitor the intra-industry domain they are in.
    Keywords: firm effect vs. industry effect, electrical wholesale sector, performance differences, multilevel analysis
    Date: 2012–03
  24. By: Jakub Growiec
    Abstract: We derive the aggregate normalized CES production function from idea-based microfoundations where firms are allowed to choose their capital- and labor-augmenting technology optimally from a menu of available technologies. This menu is in turn augmented through factor-specific R&D. The considered model yields a number of interesting results. First, normalization can be maintained simultaneously at the local and at the aggregate level, greatly facilitating interpretation of the aggregate production function's parameters in terms of the underlying idea distributions. Second, in line with earlier findings, if capital- and labor-augmenting ideas are independently Weibull-distributed then the aggregate production function is CES; if they are independently Pareto-distributed, then it is Cobb-Douglas. Third, by disentangling technology choice by firms from R&D output, one can draw a clear-cut distinction between the direction of R&D and the direction of technical change actually observed in the economy, which are distinct concepts. Finally, it is argued that the Weibull distribution should be a good approximation of the true unit factor productivity distribution (and thus the CES should be a good approximation of the true aggregate production function) if a \technology" is in fact an assembly of a large number of complementary components.
    Keywords: CES production function, normalization, Weibull distribution, direction of technical change, directed R&D, optimal technology choice
    JEL: E23 E25 O47
    Date: 2011–09
  25. By: Francesco Caselli; Antonio Ciccone
    Abstract: How much would output increase if underdeveloped economies were to increase their levels of schooling? We contribute to the development ac- counting literature by describing a non-parametric upper bound on the increase in output that can be generated by more schooling. The advantage of our approach is that the upper bound is valid for any number of schooling levels with arbitrary patterns of substitution/complementarity. We also quantify the upper bound for all economies with the necessary data, compare our results with the standard development accounting approach, and provide an update on the results using the standard approach for a large sample of countries.
    Keywords: schooling, productivity effects, upper bound
    JEL: I25 O11
    Date: 2011–11
  26. By: Luigi Pascali
    Abstract: Do banks affect long-term economic performance? I answer this question by relying on an historical development that occurred in Italian cities during the 15th century. A sudden change in the Catholic doctrine had driven the Jews toward money lending. Cities that were hosting Jewish communities developed complex banking institutions for two reasons: first, the Jews were the only people in Italy allowed to lend for a prot; second the Franciscan reaction to Jewish usury led to the creation of charity lending institutions that evolved into many of the current Italian banks. Using Jewish demography in 1450 as an instrument, I estimate large effects of current banking development on the income-per-capita of Italian cities. Additional rm-level analyses suggest that well-functioning local banks exert large effects on aggregate productivity by reallocating resources toward more efficient firms. Controlling for province effects, using additional historical data on Jewish demography and exploiting the expulsion of the Jews from the Spanish territories in Italy in 1541, I argue that my results are not driven by omitted institutional, cultural and geographical characteristics. In particular, I show that the difference in current income between cities that hosted Jewish communities and cities that did not exists only in those regions that were not Spanish territories in the 16th century. These difference-in-difference estimates suggest that the Jewish Diaspora can explain at least 10% of the current income gap between Northern and Southern Italy.
    Keywords: Banks, Economic development, Persistence, Jewish demography
    JEL: O43 G21 O10
    Date: 2012–03

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.