nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2015‒06‒13
fourteen papers chosen by

  1. Bayesian Approach to Disentangling Technical and Environmental Productivity By Malikov, Emir; Kumbhakar, Subal C.; Tsionas, Efthymios G.
  2. Linkages and Economic Development By Dominick Bartelme; Yuriy Gorodnichenko
  3. Multi-output Profit Efficiency and Directional Distance Functions By Laurens Cherchye; Bram De Rock; Barnabé Walheer
  4. Dynamics of innovation and efficiency in banking system: An application of SFA and meta-frontier method By Sanatkhani, Mahboobeh; Vasaf, Esmaeil
  5. Directed Technical Change and Capital Deepening: A Reconsideration of Kaldor’s Technical Progress Function By Schlicht, Ekkehart
  6. Foreign direct investment and firm performance: an empirical analysis of Italian firms By Alessandro Borin; Michele Mancini
  7. Multinationality, R&D and Productivity Evidence from the top R&D investors worldwide By Davide Castellani; Sandro Montresor; Torben Schubert; Antonio Vezzani
  8. A New Approach to Estimation of the R&D-Innovation-Productivity Relationship By Christopher F Baum; Hans Lööf; Pardis Nabavi; Andreas Stephan
  9. Firm productivity and infrastructure costs in east Africa By Iimi,Atsushi; Humphrey,Richard Martin; Melibaeva,Sevara
  10. On the relationship between energy consumption, productivity and economic growth: Evidence from Algeria, Ghana, Nigeria and South Africa By Ackah, Ishmael
  11. Communal Land and Agricultural Productivity By Charles Gottlieb; Jan Grobovšek
  12. The Effect of Board Directors from Countries with Different Genetic Diversity Levels on Corporate Performance By Delis, Manthos; Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios
  13. Are public and private R&D investments complements or substitutes? By Bohnstedt, Anna
  14. Homothetic efficiency: A non-parametric approach By Heufer, Jan; Hjertstrand, Per

  1. By: Malikov, Emir; Kumbhakar, Subal C.; Tsionas, Efthymios G.
    Abstract: This paper models the firm's production process as a system of simultaneous technologies for desirable and undesirable outputs. Desirable outputs are produced by transforming inputs via the conventional transformation function, whereas (consistent with the material balance condition) undesirable outputs are by-produced via the so-called "residual generation technology". By separating the production of undesirable outputs from that of desirable outputs, not only do we ensure that undesirable outputs are not modeled as inputs and thus satisfy costly disposability, but we are also able to differentiate between the traditional (desirable-output-oriented) technical productivity and the undesirable-output-oriented environmental, or so-called "green", productivity. To measure the latter, we derive a Solow-type Divisia environmental productivity index which, unlike conventional productivity indices, allows crediting the ceteris paribus reduction in undesirable outputs. Our index also provides a meaningful way to decompose environmental productivity into environmental technological and efficiency changes.
    Keywords: bad output, by-production, efficiency, MCMC, productivity
    JEL: C11 C30 C43 D24
    Date: 2015
  2. By: Dominick Bartelme; Yuriy Gorodnichenko
    Abstract: Specialization is a powerful source of productivity gains, but how production networks at the industry level are related to aggregate productivity in the data is an open question. We construct a database of input-output tables covering a broad spectrum of countries and times, develop a theoretical framework to derive an econometric specification, and document a strong and robust relationship between the strength of industry linkages and aggregate productivity. We then calibrate a multisector neoclassical model and use alternative identification assumptions to extract an industry-level measure of distortions in intermediate input choices. We compute the aggregate losses from these distortions for each country in our sample and find that they are quantitatively consistent with the relationship between industry linkages and aggregate productivity in the data. Our estimates imply that the TFP gains from eliminating these distortions are modest but significant, averaging roughly 10% for middle and low income countries.
