New Economics Papers
on Efficiency and Productivity
Issue of 2014‒07‒28
sixteen papers chosen by

  1. Does Islamic Banking Development Favour Macroeconomic Efficiency? Evidence on the Islamic Finance – Growth Nexus By Laurent Gheeraert; Laurent Weill
  2. Skilled Immigrants' Contribution to Productive Efficiency By Nahm, Daehoon; Tani, Massimiliano
  3. A Poisson Stochastic Frontier Model with Finite Mixture Structure By Drivas, Kyriakos; Economidou, Claire; Tsionas, Efthymios G.
  4. Entrepreneurship Capital and Regional Productivity Revisited By Massón-Guerra, José Luis; Ortín-Angel, Pedro
  5. Non-Farm Enterprise Productivity and Spatial Autocorrelation in Rural Africa: Evidence from Ethiopia and Nigeria By Owoo, Nkechi S.; Naudé, Wim
  6. Legal Corruption, Politically Connected Corporate Governance and Firm Performance By Domadenik, Polona; Prašnikar, Janez; Svejnar, Jan
  7. Do Personality Traits Affect Productivity? Evidence from the Lab By Cubel, Maria; Nuevo-Chiquero, Ana; Sanchez-Pages, Santiago; Vidal-Fernández, Marian
  8. Operating Performance of Banks after Acquisition: Evidence from India By Satsangi Malhotra, Madhuri; Bhartiya, Anand
  9. Organizational form and efficiency of franchise chains By Isabelle Piot-Lepetit; Rozenn Perrigot; Gérard Cliquet
  10. FDI Spillovers and Multinational Firm Heterogeneity By K. LENAERTS; B. MERLEVEDE
  11. Saving Rate, Total Factor Productivity and Growth Process for Developing Countries By Cuong Le Van; Tu Anh Nguyen; Tran Dinh Tuan
  12. Does private tutoring increase students’ academic performance? Evidence from Turkey By Giray Berberoglu; Aysit Tansel
  13. The impact of bank capital on profitability and risk in GCC countries: Islamic vs. Conventional By Ibrahim Fatnassi; Habib Hasnaoui; Zied Ftiti
  14. Measuring the Performance of Banks: Theory, Practice, Evidence, and Some Policy Implications By Joseph P. Hughes; Loretta J. Mester
  15. Endogenous Network Production Functions with Selectivity By William C. Horrace; Xiaodong Liu; Eleonora Patacchini
  16. A Laplace Stochastic Frontier Model By William C. Horrace; Christopher F. Parmeter

  1. By: Laurent Gheeraert (Université Libre de Bruxelles); Laurent Weill (LaRGE Research Center, Université de Strasbourg)
    Abstract: This study evaluates whether the development of Islamic banking influences macroeconomic efficiency. Thus, we contribute to the analysis of the relation between Islamic finance and economic growth by applying the stochastic frontier approach to estimate technical efficiency at the country level for a sample of 70 countries. We use a unique hand-collected database that covers Islamic banks worldwide over the period 2000-2005, finding evidence that Islamic banking development favours macroeconomic efficiency. Furthermore, we have support for a non-linear relation with efficiency for Islamic banking development, which is measured by credit or by deposits. Although increasing the development of Islamic banking enhances efficiency up to a certain point, the expansion of Islamic banking becomes detrimental for efficiency beyond this point.
    Keywords: Islamic finance, financial development, aggregate productivity, efficiency, economic growth
    JEL: G21 O16 O47
    Date: 2014
  2. By: Nahm, Daehoon (Macquarie University, Sydney); Tani, Massimiliano (IZA)
    Abstract: This paper studies whether skilled migrants contribute to the host country's 'productive efficiency' (Farrell, 1957) using input-output and immigration sectoral data for seven industries in twelve countries during the period 1999-2001. We find that skilled migrants contribute positively to a country's productive efficiency with the exception of the finance sector. The results broadly support the adoption of skill-biased migration policies.
    Keywords: highly skilled migration, human capital, productive efficiency
    JEL: D24 F2 J6 J24
    Date: 2014–07
  3. By: Drivas, Kyriakos; Economidou, Claire; Tsionas, Efthymios G.
    Abstract: Standard stochastic frontier models estimate log-linear specifications of production technology, represented mostly by production, cost, profit, revenue, and distance frontiers. We develop a methodology for stochastic frontier models of count data allowing for technological and inefficiency induced heterogeneity in the data and endogenous regressors. We derive the corresponding log-likelihood function and conditional mean of inefficiency to estimate technology regime-specific inefficiency. We further provide empirical evidence that demonstrates the applicability of the proposed model.
