New Economics Papers
on Efficiency and Productivity
Issue of 2013‒12‒06
twenty papers chosen by

  2. Does Competition Improve Industrial Productivity? An analysis of Japanese industries on the basis of the industry-level panel data By AMBASHI Masahito
  3. Do capital requirements affect bank efficiency? Evidence from China By Pessarossi , Pierre; Weill , Laurent
  5. Relationship of Income Inequality and Labor Productivity on Fertility in the Philippines: 1985-2009. By Macan, Vaneza Jean; Deluna, Roperto Jr
  6. Innovation Rankings: Good, Bad or Revealing? By Yuezhou Cai; Aoife Hanley
  7. The Double-Edged Sword of Industry Collaboration: Evidence from Engineering Academics in the UK By Banal-Estanol, A.; Jofre-Bonet, M.; Lawson, C.
  8. FDI spillovers and time since foreign entry By Merlevede, Bruno; Schoors, Koen; Spatareanu , Mariana
  9. Agricultural Productivity and Structural Transformation. Evidence from Brazil By Paula Bustos; Bruno Caprettini; Jacopo Ponticelli
  10. A Note on the Identification of Demand and Supply Shocks in Production: Decomposition of TFP By KONISHI Yoko; NISHIMURA Yoshihiko
  11. Trade Performance and Potential of the Philippines: An Application of Stochastic Frontier Gravity Model By Deluna, Roperto Jr
  12. The optimal tariff in the presence of trade-induced productivity gains By Hübler, Michael; Pothen, Frank
  13. Heterogeneous Banking Efficiency : Allocative Distortions and Lending Fluctuations By Thibaut Duprey
  14. Bad management, skimping, or both? The relationship between cost efficiency and loan quality in Russian banks By Mikhail Mamonov
  16. Financial architecture and corporate performance: evidence from Russia By Maria Kokoreva; Anastasia Stepanova
  17. The performance of mergers and acquisitions in emerging capital markets: new evidence By Svetlana Grigorieva; Tatiana Petrunina
  18. Estimating dynamic R&D demand: An analysis of costs and long-run benefits By Peters, Bettina; Roberts, Mark J.; Vuong, Van Anh; Fryges, Helmut
  19. Measuring Economic Growth from Outer Space: A Comment By Berliant, Marcus; Weiss, Adam
  20. Robustness of various capacity mechanisms to regulatory errors By Christian Winzer

  1. By: Shital Sharma
    Abstract: This research studies the link between environmental regulation and plant level productivity in two U.S. manufacturing industries: pulp and paper mills and oil refineries using Data Envelopment Analysis (DEA) models. Data on abatement spending, emissions and abated emissions are used in different DEA models to study plant productivity outcomes when accounting for abatement spending or emissions regulations. Results indicate that pulp and paper mills and oil refineries in the U.S. suffered decreases in productivity due to pollution abatement activities from 1974 to 2000. These losses in productivity are substantial but have been slowly trending downwards even when the regulations have tended to become more stringent and emission of pollutants has declined suggesting that the best practice has shifted over time. Results also show that the reported abatement expenditures are not able to explain all the losses arising out of regulation suggesting that these abatement expenditures are consistently under-reported.
    Date: 2013–10
  2. By: AMBASHI Masahito
    Abstract: This study mainly investigates the causal relation between the degree of competition, which is measured by the Lerner index, and the total factor productivity (TFP) growth rate on the basis of the Japanese industry-level panel data (Japan Industrial Productivity (JIP) Database) from 1980 to 2008. The central finding indicates that, although a positive effect of competition on the TFP growth rate is clearly observable in the manufacturing industries throughout the sample period, such effect in the non-manufacturing industries may be slightly negative in the latter half of the sample period (1995-2008). This finding of a negative competition effect may lend support to the claim that the Schumpeterian hypothesis can be applied in the case of the non-manufacturing industries. Furthermore, a weak inverted-U shape relation between the competition measure and TFP growth proposed by Aghion et al. (2005) can be seen limitedly almost exclusively in all industries.
    Date: 2013–11
  3. By: Pessarossi , Pierre (BOFIT); Weill , Laurent (BOFIT)
    Abstract: This paper contributes to the debate on the effect of capital requirements on bank efficiency. We study the relation between capital ratio and bank efficiency for Chinese banks over the period 2004-2009, taking advantage of the profound regulatory changes in capital requirements that occurred during this period to measure the exogenous impact of an in-crease in the capital ratio on banks’ cost efficiency. We find that such an increase has a positive effect on cost efficiency, the size of which depends to an extent on the bank’s ownership type. Our results therefore suggest that capital requirements can improve bank efficiency.
