nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2015‒10‒10
seventeen papers chosen by

  1. Rail Efficiency: Cost Research and its Implications for Policy By Andrew S.J. Smith; Christopher NASH
  2. Environmental investment and firm performance: A network approach By Bostian, Moriah; Färe, Rolf; Grosskopf, Shawna; Lundgren, Tommy
  3. Intangible Investment and Technical Efficiency: The Case of Software-Intensive Manufacturing Firms in Turkey By Derya Findik; Aysit Tansel
  4. On measuring the contribution from firm turnover to aggregate productivity growth. Selection on profitability and not productivity By Thomas von Brasch
  5. Sustaining Micro Competitiveness to Ensure Convergence and Macro Resilience of the Polish Economy By Albinowski, Maciej; Hagemejer, Jan; Lovo, Stefania; Varela, Gonzalo
  6. Intangible Assets and Firm-Level Productivity Growth in the U.S. and Japan By MIHO TAKIZAWA
  7. Understanding the productivity slowdown. The importance of entry and exit of workers By Thomas von Brasch; Ådne Cappelen; Diana-Cristina Iancu
  8. Regional innovation system (in)efficiency and its determinants: an empirical evidence from Italian regions By Barra, Cristian; Zotti, Roberto
  9. Corporate Size–Performance Relation across Countries and Industries: Findings from the European Union By Julia Koralun-Bereznicka
  10. Explaining (in)efficiency in higher education: a comparison of parametric and non-parametric analyses to rank universities By Barra, Cristian; Lagravinese, Raffaele; Zotti, Roberto
  11. Research Productivity in Management Schools of India: A Directional Benefit-of-Doubt Model Analysis By Sahoo, Biresh; Singh, Ramadhar; Mishra, Bineet; Sankaran, Krithiga
  12. GermanyWhat is Rail Efficiency and How Can it Be Changed? By Louis S. Thompson; Heiner Bente
  13. Do Capital Requirements Affect Cost of Intermediation? Evidence from a Panel of South African Banks By Andrew Maredza
  14. Efficiency in Railway Operations and Infrastructure Management By Dejan Makovsek; Vincent Benezech; Stephen Perkins
  15. Identification and Estimation of Production Function with Unobserved Heterogeneity By Paul Schrimpf; Michio Suzuki; Hiroyuki Kasahara
  16. Public Transport Provision in Rural and Sparsely Populated Areas in Norway By Merethe Dotterud Leiren; Kare Skollerud
  17. Macro-economic factors influence on South African SMME business performance By Janine Kruger; Rootman Chantal; Shelley Saunders

  1. By: Andrew S.J. Smith; Christopher NASH
    Abstract: In this paper we first consider alternative measures of efficiency. We explain why simple partial productivity measures are inadequate as the basis of overall measures of efficiency, and outline two alternative approaches. The first is technical efficiency – the degree to which output is maximised for a given level of inputs (or conversely inputs are minimised for a given output) – and the second is cost efficiency, the degree to which costs are minimised for a given level of output. Cost efficiency implies technical efficiency but also allocative efficiency – choosing a cost minimising mix of inputs. We explain why we prefer to measure cost efficiency, both in terms of what governments and regulators are interested in and in terms of practical data problems. We then examine applications of cost function analysis to two areas. The first is rail privatisation in Britain. British experience has seen a large increase in traffic, but also a similar increase in costs. We review attempts to understand and explain both the increase in passenger train operating cost and infrastructure cost using cost function analysis. The second is European rail reform. Countries in Europe have adopted a wide variety of approaches to rail reform, and studies using a mix of European and other countries should be able to shed light on the important question of what works best in different circumstances. Finally we consider how efficiency analysis techniques need to develop in future to address current weaknesses and tackle new challenges.
    Date: 2014–12
  2. By: Bostian, Moriah (Lewis & Clark College); Färe, Rolf (Oregon State University); Grosskopf, Shawna (Oregon State University and CERE); Lundgren, Tommy (CERE)
    Abstract: This study examines the role of investment in environmental production practices for both environmental performance and energy efficiency over time. We employ a network DEA approach that links successive production technologies through intertemporal investment decisions with a period by period estimation. This allows us to estimate energy efficiency and environmental performance separately, as well as productivity change and its associated decompositions into efficiency change and technology change. Incorporating a network model also allows us to account for both short-term environmental management practices and long-term environmental investments in each of our productivity measures. We apply this framework to a panel of detailed plant-level production data for Swedish manufacturing firms covering the years 2002 - 2008.