    Keywords: efficiency, Poisson stochastic frontier, mixture, innovation, states
    JEL: C13 C24 C33 C51
    Date: 2014–07–20
  4. By: Massón-Guerra, José Luis; Ortín-Angel, Pedro
    Abstract: Entrepreneurship capital has been considered in the literature to be a public good, so it will positively affect a region’s total factor productivity. There is evidence confirming a positive relationship between entrepreneurship capital measures and regional production. This paper argues that the number of firms in a region will be positively related with the regional production in the presence of decreasing returns to scale in firms’ production technology. So if we do not control for the number of firms (and entrepreneurship capital is positively related with the stock of firms) we may be mixing both effects, returns to scale and public goods. This paper provides a methodological benchmark for distinguishing between both effects. The analysis conducted using a sample of 52 Spanish provinces for eleven years suggests major differences and conclusions between methodologies. In our data, previous methods overestimate the effect of regional entrepreneurship capital on the economy.
    Keywords: Entrepreneurship Capital, Regional Productivity, Scale Economies
    JEL: L26 O4 R11
    Date: 2014
  5. By: Owoo, Nkechi S. (University of Ghana); Naudé, Wim (Maastricht University)
    Abstract: The productivity of non-farm enterprises in rural Africa may be associated with the productivity of other spatially proximate farm and non-farm enterprises. To test for the presence and significance of such spatial autocorrelation we use data from the geo-referenced 2011 Ethiopian Rural Socioeconomic Survey (ERSS) and the 2010/2011 Nigeria General Household Survey (NGHS). We find evidence of significant spatial autocorrelation. Productivity of non-farm enterprises is widely dispersed across space in both countries. In Ethiopia rural non-farm enterprises are more productive in locations where farms are less productive. In Nigeria, we find evidence for spatial autocorrelation at the individual enterprise level but not at the community level, once we control for location variables. Hence, taking spatial autocorrelation into account using spatial lag and spatial error models, we find education, age, size of the household, religious affiliation and community infrastructure are significant determinants of the labour productivity of non-farm enterprises in Ethiopia and Nigeria. This is the first time, to the best of our knowledge, that the productivity of rural non-farm enterprises in Africa has been studied in this way.
    Keywords: entrepreneurship, Africa, rural development, agriculture, spatial autocorrelation, Ethiopia, Nigeria
    JEL: L26 C21 M13 O55
    Date: 2014–06
  6. By: Domadenik, Polona (University of Ljubljana); Prašnikar, Janez (University of Ljubljana); Svejnar, Jan (Columbia University)
    Abstract: In this paper we present and test a theory of how political corruption, found in many transition and emerging market economies, affects corporate governance and productive efficiency of firms. Our model predicts that underdeveloped democratic institutions that do not punish political corruption result in political connectedness of firms that in turn has a negative effect on performance. We test this prediction on an almost complete population of Slovenian joint stock companies with 100 or more employees. Using the supervisory board structure, together with balance sheet and income statement data for 2000-2010, we show that a higher share of politically connected supervisory board members leads to lower productivity.
    Keywords: corruption, corporate governance, productivity, politicians, state owned enterprises
    JEL: D2 D21 D73 G34 L32
    Date: 2014–07
  7. By: Cubel, Maria (University of Barcelona); Nuevo-Chiquero, Ana (University of Sheffield); Sanchez-Pages, Santiago (University of Barcelona); Vidal-Fernández, Marian (University of New South Wales)
    Abstract: While survey data supports a strong relationship between personality and labor market outcomes, the exact mechanisms behind this association remain unexplored. In this paper, we take advantage of a controlled laboratory set-up to test whether this relationship operates through productivity, and isolate this mechanism from other channels such as bargaining ability or self-selection into jobs. Using a gender neutral real-effort task, we analyse the impact of the Big Five personality traits on performance. We find that more neurotic subjects perform worse, and that more conscientious individuals perform better. These findings are in line with previous survey studies and suggest that at least part of the effect of personality on labor market outcomes operates through productivity. In addition, we find evidence that gender and university major affect the impact of the Big Five personality traits on performance.
    Keywords: Big-Five, personality traits, experiment, labour productivity, performance
    JEL: C91 D03 J3 M5
    Date: 2014–07
  8. By: Satsangi Malhotra, Madhuri; Bhartiya, Anand
    Abstract: The study examines the performance of banks after acquisition. Operating profits have been analyzed for Indian Private and Public sector banks The results from the analysis of Pre and post-merger operating performance ratios for the acquiring banks show that operating profit margins were increased in post merger period and there was a marginal decline in return on net worth and capital employed. The sample consists of 16 banks. Data from Prowess database has been collected for three years before and after the acquisition has taken place. The results show that most of the banks had performed well in post merger period. The profitability margin such as gross profit margin, net profit margins are very high in the post merger period which signifies that after acquiring the target bank their performance was well appraised. The returns on investment and capital employed were increased after acquisition. Some of the Indian public sector banks showed a decline in the post merger period which may be attributed to the inefficiency and the increase of Non Performing Assets (NPAs) with the target banks. Private sector banks have shown a rising trend in the profit margins after the acquisition.