    Keywords: bank; capital requirements; efficiency; China
    JEL: G21 G28
    Date: 2013–11–08
  4. By: Mitsukuni Nishida; Amil Petrin; T. Kirk White
    Abstract: Reallocation growth occurs when an input moves from a lower marginal product to a higher marginal product activity. Three recent studies use two distinct methodologies to examine the sources of the strong surge in aggregate productivity growth (APG) in India’s manufacturing sector since 1990 following significant economic reforms. They all conclude that APG was primarily driven by within-plant increases in technical efficiency and not between-plant reallocation of inputs. Given the nature of the reforms, where many barriers to input reallocation were removed, this finding has surprised researchers and been dubbed “India’s Mysterious Manufacturing Miracle.” In this paper we show that these findings may be an artifact of the way the studies estimate reallocation. One approach counts all reallocation growth arising from the movement of intermediate inputs as technical efficiency growth. The second approach introduces measurement error into estimated reallocation by using plant-level average products - total factor productivity residuals - as a proxy for marginal products, which could be problematic as economic theory suggests that average products and marginal products are unrelated in equilibrium. Using microdata on manufacturing from 4 countries — the U.S., Chile, Colombia, and Slovenia — we show that both approaches significantly understate the true role of reallocation in economic growth. In the U.S. almost 50% of reallocation growth is due to movements of intermediate inputs, meaning if India is similar to the U.S. then reallocation’s share of total Indian manufacturing APG since 1990 increases from the previous estimate of one-third to almost two-thirds.
    Date: 2013–11
  5. By: Macan, Vaneza Jean; Deluna, Roperto Jr
    Abstract: This study investigates the relationship of income inequality (proxied by the Gini Coefficient), labor productivity (output per capita) on fertility rate in the Philippines. Specifically, this presents the trend of income inequality (ineq), labor productivity (lp) and fertility(tfr) in the Philippines from 1985 to 2009. The study uses Ordinary Least Square (OLS) estimates to study the relationship of the variables. Results revealed that income inequality and labor productivity has a negative relationship with fertility. Hence, an increase in this variable decreases fertility rate. This means that income inequality and labor productivity is significant in achieving the replacement level of fertility.
    Keywords: Income Inequality, Labor Productivity, Fertility, Ordinary Least Squares, Replacement level.
    JEL: J10 J11 J13
    Date: 2013–04–30
  6. By: Yuezhou Cai; Aoife Hanley
    Abstract: The standard indicators used to compare cross-country innovation are in the Global Competitiveness Report (GCR). But there are problems with aggregation and response bias with these largely self-reported measures (Hollanders and van Cruysen, 2008). We propose a theory-based metric using Data Envelopment Analysis which corrects for sample bias and considers Returns to Scale. The derived ranking compares well to components of the GCR. Moreover, in second-stage estimations, our corrected efficiency score correlates well with standard Growth Theory indicators
    Keywords: Data Envelopment Analysis, Efficiency Indicators, Global Competitiveness Report
    JEL: C61 C14 O38
    Date: 2013–11
  7. By: Banal-Estanol, A.; Jofre-Bonet, M.; Lawson, C.
    Abstract: This paper studies the impact of university-industry collaboration on academic research output. We report findings from a unique longitudinal dataset on all the researchers in all the engineering departments of 40 major universities in the UK for the last 20 years. We introduce a new measure of industry collaboration based on the fraction of research grants that include industry partners. Our results show that productivity increases with the intensity of industry collaboration, but only up to a certain point. Above a certain threshold, research productivity declines. Our results are robust to several econometric estimation methods, measures of research output, and for various subsamples of academics.
    Keywords: Industry-science links; research collaboration; basic vs. applied research
    Date: 2013
  8. By: Merlevede, Bruno (BOFIT); Schoors, Koen (BOFIT); Spatareanu , Mariana (BOFIT)
    Abstract: This study measures the effect of foreign direct investment (FDI) on the productivity of local firms. Unlike earlier studies, our empirical approach does not require that FDI manifests immediate or permanent effects. We find that foreign entry initially affects productivity of local competitors negatively, but is more than offset by a permanent positive effect on local competitors once majority-foreign-owned firms have been present for a while. The effect on the productivity of local suppliers, in contrast, is transient. The entry of majority-foreign-owned firms boosts productivity of local suppliers after a short adaption period, but then fades. The positive impact of minority-foreign-owned firms on local suppliers is immediate, but smaller and transient.