    Keywords: Energy Efficiency; Environmental Performance; Network DEA; Malmquist Index; Investment
    JEL: D22 D24 M14
    Date: 2015–09–19
  3. By: Derya Findik (Science and Technology Policy Studies Program, METU); Aysit Tansel (Department of Economics, METU; Institute for the Study of Labor (IZA) Bonn, Germany; Economic Research Forum (ERF) Cairo, Egypt)
    Abstract: This chapter analyzes the effect of intangible investment on firm efficiency with an emphasis on its software component. Stochastic production frontier approach is used to simultaneously estimate the production function and the determinants of technical efficiency in the software intensive manufacturing firms in Turkey for the period 2003-2007. Firms are classified based on the technology group. High technology and low technology firms are estimated separately in order to reveal differentials in their firm efficiency. The results show that the effect of software investment on firm efficiency is larger in high technology firms which operate in areas such as chemicals, electricity, and machinery as compared to that of the low technology firms which operate in areas such as textiles, food, paper, and unclassified manufacturing. Further, among the high technology firms, the effect of the software investment is smaller than the effect of research and development personnel expenditure. This result shows that the presence of R&D personnel is more important than the software investment for software intensive manufacturing firms in Turkey.
    Keywords: Intangible assets, Software investment, Efficiency, Software intensive firms, Stochastic frontier analysis, Production Function, Firms, Turkey.
    JEL: L21 L23 L25
    Date: 2015–08
  4. By: Thomas von Brasch (Statistics Norway)
    Abstract: Foster et al. (2001) outline a framework that is commonly used to identify the contribution from firm turnover to aggregate productivity growth. The framework is not derived from economic theory and it implies that productivity levels determine the contribution from reallocation and firm turnover. In this paper, I outline an index for aggregate productivity growth based on economic theory. In contrast to common beliefs, I show that the contribution from firm turnover to aggregate productivity growth should be based on the profitability, and not the productivity, of these firms.
    Keywords: Productivity; Profitability; Aggregation
    JEL: D24 J24 L25 O47 C43
    Date: 2015–10
  5. By: Albinowski, Maciej (Ministry of Finance of Poland and Warsaw School of Economics); Hagemejer, Jan (National Bank of Poland and University of Warsaw); Lovo, Stefania (London School of Economics and Political Science, Grantham Research Institute on Climate Change and the Environment); Varela, Gonzalo (The World Bank Group)
    Abstract: We use export transaction and firm-level data to analyze Poland's export competitiveness over the period 2005 - 2013. Polish firms have become increasingly internationalized through exports. We observe a substantial increase in the number of exporters and a decrease in their average size, which indicates that fixed costs associated with exporting have decreased – mainly with the EU. Decomposition of export growth reveals that diversification is an increasingly important factor in explaining export growth. Exporters have become more diversified in the analyzed period, and export quality has been converging to the levels of high-income country exporters. We find that the process of quality upgrading is concurrent with market diversification: exporters upgrade in quality as they diversify into new destinations, likely because clients demand improvements in product specifications. Polish export flows are highly sustainable and we identify factors conducive to their survival. When analyzing determinants of participation in the export markets we find that the effect of real exchange rate varies across firms, depending on the extent to which firms participate on regional or global value chains (as measured by the firms' share of imported inputs in the total input bill). Productivity, financial constraints and sunk costs also matter for the export decision. In additional we find substantial evidence of local sectoral spillovers on exports. Finally, productivity dynamics were analyzed. Productivity growth in the analyzed period has been solid and resulted both from within-firm gains and allocative efficiency gains. Both domestic and foreign firms experienced productivity gains during the period. For domestic firms, an important source of these gains appears associated with FDI vertical spillovers through forward linkages. Increased FDI stocks in upstream markets account for between 5 and 30 percent of the TFP gains observed during the period 2005-2013 in most sectors.
    Keywords: export competitiveness; export decision; export diversification; total factor productivity; vertical spillovers
    JEL: D24 F14
    Date: 2015–10–06
    Abstract: The purpose of this study is to measure the effect of intangibles on the growth of developed countries, particularly, at firm level. This paper analyzes the role â€intangibles†play in firms' growth and performance, in addition to the production factors of labor and tangible capital, using their financial data in the U.S. and Japan. And this study attempts to analyze whether companies accumulating intangible assets respond better to shocks (for example, financial crises) than those without intangible capital. We could see that intangibles were important sources of productivity growth at the micro level in the U.S. Those results were not obtained in Japan. The cross term between intangibles and tangibles was positive and significant in both the U.S. and Japan. This suggests that if a firm invests more not only in intangibles but also in tangibles, the firm can enjoy a high productivity growth. Finally, this paper analyzed whether companies that had invested in intangibles responded better to shocks than those without intangible capital. The results showed that the firms with greater intangible capital managed to overcome the crisis in the U.S.