    JEL: C67 O11 O47
    Date: 2015–06
  3. By: Laurens Cherchye; Bram De Rock; Barnabé Walheer
    Date: 2014–11
  4. By: Sanatkhani, Mahboobeh; Vasaf, Esmaeil
    Abstract: Abstract One of the most important problems in innovation arguments is how to identify and measure innovation. In industry sector, the available measurements to identify innovation activities are number of patents, R&D expenditure and share of R&D workers. Unfortunately these measurements for service sector especially financial sector are problematic and not readily available. This paper, following Bos et al. (2009), proposes changes of Technology Gap Ratio (TGR) as innovation activity in banking system and investigates it for the US commercial banks in years 2000-2013. For this purpose, at first step, the annual cost frontier functions (as representative of technology set for each year) are estimated by applying Stochastic Frontier Analysis (SFA). Consequently, the efficiency scores for each year are calculated for banks which operate under the same frontier functions. Then, the meta-frontier analysis is employed to estimate the potentially available cost function for the whole period. In next step, the TGR which indicates the relative distance of annual cost frontier function to the most efficient cost function (meta-frontier cost function) for the whole period is calculated. Finally, changes of TGR as a proxy of financial innovation during the time are illustrated by proper Salter curves. Results show that the average of TGR for the period 2000 to 2011 was associated with 2.88% annual growth rate. In other words, commercial banks in this period demonstrated an increasing level of innovation in their activities including financial products and services. In contrast, the results show that in last two years (2012 and 2013) this ratio had a considerable reduction, even less than the initial year. Thus, it seems that they have been less involved in innovation activities during the recent years.
    Keywords: Technology Gap Ratio (TGR), Stochastic Frontier Analysis (SFA), Meta-frontier cost function, banking system, Efficiency.
    JEL: G21
    Date: 2014–10–29
  5. By: Schlicht, Ekkehart
    Abstract: This note proposes a growth model that is derived from the standard Solow growth model by replacing the neoclassical production function with Kaldor’s technical progress function while maintaining a marginalist theory of factor prices in the spirit suggested by von Weizsäcker (1966, 1966b). The hybrid model so obtained accounts for balanced growth in a way that appears less arbitrary than the Solow model, especially because it directly accounts for Harrod neutral technical change, without any need for further assumptions.
    Keywords: directed technical change; directed technological change; bias in innovation; technical progress function; neoclassical production function; Harrod neutrality; Hicks neutrality; Cambridge theory of distribution; marginal productivity theory; Kaldor; Kennedy; von Weizsäcker; Solow model
    JEL: O30 O40 E12 E13 E25 B59 B31
    Date: 2015–06–19
  6. By: Alessandro Borin (Bank of Italy); Michele Mancini (Bank of Italy)
    Abstract: Both empirical and theoretical literature show that multinational firms exhibit a competitive advantage before investing abroad. However, there are no clear empirical results regarding the ex-post effects of foreign direct investment (FDI) on firm performance, partially due to the inadequacy of available firm-level data. We build a brand new firm-level dataset able both to represent the extent of Italian firms' foreign activity and to provide reliable measures of key performance indicators, especially total factor productivity (TFP) and employment. We then use a propensity score matching procedure to analyze the causal relationship between FDI and firm performance. Firms investing abroad for the very first time, especially in advanced economies, show higher productivity and employment dynamics in the years following the investment: the average positive effect on TFP is driven by new multinationals operating in specialized and high-tech sectors, while the positive employment gains are explained by an increase of the white collar component. On average there are no negative effects on the parent firm's blue collar component.
    Keywords: multinational firms, FDI, productivity, propensity score matching
    JEL: F23 C25 D24
    Date: 2015–06
  7. By: Davide Castellani (University of Perugia); Sandro Montresor (Kore University of Enna); Torben Schubert (Fraunhofer Institute); Antonio Vezzani (European Commission JRC-IPTS)
    Abstract: The paper investigates the impact that the multinational scope of firms' activities can have on their productivity. First, we argue that such an impact is both direct and indirect, and that the latter is channelled through higher incentives to invest in R&D. Second, we posit that the composition of these direct and indirect effects is different if multinationality is measured at the intensive margin (higher share of multinational on total activities) rather than at the extensive margin (greater geographical dispersion of multinational activities). Using a large sample of top R&D investors in the world, we propose an econometric model based on an R&D and a productivity equation, which are both allowed to depend on multinationality. With this model we can disentangle the direct and indirect effects of multinationality on productivity appropriately. We find: i) a positive direct impact of multinational intensity on productivity, while the geographical dispersion of multinationality is negatively correlated with productivity; ii) multinationality (along both dimensions) has a positive indirect impact through higher investments in R&D; iii) this positive indirect effect is however not large enough to compensate the negative direct one at the extensive margin. Results are largely consistent with a theoretical approach that combines transaction cost theory with an economic analysis of how incentives to invest in R&D depend on multinationality.