    Keywords: FDI; spillovers; dynamics; timing
    JEL: F23
    Date: 2013–11–04
  9. By: Paula Bustos; Bruno Caprettini; Jacopo Ponticelli
    Abstract: We study the effects of the adoption of new agricultural technologies on structural transformation. To guide empirical work, we present a simple model where the effect of agricultural productivity on industrial development depends on the factor bias of technical change. We test the predictions of the model by studying the introduction of genetically engineered soybean seeds in Brazil, which had heterogeneous effects on agricultural productivity across areas with different soil and weather characteristics. We find that technical change in soy production was strongly labor saving and lead to industrial growth, as predicted by the model.
    Keywords: agricultural productivity, structural transformation, industrial development, labor saving technical change, genetically engineered soy
    JEL: F16 F43 Q16
    Date: 2013–08
  10. By: KONISHI Yoko; NISHIMURA Yoshihiko
    Abstract: Total factor productivity (TFP) is considered as a good measure of productivity. However, empirical TFP, often calculated from ordinary least squares (OLS) residuals from production function estimates, normally includes demand shocks as well as productivity shocks. The appropriate policy differs depending on which factor is the main cause. Konishi and Nishiyama (2013, KN hereafter) attempt to provide a method in this direction to decompose the TFP shock into demand and supply shocks using the Current Survey of Production and Census of Manufacture. They do not consider a demand side model and implicitly assume that the difference in the production capacity and the realized production identifies the demand shock. This note extends their approach to model explicitly the demand side structure and its shock. Assuming a log-linear demand function, we allow a demand shock of a constant shift as well as a slope change. We show that different quantities identify the demand shock in the two cases. The KN method works in the case of additive demand shocks, but not for slope changes under perfect competition. We further discuss the case of monopolistic competition and find a qualitatively similar result.
    Date: 2013–11
  11. By: Deluna, Roperto Jr
    Abstract: This study was conducted to investigate the issue of what Philippine merchandise trade flows would be if countries operated at the frontier of the gravity model. The study sought to estimate the coefficients of the gravity model. The estimated coefficients were used to estimate merchandise export potentials and technical efficiency of each country in the sample and these were also aggregated to measure impact of country groups, RTAs and inter-regional trading agreements. Result of the study shows that technical efficiency for all sample countries is relatively large with standard deviation from the mean of 35.02% suggesting that the frontier is not so distant. The most efficient countries in the sample which recorded more than 90% efficiency were Canada, Australia, New Zealand, USA, Singapore, Denmark, Hongkong, Sweden and UK. In terms of country groups, RTA and Inter-regional trading agreements, APEC recorded as the most efficient trade agreement of the Philippines. The Philippines was also able to established strong link among countries in East Asia, members of AFTA. ASEAN and EU posed export potential. In a country level, China and members of the ASEAN such as Vietnam, Indonesia, Thailand, Cambodia and Malaysia posed the highest export potential for merchandise exports. The significant determinants of these potentials are the expanding market of developing economies and lower trade cost. Then dominance of APEC countries in trade efficiency was verified by the result of the trade inefficiency effect model. Factors reducing technical inefficiencies were membership to APEC, reduction of corruption, and freer business environment. Membership to ASEAN and WTO turns out insignificant in reducing trade inefficiencies of the Philippine exports to member countries.