    Keywords: Intangible assets, productivity
    JEL: J24 O40
    Date: 2015–05–01
  7. By: Thomas von Brasch; Ådne Cappelen; Diana-Cristina Iancu (Statistics Norway)
    Abstract: Many OECD countries have experienced a slowdown in measured labour productivity from 2005 and onwards. Norway is no exception in this respect. Most countries use a simple aggregate of hours worked when measuring labour productivity. One way to improve measurement of labour services is to control for worker characteristics. A theoretical rationale for doing so is given by Diewert and Lippe (2010). We generalise previous analyses by allowing for exit and entry of workers when measuring labour services using Norwegian microdata. We find that the bias from using hours worked compared to a labour index capturing various compositional effects can be substantial and systematic over time. In the case of Norway the bias explains about a quarter of the productivity slowdown after 2005.
    Keywords: Labour productivity; Index numbers; Unit value indices; Drobisch index
    JEL: C43 E24 J24 O47
    Date: 2015–09
  8. By: Barra, Cristian; Zotti, Roberto
    Abstract: This paper investigates the regional innovation system (RIS) efficiency, and its determinants, in Italy through a Stochastic Frontier Analysis and using the concept of a knowledge production function. The contribution of universities’, private and public sectors’ resources devoted to research and development (R&D), in generating innovation, has been examined, as well as the impact of several exogenous environmental variables on RIS efficiency. The empirical findings suggest the importance of R&D investments taking place in the universities and in the private sector, which benefit the most to regional innovation activities; labour market and industries’ characteristics are found to have an important role on RIS efficiency.
    Keywords: Regional innovation system, Technical efficiency. Knowledge production function
    JEL: C14 C67 O31
    Date: 2015–10–01
  9. By: Julia Koralun-Bereznicka (University of Gdansk)
    Abstract: According to the leading theories of the firm the size-performance relation is not obvious neither in terms of its significance nor direction. The review of the previous empirical research also provides mixed evidence in the field. The aim of this study is to further explore this relationship by considering two potentially important factors – the country and industry specificity. In contrast to most studies, where the overall corporate performance often seems to be narrowed to some profitability aspects, this research takes into account a much wider range of corporate performance ratios. The way country and industry features affect size-performance relationship is analysed on a sample of private firms of three sizes from 13 industries across 9 EU countries in the period 2000-2010. The research methodology includes the analysis of variance, taxonomic method of aggregation, linear ranking and adjusted Rand’s measure used for comparing partitions. Findings provide evidence that the variability of the size-performance relationship is both country- and industry-dependent, with a slight dominance of the latter factor.
    Keywords: firm size; corporate performance; European Union; country factor; industry factor
    JEL: G30
  10. By: Barra, Cristian; Lagravinese, Raffaele; Zotti, Roberto
    Abstract: In recent years more and more numerous are the rankings published in the newspapers or technical reports available, covering many aspects of higher education, but in many cases with very conflicting results between them, due to the fact that universities’ performances depend on the set of variables considered and on the methods of analysis employed. The aim of this study is to rank higher education institutions (HEIs) in Italy, comparing parametric and non-parametric approaches: we firstly apply a so-called double bootstrap Data Envelopment Analysis (DEA) to generate unbiased coefficients (Simar and Wilson, 2007) and then a Stochastic Frontier Analysis (SFA), modelling the production set through an output distance function, applying a within transformation to data as developed by Wang and Ho (2010), to evaluate which determinants have an impact on universities’ efficiencies. The findings reveal that, on average and among the macro-areas of the country, the level of efficiency does not change significantly among estimation methods which, instead, generate different rankings. This may guide universities’ managers and policymakers as rankings have a strong impact on academic decision-making and behaviour, on the structure of the institutions and also on students and graduates recruiters. Variables describing institution, market place and environment have an important role in explaining (in)efficiency.
