nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2016‒07‒30
nineteen papers chosen by

  1. On Estimation of the Normalized CES Production Function for Turkey By Selen Baser Andic
  3. Decomposition of Labor Productivity Growth: Middle Income Trap and Graduated Countries By Gokhan Yilmaz
  4. Imports, supply chains, and firm productivity By Carol Newman; John Rand; Finn Tarp
  5. Efficiency analysis of fish production in Benue State, Nigeria: an application of Stochastic Frontier Cost Function By Ezihe, Jacqueline A.C.; Otitoju, Moradeyo A.; Ekechukwu, C. Augusta
  6. Revisiting the Invisible Hand Hypothesis: A Comparative Study between Bulgaria and Germany By Gesheva, Nadezhda; Vasilev, Aleksandar
  7. Misalignment of productivity and wages across regions ? Evidence from Belgian matched panel data By François Rycx; Yves Saks; Ilan Tojerow
  8. Institutional proximity and the size and geography of FDI spillovers: do European firms generate more favourable productivity spillovers in the EU neighbourhood? By Vassilis Monastiriotis
  9. Intangible Capital and Measured Productivity By Ellen McGrattan
  10. The determination of the least distance to the strongly efficient frontier in Data Envelopment Analysis oriented models: modelling and computational aspects By Aparicio, Juan; Cordero, Jose M.; Pastor, Jesús
  11. Production Function Estimation with Measurement Error in Inputs By Collard-Wexler, Allan; De Loecker, Jan
  12. Quantile DEA: A Direct Linear Programming Based Approach to Obtaining Quantile Efficiency or Quantile Group Benchmarking Performance Estimates By Atwood, Joseph; Shaik, Saleem
  13. Nonparametric Estimation of Efficiency in the Presence of Environmental Variables By Cinzia Daraio; Leopold Simar; Paul W. Wilson
  14. Innovation and productivity in a S&T intensive sector: the case of Information industries in Spain By Nestor Duch-Brown; Andrea de Panizza; Ibrahim Kholilul Rohman
  15. Bankruptcy and Cross-Country Differences in Productivity By Julian Neira
  16. Boosting Productivity in Finland By Christophe André; Thomas Chalaux
  17. Bank Financial world crisis: Inefficiencies and Responsibilities By Elisa Fusco; Bernardo Maggi
  18. The impact of pollution abatement investments on production technology: new insights from frontier analysis By Jean Pierre Huiban; Camilla Mastromarco; Antonio Musolesi; Michel Simioni
  19. Modeling Emission-Generating Technologies: Reconciliation of Axiomatic and By-Production Approaches By Sushama Murty; R. Robert Russell

  1. By: Selen Baser Andic
    Abstract: This paper estimates a normalized constant elasticity of substitution production function for Turkey using the data between 1991-2014. Employing a system approach, the elasticity of substitution, direction of the technical change and total factor productivity are determined. The results indicate that elasticity of substitution is around 0.8 and significantly below unity in Turkey. The dynamics of the technical progresses of inputs signal a slowing productivity growth in labour, and a falling productivity in capital. These findings imply that in Turkey, the average growth of the total factor productivity is very low, if not zero, and labour-augmenting technical progress is slightly dominant over time.
    Keywords: CES function, Elasticity of substitution, Technical change, Factor shares, Turkey
    JEL: C22 E23 E25
    Date: 2016
  2. By: Fernanda Ricotta (Dipartimento di Economia, Statistica e Finanza, Università della Calabria)
    Abstract: This paper examines the effect of the quality of regional government (QoG) on firm Total Factor Productivity (TFP) in a multi-country context. The analysis is based on comparable cross-country data of manufacturing firms operating in seven European countries (Austria, France, Germany, Hungary, Italy, Spain and the United Kingdom). The measure of the ‘quality of government’ is the European quality of government index (EQI), calculated at regional level over twenty-seven EU members. To disentangle internal from external productivity drivers, the multilevel approach is employed. Results refer to 2008 and show, as expected, the importance of firm-specific determinants of TFP. As far as the specific scope of this paper is concerned, firms located in regions with high quality regional government show higher levels of TFP. When considering the QoG components, corruption and the quality of services positively affect TFP, while the evidence is inconclusive for impartiality.