    Keywords: Multinationality; R&D; Productivity; Europe
    JEL: F23 O32
    Date: 2015
  8. By: Christopher F Baum (Boston College; DIW Berlin); Hans Lööf (Royal Institute of Technology, Stockholm); Pardis Nabavi (Royal Institute of Technology, Stockholm); Andreas Stephan (Jönkoping International Business School)
    Abstract: We evaluate a Generalized Structural Equation Model (GSEM) approach to the estimation of the relationship between R&D, innovation and productivity that focuses on the potentially crucial heterogeneity across technology and knowledge levels. The model accounts for selectivity and handles the endogeneity of this relationship in a recursive framework. Employing a panel of Swedish firms observed in three consecutive Community Innovation Surveys, our maximum likelihood estimates show that many key channels of inuence among the model's components differ meaningfully in their statistical significance and magnitude across sectors defined by different technology levels.
    Keywords: R&D, Innovation, Productivity, Generalized Structural Equation Model, Community Innovation Survey
    JEL: C23 L6 O32 O52
    Date: 2015–05–29
  9. By: Iimi,Atsushi; Humphrey,Richard Martin; Melibaeva,Sevara
    Abstract: Infrastructure is an important driving force for economic growth. It reduces trade and transaction costs and stimulates the productivity of the economy. Africa has been lagging behind in the global manufacturing market. Among others, infrastructure is an important constraint in many African countries. Using firm-level data for East Africa, the paper reexamines the relationship between firm performance and infrastructure. It is shown that labor costs are by far the most important to stimulate firm production. Among the infrastructure sectors, electricity costs have the highest output elasticity, followed by transport costs. In addition, the paper shows that the quality of infrastructure is important to increase firm production. In particular, quality transport infrastructure seems to be essential. The paper also finds that agglomeration economies can reduce firm costs. The agglomeration elasticity is estimated at 0.03?0.04.
    Keywords: Transport Economics Policy&Planning,E-Business,Energy Production and Transportation,Economic Theory&Research,Infrastructure Economics
    Date: 2015–05–29
  10. By: Ackah, Ishmael
    Abstract: It has been suggested that Africa’s growth is principally driven by natural resource rents. This is at variance with the growth in countries such as Korea and Taiwan where productivity has been identified as the main driver. In this study, the effect of energy consumption, investment, productivity on per capita growth in oil producing African countries is examined by employing a dynamic simultaneous panel data model. The simultaneous panel data model is able to examine the three-way causal relationship between energy consumption, productivity and economic growth. The results confirm the importance of income, productivity, price and investment influence the demand for renewable end non-renewable energy. The study recommends that there should be investment in productivity to enhance economic growth and minimize energy consumption.
    Keywords: Total Factor Productivity, Renewable Energy Consumption, Non-Renewable Energy Consumption, Economic Growth
    JEL: Q2 Q41 Q43
    Date: 2015–05–11
  11. By: Charles Gottlieb (University of Cambridge; Centre for Macroeconomics (CFM)); Jan Grobovšek (School of Economics University of Edinburgh)
    Abstract: Communal land tenure regimes are perceived as an obstacle to agricultural productivity in Sub-Saharan Africa. Our general equilibrium selection model suggests that such land tenure arrangements can indeed lower nominal productivity in agriculture relative to non-agriculture, by some 25%. Real agricultural productivity, employment and GDP, however, are only marginally affected. Highly distortionary policies need not have substantial bite when individuals strategically respond and cross-sectoral terms of trade adjust strongly. Our model, calibrated to Ethiopia, predicts that at given prices 62% of farmers would leave farming if tenure were secured, yet only 9% actually switch sectors after factoring in price adjustments.
    Keywords: Agricultural Productivity, Growth and Development, Misallocation, Land
    JEL: O10 O13 O40 O55 Q15
    Date: 2015–06
  12. By: Delis, Manthos; Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios
    Abstract: We link genetic diversity in the country of origin of firms’ board members with corporate performance via board members’ nationality. We hypothesize that our approach captures deep-rooted differences in cultural, institutional, social, psychological, physiological, and other traits that cannot be captured by other recently measured indices of diversity. Using a panel of firms listed in the North American and U.K. stock markets, we find that adding board directors from countries with different levels of genetic diversity (either higher or lower) increases firm performance. This effect prevails when we control for a number of cultural, institutional, firm-level, and board member characteristics, as well as for the nationality of the board of directors. To identify the relationship, we use as instrumental variables for our diversity indices the migratory distance from East Africa and the level of ultraviolet exposure in the directors’ country of nationality.