    Keywords: Universities; Efficiency; Data Envelopment Analysis; Stochastic Frontier Analysis
    JEL: C14 C67 I21 I23
    Date: 2015–10–06
  11. By: Sahoo, Biresh; Singh, Ramadhar; Mishra, Bineet; Sankaran, Krithiga
    Abstract: Given the growing emphasis on research productivity in management schools in India, the present authors developed a composite indicator (CI) of research productivity, using the directional benefit-of-doubt (D-BOD) model, which can serve as a valuable index of research productivity in India. Specifically, we examined overall research productivity of the schools and the faculty members during the 1968-2014 and 2004-2014 periods in a manner never done before. There are four key findings. First, the relative weights of the journal tier, total citations, impact factor, author h-index, number of papers, and journal h-index varied from high to low in order for estimating the CI of a faculty member. Second, both public and private schools were similar in research productivity. However, faculty members at the Indian Institutes of Technology (IITs) outperformed those at the Indian Institutes of Management (IIMs). Third, faculty members who had their doctoral degrees from foreign, relative to Indian, schools were more productive. Among those trained in India, alumni of IITs, compared to those of IIMs, were more productive. Finally, IIMs at Ahmedabad and Bangalore and the Indian School of Business, Hyderabad have seemingly more superstars than other schools among the top 5% researchers during 2004-2014. These findings indicate a shift in the priority from mere training of managers to generating impactful knowledge by at least two of the three established public schools, and call attention to improving the quality of doctoral training in India in general and IIMs in particular. Suggestions for improving research productivity are also offered.
    Keywords: Data envelopment analysis; Research productivity; Composite indicator; Business schools
    JEL: C61 D24 I23
    Date: 2015–05–01
  12. By: Louis S. Thompson; Heiner Bente
    Abstract: Assessing railway efficiency is complex for a number of reasons. Railways produce a wide range of outputs including passenger service, freight service and, in some cases, separated infrastructure access services. Railways that differ in scale or in the mix of these services inherently differ in their apparent “efficiency.” Railway data sets, though probably more detailed than in other modes, are fraught with issues of quality, consistency and cost and asset allocation. Assessing “efficiency” necessarily requires both cross-sectional indices to put each railway into proper context and time series data to show changes in performance over time in response to changes in the railway’s economic and policy environment. This paper assembles a wide database of railway data relating to operating scale and various indices of performance over the period of 1970 to 2011. We show, as expected, that railways differ widely in scale and mix of services, which may partly explain differences in ranking by performance indices. We show also that railway performance has changed greatly over time and that, in some cases, changes in performance can at least partly be attributed to reforms in structure, ownership and management incentives.
    Date: 2014–11
  13. By: Andrew Maredza
    Abstract: Since the 2007 sub-prime financial crisis, world bank capital ratios have increased. In this paper, we investigate the impact of increased bank capital requirements introduced under the Basel Accord framework on the costs of intermediation. We attempt to answer this central question by running panel regressions using 2001 – 2012 annual bank-level data for ten banks constituting inter alia the four largest South African banks. We conclude that high capital requirements are associated with increased costs of intermediation. Our fixed effects estimations show that a one percent increase in capital requirements lead on average to a range of 12 – 14 basis points increase in the cost of intermediation during our period of analysis. We also find evidence that the Basel II capital requirements effected from 1 January 2008 contributed to increased cost of intermediation by an average 7 basis points for the period 2008 – 2012. We therefore caution that while maintaining adequate capital levels is crucial for obvious reasons, there is need for supervisory authorities to ensure that such regulation is effective and well-balanced to guarantee safety and stability of the sector without endangering the ability of the banks to service the economy.
    Keywords: Bank performance, bank capital, Basel accord, Capital adequacy ratio, Financial Regulation, Intermediation costs
    JEL: C33 G21 G28
    Date: 2015
  14. By: Dejan Makovsek; Vincent Benezech; Stephen Perkins
    Abstract: The ITF has produced a series of reports and discussion papers addressing the interrelated issues of railway structure and performance; see for example Beck et al. (2013), Thompson (2013), ECMT (2007) and, Thompson (2007). The academic literature on this subject is also significant, with good examples in Mizutani et al (2014), Nash et al. (2013), Van de Velde et al. (2012) and Kirchner (2002, 2004, 2007 and 2011). All of these studies have confronted the question of how to measure the performance, or efficiency, of railways both in the sense of how one railway compares with others (cross-section) and how railways have changed as a result of policy interventions (time-series). The purpose of the roundtable discussions was to revisit the issue of how to define and measure efficiency at the proper level of detail and with reasonably available data so that policy makers can benchmark the performance of their railways, evaluate the impact of past changes in railway structure, ownership or regulation and assess the likely outcome of future initiatives. The challenge is inherent in the phrases “proper level of detail” and “reasonably available data”.