    Keywords: Institutions, firm performance, European regions, multilevel model
    JEL: O43 D24 C30
    Date: 2016–07
  3. By: Gokhan Yilmaz
    Abstract: In this paper, we investigate the role of labor productivity growth and whether the determinants of labor productivity growth differed among the middle income trap (MIT) and the graduated (non-middle income trap, NMIT) countries in the 1950-2005 period. We decompose labor productivity growth into “within sector” productivity improvements, “static structural change” productivity progress and “dynamic structural change” gains. Moreover, we study sectoral contributions to within sector productivity gains in these countries. We find that there was a significant labor productivity growth rate difference between the MIT and the NMIT countries, and this difference mainly originated from the within sector productivity improvements. Our sectoral analysis reveals that the most important sector that enlarged the within sector productivity growth gap between the MIT and the NMIT countries was manufacturing.
    Keywords: Economic growth, Productivity, Structural change, Middle income trap
    JEL: O11 O40 O47
    Date: 2015
  4. By: Carol Newman; John Rand; Finn Tarp
    Abstract: This paper explores the relationship between imports and firm productivity, focusing on imported intermediates. Using firm-level data on over 20,000 manufacturing firms in Viet Nam, we find evidence for competition-induced productivity gains from trade. We show that gains in intermediate sectors spill-over to downstream sectors such that firms using more inputs from import-intensive sectors experience higher productivity gains. The evidence indicates that the main source of spill-over is better quality, domestically produced inputs. Ignoring the gains from trade through this mechanism may significantly underestimate the impact of trade on productivity.
    Keywords: imports, supply chains, productivity, Viet NamCreation-Date: 2016
  5. By: Ezihe, Jacqueline A.C.; Otitoju, Moradeyo A.; Ekechukwu, C. Augusta
    Abstract: IN: Nigerian Journal of Agricultural and Development Economics (NIJADE), Vol.4, No.2, Dec. 2014 (ISSN:2276-8378)
    Keywords: Efficiency, Fish production, Stochastic Frontier Cost Function, Farm Management, Productivity Analysis, Research Methods/ Statistical Methods,
    Date: 2014–12
  6. By: Gesheva, Nadezhda; Vasilev, Aleksandar
    Abstract: This paper examines Adam Smith’s concept of an Invisible Hand of the market in light of the underlying assumptions for the theory to hold. Furthermore, the study focuses on Total Factor Productivity as a measure of efficiency of resource allocation, employs growth accounting in Bulgaria relative to a frontier country (Germany), and tries to explain the Total Factor Productivity gap with the difference in the quality of institutions and economic freedom performance (where the latter is based on the Freedom Index Indicators). Satisfactory results have been obtained, favoring the hypothesis that freer markets perform better and a “catching up” effect of Bulgaria’s Total Factor Productivity levels towards those of Germany has been observed. Finally, the study provides policy recommendations facilitating the Invisible Hand Process in Bulgaria for a more rapid convergence towards Germany’s productivity levels.
    Keywords: Invisible Hand of the Market,Free Market Economy,Total Factor Productivity,Convergence
    JEL: C82 O11
    Date: 2016
  7. By: François Rycx; Yves Saks; Ilan Tojerow
    Abstract: This paper is one of the first to estimate how the region in which an establishment is located affects its productivity, wage cost and cost competitiveness (i.e. its productivity-wage gap). To do so, we use detailed linked employer-employee panel data for Belgium and rely on methodological approaches from both Hellerstein and Neumark (1995) and Bartolucci (2014) to estimate dynamic panel data models at the establishment level. Our findings show that inter-regional differences in productivity and wages are significant but vanish almost totally, both in industry and services, when controlling for a wide range of covariates, establishment fixed effects and endogeneity. Thus, our results suggest that wage cost and productivity differentials are ceteris paribus relatively well aligned across regions.
    Date: 2016–07
  8. By: Vassilis Monastiriotis
    Abstract: The EU association framework provides European businesses with an entry advantage into the associated countries by facilitating production links and encouraging institutional convergence. It is believed that this has multiple beneficial effects for the associated countries, including ones related to productivity spillovers accruing to domestic firms. However, no empirical evidence exists to show that the presence of European firms produces larger productivity spillovers in recipient economies compared to firms from other world regions. We examine this question using firm-level data covering 28 transition countries over the period 2002-2009. We estimate the intra-industry productivity effects of foreign ownership and examine how these differ across regional blocks (CEE, SEE and ENP), by origin of investor (EU15 versus non-EU15), across geographical scales (national versus regional) and for different types of locations (capital-city regions versus the rest). Our results suggest that investments of EU origin play a distinctive role, helping raise domestic productivity in the associated countries unlike investments from outside the EU. However, this process operates in a spatially selective manner, potentially enhancing regional disparities and spatial imbalances. This assigns a particular responsibility for EU policy to devise interventions that will help redress these problems within its existing association framework.