    Keywords: Operating performance, Banks, Merger, Acquisition
    JEL: L24
    Date: 2014–07–21
  9. By: Isabelle Piot-Lepetit (Marchés, Organisations, Institutions et Stratégies d'Acteurs, INRA); Rozenn Perrigot (Graduate School of Management, Université Rennes 1; Ecole Supérieure de Commerce de Rennes; Center for Research in Economics and Management, Université Rennes 1); Gérard Cliquet (Graduate School of Management, Université Rennes 1; Center for Research in Economics and Management, Université Rennes 1)
    Abstract: The purpose of this paper is to develop a new model allowing the implementation of a benchmarking process that jointly measure the efficiency of franchise chains and determine their optimal organizational form. The methodology is based on a non-econometric technique developed by management scientists on economic concepts for evaluating the performance of decision-making units and implementing a benchmarking process. An extended model is developed in the paper for evaluating the efficiency and determining the optimal percentage of company-owned outlets (PCO) of each franchise chain. First, results showed that the PCO has a positive impact on franchise chain efficiency; even if other chain characteristics have a larger impact. Second, the optimization of the PCO allows for additional improvements in efficiency. Even though this study has some limitations (e.g. sample and variable selection), it contributes to the literature on franchising by providing an approach allowing us to answer to the question of Shane (1998) on the optimal proportion of franchised units given other firm characteristics. By developing a model that allows for the joint evaluation of franchise chain efficiency and optimal PCO, this study offers to franchisors a new benchmarking process allowing for both a competitive and functional benchmarking. The originality of this research can be found in the new model developed for allowing a benchmarking of franchise chains that allows an evaluation of efficiency jointly with a determination of their optimal organizational form.
    Keywords: data envelopment analysis, efficiency, franchising, percentage of company-owned outlets, pco, performance, plural form, organisation, franchise, analyse comparativeperformance
    Date: 2014
    Abstract: Theoretical work implies that more investment promotion will attract less productive foreign firms. We analyze to what extent less productive foreign firms are capable of generating positive spillover effects. We find that only sufficiently productive foreign firms generate positive backward spillover effects. When we combine foreign and domestic firm heterogeneity, more productive multinationals, and especially those that are more than two standard deviations more productive than an individual domestic firm, are found to be the main source of positive backward spillover effects for the latter. More productive domestic firms benefit from larger positive effects. Supplying less productive multinationals results in negative spillover effects. Lower productivity levels of domestic and foreign firms generally lead to a more negative impact. If investment promotion aims at technology transfer to domestic firms, policy makers should be aware that attracting additional foreign investment might result in zero or negative spillover effects.
    Keywords: FDI spillovers, multinationals, firm heterogeneity, technology transfer
    JEL: F23
    Date: 2014–04
  11. By: Cuong Le Van; Tu Anh Nguyen; Tran Dinh Tuan
    Abstract: The Solow [1957] implies that the TFP is the core factor of economic growth. If the economy bases merely on capital accumulation without technological progress, the diminishing returns on capital accumulation will eventually de- presses economic growth to zero. Accordingly, Solowian supporters attribute the miracle economic growths in Newly Industrialized Economies (NIEs) in sec- ond half of 20th century to adoption of technologies previously developed by more advanced economies. Pack [1992] suggests "the source of growth in a few Asian economies was their ability to extract relevant technological knowledge from industrial economies and utilize it productively within domestic economy".
    Date: 2014–07–15
  12. By: Giray Berberoglu (Department of Secondary Mathematics and Science Education, METU); Aysit Tansel (Department of Economics, METU; Institute for the Study of Labor (IZA) Bonn, Germany; Economic Research Forum (ERF) Cairo, Egypt)
    Abstract: This paper investigates the effectiveness of private tutoring in Turkey. The authors introduce their study by providing some background information on the two major national examinations and three different kinds of tutoring. They then describe how they aimed to analyse whether attending private tutoring centres (PTCs) enhances Turkish students’ academic performance. By way of multiple linear regression analysis, their study sought to evaluate whether the impact of private tutoring varies in different subject areas, taking into account several student-related characteristics such as family and academic backgrounds as well as interest in and perception of academic success. In terms of subject areas, the results indicate that while private tutoring does have a positive impact on academic performance in mathematics and Turkish language, this is not the case in natural sciences. However, as evidenced by the effect sizes, these impacts are rather small compared to the impacts of other variables such as interest in and perception of academic success, high school graduation fields of study, high school cumulative grade point average (CGPA), parental education and students’ sociocultural background. While the authors point out that more research on the impact of further important variables needs to be done, their view is that school seems to be an important factor for determining students’ academic performance.