    Date: 2015–05
  15. By: Paul Schrimpf (The University of British Columbia); Michio Suzuki (University of Tokyo); Hiroyuki Kasahara (University of British Columbia)
    Abstract: This paper examines non-parametric identifiability of production function when production functions are heterogenous across firms beyond Hicks-neutral technology terms. Using a finite mixture specification to capture permanent unobserved heterogeneity in production technology, we show that production function for each unobserved type is non-parametrically identified under regularity conditions. We also propose an estimation procedure for production function with random coefficients based on EM algorithm. We estimate a random coefficients production function using the panel data of Japanese publicly-traded manufacturing firms and compare it with the estimate of production function with fixed coefficients estimated by the method of Gandhi, Navarro, and Rivers (2013).
    Date: 2015
  16. By: Merethe Dotterud Leiren; Kare Skollerud
    Abstract: Norway and Finland share several commonalities, being Nordic democracies with a population of 5.1 and 5.5 million and large rural areas. With decreasing population in rural areas, given aging and structural changes in society, both countries face challenges in trying to keep the costs of passenger transport services down while ensuring an adequate standard of service nationwide. Grappling with similar issues, experiences and information about different policies in Norway may provide useful information to the Finnish Government. This contribution therefore provides some insights into public transport provision in rural and depopulated areas in Norway, how the public authorities have attempted to solve efficiency issues while maintaining good quality services and related experiences sparsely populated rural areas. It includes aspects concerning the market of transport providers, user needs and political barriers of reform. In both Finland and Norway there are many different authorities that are responsible for the administration, procurement and planning of various passenger transport services. In both countries there are concerns with increasing costs and certain public authorities are interested in using coordination among different organisations in order to exploit potential savings, while retaining an adequate level of public services, also in rural areas. This working document includes references to Denmark, as certain Danish municipalities have coordinated their special transport services to a larger extent than in for example Norway.
    Date: 2015–03
  17. By: Janine Kruger (Nelson Mandela Metropolitan University); Rootman Chantal (Nelson Mandela Metropolitan University); Shelley Saunders (Nelson Mandela Metropolitan University)
    Abstract: Purpose of study: To determine the influence of selected macro-economic factors (Transportation costs, Government regulations, Access to finance, Interest rates and Inflation and economic growth) on SMME business performance in the Eastern Cape, South Africa. Research design and methodology: The positivistic research paradigm adopting a quantitative research approach was followed in the study. A structured self-administered questionnaire was used to obtain the primary data from 200 SMME’s business owners/managers in the Eastern Cape region, South Africa. Convenience and snowball sampling were used to obtain the respondents in the sample. The literature review included the effect of macro-economic factors influencing SMME business performance and the environment in which SMMEs operate. Five hypotheses were constructed from literature and empirically tested. An exploratory factor analysis confirmed the validity and Cronbach’s alpha coefficients determined the reliability of the questionnaire. Descriptive statistics (mean and standard deviation) and inference statistics were calculated. The Pearson correlation coefficients determined the strength of the relationships between the independent (Transportation costs, Government regulations, Access to finance, Interest rates and Inflation and economic growth) and dependant variables (Business Performance) and the multiple regression analysis determined if relationships exist between the independent and dependant variables. Research findings: A statistically significant relationship was found between the Access to finance and Business performance. Although the relationships between the Business performance and Transportation costs as well as Interest rates were not statistically significant, negative correlations were found. Positive correlations were found between the Business performance and Government regulations, and Inflation and economic growth although the relationships were not statistically significant.Research limitations: The study was limited to only the Eastern Cape region, South Africa. The SMME definition is broad in scope and may differ from one industry to another. Practical implications: Managers/owners need to take care when selecting transportation methods and obtaining debt capital as an increase in these factors may negatively influence business performance. However, an increase in Government regulations, and Inflation and economic growth may lead to improved business performance. In addition, the more access to finance SMME’s have the more likely business performance will be positively influenced.Contribution of paper: This paper contributes towards the body of knowledge regarding SMME’s in a developing region in South Africa. Although it is well-known that macro-economic factors influence business performance, little is known regarding the extent of the influence, especially within a developing country.
    Keywords: Macro-economic factors; SMME; Business performance
    JEL: M21

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.