    Keywords: Genetic diversity; corporate performance; nationality of board members
    JEL: G0 G00 G30 M21
    Date: 2015–06–01
  13. By: Bohnstedt, Anna
    Abstract: We develop a general equilibrium model with heterogeneous firms à la Melitz (2003), where both the government and firms can invest into R&D to improve the country's technological potential. A higher technological potential raises the average productivity of firms, thus implying lower consumer prices, and eventually leads to a welfare gain. The government's public and firms' private investments are modelled in a three-stage game, in which the government in the first stage invests into a basic research level, and then firms conduct private R&D building on this publicly provided 'technology' in the second stage. We find that private R&D investments are hump-shaped with respect to the basic research level. For lower levels public and private investments are complements, while for higher levels they are substitutes.
    Abstract: Der Artikel untersucht in einem allgemeinen Gleichgewichtsmodell den Zusammenhang zwischen öffentlichen und privaten Investitionen in Forschung und Entwicklung. Öffentliche Investitionen des Staates sowie private Investitionen von Firmen verbessern gemeinsam die durchschnittliche Produktivität der Firmen. Die höhere durchschnittliche Produktivität führt zu sinkenden Konsumentenpreisen und daraus resultierend zu Wohlfahrtsgewinnen. In einem dreistufigen Spiel investiert in der ersten Stufe der Staat in eine zugrunde liegende 'Technologie'. In der zweiten Stufe treffen Firmen ihre Investitionsentscheidung, basierend auf den öffentlichen Investitionen und der bereitgestellten Technologie. Für die Beziehung zwischen öffentlichen und privaten Investitionen in Forschung und Entwicklung finden wir einen umgekehrt u?förmigen Zusammenhang. Für öffentliche Investitionen unterhalb eines bestimmten Schwellenwertes besteht ein komplementärer Zusammenhang, während bei öffentlichen Investitionen, die diesen Schwellenwert überschreiten, ein substitutiver Zusammenhang zwischen öffentlichen und privaten Investitionen existiert.
    Keywords: heterogeneous firms,public and private R&D investments,basic research,innovation
    JEL: O3 H4
    Date: 2014
  14. By: Heufer, Jan; Hjertstrand, Per
    Abstract: This article provides a robust non-parametric approach to demand analysis based on a concept called homothetic efficiency. Homotheticity is a useful restriction or assumption but data rarely satisfy testable conditions. To overcome this problem, this article provides a way to estimate homothetic efficiency of consumption choices by consumers. The basic efficiency index suggested is similar to Afriat's (1972) efficiency index and Varian's (1993) violation index. It generalises Heufer's (2013b) two-dimensional concept to arbitrary dimensions and is motivated by a form of rationalisation similar to the one proposed by Halevy et al. (2012). The method allows to construct scalar factors which can be used to construct revealed preferred and worse sets. The approach also provides considerably more discriminatory power against irrational behaviour than standard utility maximisation. An application to experimental and household expenditure data illustrates how the method allows to recover preferences and increase test power.
    Abstract: Dieser Artikel stellt einen robusten nicht-parametrischen Ansatz für die Analyse von Nachfragedaten vor, der auf einem Konzept namens homothetische Effizienz basiert. Homothetie ist eine nützliche Annahme, aber reale Daten genügen den Testbedinungen nur selten. Um dieses Problem zu beheben, stellt dieser Artikel einen Ansatz zur Schätzung der homothetischen Effizienz von Konsumenentscheidungen vor. Der Effizienzindex weist Ähnlichkeiten zu Afriats (1972) Effizienzindex und Varians (1993) Verletzungsindex auf. Er verallgemeinert Heufers (2013) zwei-dimensionales Konzept für beliebige Dimensionen. Die Motivation für den Index folgt aus einer annährenden Abbildbarkeit durch Nutzenfunktionen, die Ähnlichkeiten zu einer Idee von Haley et al. (2012) aufweist. Die Methode erlaubt es, Skalarfaktoren zu bestimmen, welche zur Rekonstruktion von Besser- und Schlechtermengen verwendet werden kann. Der Ansatz erhöht außerdem die Teststärke gegen die alternative Hypothese von Zufallsverhalten deutlich. Eine Anwendung auf experimentelle Daten und Haushalts-Panel-Daten illustriert die Methode und zeigt deren Stärken auf.
    Keywords: demand theory,efficiency,experimental economics,homotheticity,non-parametric analysis,revealed preference,utility maximisation
    JEL: C14 D11 D12
    Date: 2014

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.