    Keywords: Private tutoring, Academic Performance, Regression analysis, Turkey.
    JEL: I20 I21 I22
    Date: 2014–07
  13. By: Ibrahim Fatnassi; Habib Hasnaoui; Zied Ftiti
    Abstract: This paper analyzes the impact of capital on profitability and risk for Islamic and conventional Gulf Cooperation Council (GCC) banks, through the structure-conduct-performance, moral hazard, and regulatory hypotheses. We apply the generalized method of moments (GMM) technique for dynamic panels, using bank-level data for 113 banks over the period 2003–2011. First, we find that both highly capitalized Islamic banks and highly capitalized conventional banks generate low returns. Second, higher-capitalized GCC banks (Islamic and conventional) are found to be more risky. Third, all profitability and risk variables show persistence. Finally, we arrive at the same conclusions about the capital, profitability, and risk relationship during the subprime crisis and with the introduction of regulatory variables.
    Keywords: Bank capital; Profitability; Risk; Dynamic panel;
    JEL: G21 C23 E52
    Date: 2014–07–15
  14. By: Joseph P. Hughes (Rutgers University); Loretta J. Mester (Federal Reserve Bank of Philadelphia)
    Abstract: The unique capital structure of commercial banking – funding production with demandable debt that participates in the economy’s payments system – affects various aspects of banking. It shapes banks’ comparative advantage in providing financial products and services to informationally opaque customers, their ability to diversify credit and liquidity risk, and how they are regulated, including the need to obtain a charter to operate and explicit and implicit federal guarantees of bank liabilities to reduce the probability of bank runs. These aspects of banking affect a bank’s choice of risk vs. expected return, which, in turn, affects bank performance. Banks have an incentive to reduce risk to protect the valuable charter from episodes of financial distress and they also have an incentive to increase risk to exploit the cost-of-funds subsidy of mispriced deposit insurance. These are contrasting incentives tied to bank size. Measuring the performance of banks and its relationship to size requires untangling cost and profit from decisions about risk versus expected-return because both cost and profit are functions of endogenous risk-taking. This chapter gives an overview of two general empirical approaches to measuring bank performance and discusses some of the applications of these approaches found in the literature. One application explains how better diversification available at a larger scale of operations generates scale economies that are obscured by higher levels of risk-taking. Studies of banking cost that ignore endogenous risk-taking find little evidence of scale economies at the largest banks while those that control for this risk-taking find large scale economies at the largest banks – evidence with important implications for regulation.
    Keywords: efficiency
    JEL: G1
    Date: 2013–08–01
  15. By: William C. Horrace (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244-1020); Xiaodong Liu (University of Colorado Boulder); Eleonora Patacchini (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244-1020)
    Abstract: We consider a production function model that transforms worker inputs into outputs through peer effect networks. The distinguishing features of this production model are that the network is formal and observable through worker scheduling, and selection into the network is done by a manager. We discuss identification and suggest a variety of estimation techniques. In particular, we tackle endogeneity issues arising from selection into groups and exposure to common group factors by employing a polychotomous Heckman-type selection correction. We illustrate our method using data from the Syracuse University Men’s Basketball team, where at any point in time the coach selects a lineup and the players interact strategically to win games.
    Keywords: Stochastic Frontier Model, Spatial Autoregressive Model, Peer Effects, Endogenous Network Formation, Selectivity
    JEL: C31 C44 D24
    Date: 2014–05
  16. By: William C. Horrace (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244-1020); Christopher F. Parmeter (Department of Economics, University of Miami)
    Abstract: We propose a Laplace stochastic frontier model as an alternative to the traditional model with normal errors. An interesting feature of the Laplace model is that the distribution of inefficiency conditional on the composed error is constant for positive values of the composed error, but varies for negative values. Therefore, it may be ideally suited for analyzing industries with many forms on or close to the efficient frontier. A simulation study suggests that the model performs well relative to the normal-exponential model when the two-sided error is misspecified. A brief application to US Airlines is provided.
    Keywords: Stochastic frontier, efficient estimation
    JEL: C12 C16 C44 D24
    Date: 2014–04

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