    Keywords: Merchandise exports, Gravity, Stochastic, export potential, Philippine Trade
    JEL: F0 F1 F13 F14 F15 F4 F47
    Date: 2013–04–30
  12. By: Hübler, Michael; Pothen, Frank
    Abstract: We scrutinize the impact of international productivity gains (spillovers) induced by imports and exports on optimal tariffs. First, we solve a stylized 2x2 trade model of a large open economy and show that (a) productivity gains via exports and imports both reduce the strategically optimal tariff, (b) there exists a certain strength of productivity gains such that the incentive to manipulate the terms of trade strategically vanishes, (c) the welfare gain that can be achieved via a tariff is lower in the presence of productivity gains than in their absence, and (d) these results even hold without power on international markets. Second, we apply this model to a panel data set covering 40 countries, 29 sectors and the years 1995 to 2009. We find that importdriven productivity gains are stronger than export-driven productivity gains. Third, we extend our 2x2 model to a multi-region, multi-sector model that we calibrate to the data set used in the econometric analysis and to the econometrically estimated productivity gains. Optimal tariffs are reduced by 17% for the US and China and 40% for Brazil when taking trade-induced productivity gains into account. The USA are the only model region that gains from European optimal tariff policy. Thus, trade-induced productivity gains have empirically relevant effects on optimal tariffs. --
    Keywords: trade,optimal tariff,productivity gains,technology spillovers
    JEL: F12 F14 F17 O33 O40
    Date: 2013
  13. By: Thibaut Duprey (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper is a first attempt to connect the heterogeneity in bank efficiency with lending fluctuations and allocation efficiency: there is a trade-off between the two in the presence of heterogeneity in bank monitoring efficiency. The mechanism at hand is twofold. (a) First the rent extracted by the most efficient bank distorts incentives of entrepreneurs to undertake efforts. (b) Second banks specialising on contracts that do not include monitoring feature less cyclical fluctuations of aggregate lending. This has clear implications: (i) the presence of banking heterogeneity decreases firms' average productivity as it increases adverse selection by entrepreneurs as well as favours rent extractions by banks; (ii) an individual bank featuring a lower cyclicality signals a lower efficiency in its monitoring abilities; (iii) a heterogeneous banking system featuring a lower cyclicality of aggregate lending might not be desirable as it may come along with allocative and incentives distortions.
    Keywords: Banking heterogeneity ; Moral hazard ; Adverse selection ; Endogenous market segmentation ; Allocation efficiency ; Lending cycle
    Date: 2013–11
  14. By: Mikhail Mamonov (Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF); National Research University Higher School of Economics, Laboratory for Analysis and Forecast of Economic Pro-cesses, Center for Fundamental Studies. Senior Expert)
    Abstract: This paper investigates the relationship between operating cost efficiency and the loan quality of Rus-sian banks. It tries to answer the question whether it is always beneficial for banks to be highly cost effi-cient (the “bad management” hypothesis) or whether this higher cost efficiency could mean inadequate spending on borrower screening, which could subject banks to higher credit risk exposures in the future (the “skimping” hypothesis)? Our main result implies that, while the “bad management” hypothesis holds on average for the banking sector as a whole, the “skimping” hypothesis could be the case for those Russian banks that are not just highly cost efficient, as predicted by Berger and DeYoung (1997) for US banks, but that at the same time pursue aggressive strategies in the market for loans to house-holds and non-financial firms, especially during the pre-crisis periods when banks are too optimistic to pay increased attention to the quality of borrowers in order to extract higher profits in the short run. In-terestingly, we show that the “skimping” strategy is not the case for those Russian banks that demon-strate a lower equity-to-assets ratio and that are highly cost efficient at the same time because, as we be-lieve, higher financial leverage forces these banks to filter out low quality borrowers to be able to repay borrowed funds. From perspective of regulatory policy, these conclusions provide clear arguments in favor of differential prudential regulation in Russia, which could, if being implemented, positively affect the loan quality of both banks that are skimpers (through restricting loans growth by higher capital ade-quacy requirements and/or increased payments to the Russian Deposit Insurance Agency) and banks that are not (through eliminating incentives to grow too fast), thus improving the stability of the banking sector as a whole
    Keywords: Russian banks, credit risk, cost efficiency, skimping, bad management, stochastic fron-tier analysis, market power
    JEL: G21 G28 D22 D43 C23
    Date: 2013
  15. By: Daniel H. Weinberg
    Abstract: Firms rely heavily on their investments in human capital to achieve profits. This research takes advantage of detailed information on worker performance and confidential information on firm revenue and operating costs to investigate the relationship between talent migration and firm profitability in major league sports. One key problem that firms have is identifying performance measures for its workforce, especially for potential employees (recruits). In contrast to nearly all other industries, in the industry of professional team sports, detailed information about the past performance of each individual worker (athlete) is known to all potential employers. First, I demonstrate using public data that worker (athlete) statistics aggregated to the establishment (team) level correlate with success on the field (measured in win percentage). Second, I use confidential data from the 2007 Economic Censuses, and from the 2007 and 2008 Service Annual Surveys to investigate the link between individual worker performance and team profitability, controlling for many other aspects of the sports business, specifically taking account of the mobility of athletic “stars” and “superstars” from one team to another. The investigations in this paper provide support for the hypothesis that hiring talented individuals (stars) will increase a firm’s profit. However, there is not convincing support for the incremental benefit of hiring superstars. The mixed evidence suggests a benefit on balance.
    Date: 2013–11
  16. By: Maria Kokoreva (National Research University Higher School of Economics. Department of Finance, Corporate Finance Center); Anastasia Stepanova (National Research University Higher School of Economics. Department of Finance, Corporate Finance Center)
    Abstract: In this paper we study the performance effects of capital structure, ownership structure and corporate governance of Russian companies. To address the lack of research in corporate performance modeling in emerging markets we contribute to the literature by introducing a cluster analysis of the financial architecture and market performance of Russian companies. Our goal is to find out the most efficient and inefficient types of financial architecture in emerging markets. Using a sample of 52 of the largest Russian non-financial companies between 2005-2010 we demonstrate the existence of three sustainable types of financial architecture. Using cluster analysis we form clusters of companies in the pre-crisis period and then demonstrate the relationship between the type of financial architecture and the level of market performance
    Keywords: capital structure, ownership structure, emerging markets, performance
    JEL: G32 G34
    Date: 2013
  17. By: Svetlana Grigorieva (Svetlana Grigorieva, researcher, Corporate Finance Center, assistant professor, Department of Finance at National Research University Higher School of Economics, Moscow); Tatiana Petrunina (Tatiana Petrunina, junior researcher, Corporate Finance Center, National Research University Higher School of Economics, Moscow, Russia)
    Abstract: Researchers have long tried to define the impact of corporate mergers and acquisitions on company performance. We contribute to the existing literature by examining the influence of M&A deals on company value in the short-run using the event study method and in the long-run based on economic profit concept. Examining a sample of 80 deals initiated by companies from emerging capital markets over 2002-2009, we find that M&As are value-destroying deals for the combined firms. Results from the long-run analysis prove the negative industry-adjusted differences between post-acquisition and pre-acquisition performance measures. The difference is equal to a significant -3.3% for the EBITDA/Sales ratio. The Economic Profit approach demonstrates a similar result. Our findings from the short-run analysis indicate that the announcements of M&A deals generate significant high returns for target shareholders, while the returns to bidder shareholders are not significant. We also analyze the determinants of M&A performance, such as method of payment, business similarity, and the target’s country.
    Keywords: Mergers and Acquisitions, Value Creation, Economic Profit, Company Performance
    JEL: G34
    Date: 2013
  18. By: Peters, Bettina; Roberts, Mark J.; Vuong, Van Anh; Fryges, Helmut
    Abstract: Using firm-level data from the German manufacturing sector, we estimate a dynamic, structural model of the firm's decision to invest in R&D and quantify the cost and longrun benefit of this investment. The model incorporates and quantifies linkages between the firm's R&D investment, product and process innovations, and future productivity and profits. The dynamic model provides a natural measure of the long-run payoff to R&D as the difference in expected firm value generated by the R&D investment. For the median productivity firm, investment in R&D raises firm value by 3.0 percent in a group of hightech industries but only 0.2 percent in low-tech industries. Simulations of the model show that cost subsidies for R&D can significantly affect R&D investment rates and productivity changes in the high-tech industries. --
    Keywords: R&D demand,Innovation,Productivity,Dynamic structural model
    JEL: L60 O31 O32
    Date: 2013
  19. By: Berliant, Marcus; Weiss, Adam
    Abstract: We examine econometric and elementary economic theory issues arising from the model specification in Henderson, Storeygard and Weil (2012), that uses night light data to proxy for missing or unreliable GDP growth data. An alternative approach based on the expenditure function is outlined. It can accommodate prices as well as quantity information from other commodity markets.
    Keywords: GDP; Night light data; Omitted variable; Expenditure function; Spatial autocorrelation
    JEL: D11 D61 O47 O57
    Date: 2013–11–25
  20. By: Christian Winzer
    Abstract: In the EU, several governments have introduced or are contemplating a capacity mechanism to ensure adequate investment in generation capacity. Previous research has focused on the impacts of capacity mechanisms on installed capacity and cost to consumers in case of efficient regulation. By contrast we find that the choice between capacity mechanisms may be influenced by the extent of regulatory errors as well as whether the mechanisms evaluated from the perspective of consumer cost or from a welfare perspective.
    Keywords: Electricity Market Investment, Capacity Mechanism, Strategic Reserve, Reliability Contract, Capacity Payment,Regulatory Inefficiency
    Date: 2013–11–26

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