    Keywords: EU neighbourhood; FDI spillovers; institutional proximity; regional disparities
    JEL: R14 J01
    Date: 2016–06–24
  9. By: Ellen McGrattan (University of Minnesota)
    Abstract: Because firms invest heavily in R&D, software, brands, and other intangible assets—at a rate close to that of tangible assets—changes in measured GDP, which does not include all intangible investments, understate the actual changes in total output. If changes in the labor input are more precisely measured, then it is possible to observe little change in measured total factor productivity coincidentally with large changes in hours and investment. This mismeasurement leaves business cycle modelers with large and unexplained labor wedges accounting for most of aggregate fluctuations. Intangible investments are introduced in a multi-sector general equilibrium model with income and cost shares matched to data from the U.S. input and output tables, which now include some intangible investments along with final goods and services. I use MLE methods and observations on sectoral business receipts and per capita hours to estimate processes for latent sectoral TFPs--that have common and idiosyncratic components—-and a time-varying labor wedge. I find that the model’s common TFP component accounts for most of the variation in the observed series, including the downturn of 2008–2009, while the time-varying labor wedge accounts for almost none. The correlation of the model’s common TFP component and measured U.S. TFP is roughly zero.
    Date: 2016
  10. By: Aparicio, Juan; Cordero, Jose M.; Pastor, Jesús
    Abstract: Determining the least distance to the efficient frontier for estimating technical inefficiency, with the consequent determination of closest targets, has been one of the relevant issues in recent Data Envelopment Analysis literature. This new paradigm contrasts with traditional approaches, which yield furthest targets. In this respect, some techniques have been proposed in order to implement the new paradigm. A group of these techniques is based on identifying all the efficient faces of the polyhedral production possibility set and, therefore, is associated with the resolution of a NP-hard problem. In contrast, a second group proposes different models and particular algorithms to solve the problem avoiding the explicit identification of all these faces. These techniques have been applied more or less successfully. Nonetheless, the new paradigm is still unsatisfactory and incomplete to a certain extent. One of these challenges is that related to measuring technical inefficiency in the context of oriented models, i.e., models that aim at changing inputs or outputs but not both. In this paper, we show that existing specific techniques for determining the least distance without identifying explicitly the frontier structure for graph measures, which change inputs and outputs at the same time, do not work for oriented models. Consequently, a new methodology for satisfactorily implementing these situations is proposed. Finally, the new approach is empirically checked by using a recent PISA database consisting of 902 schools.
    Keywords: Data Envelopment Analysis, least distance, oriented models
    JEL: C60 C61 H52
    Date: 2016–07
  11. By: Collard-Wexler, Allan; De Loecker, Jan
    Abstract: Production functions are a central component in a variety of economic analyzes. However, these production functions often first need to be estimated using data on individual production units. There is reason to believe that, more than any other input in the production process, there are severe errors in the recording of capital stock. Thus, when estimating production functions, we need to account for the ubiquity of measurement error in capital stock. This paper shows that commonly used estimation techniques in the productivity literature fail in the presence of plausible amounts of measurement error in capital. We propose an estimator that addresses this measurement error, while controlling for unobserved productivity shocks. Our main insight is that investment expenditures are informative about a producer's capital stock, and we propose a hybrid IV-Control function approach that instruments capital with (lagged) investment, while relying on standard intermediate input de- mand equations to offset the simultaneity bias. We rely on a series of Monte Carlo simulations and find that standard approaches yield downward-biased capital coefficients, while our estimator does not. We apply our estimator to two standard datasets, the census of manufacturing firms in India and Slovenia, and find capital coefficients that are, on average, twice as large.
    Keywords: measurement error inputs; Production function
    Date: 2016–07
  12. By: Atwood, Joseph; Shaik, Saleem
    Keywords: Research Methods/ Statistical Methods,
    Date: 2016–06
  13. By: Cinzia Daraio (Department of Computer, Control and Management Engineering Antonio Ruberti (DIAG), University of Rome La Sapienza, Rome, Italy); Leopold Simar (Institut de Statistique,Biostatistique et Sciences Actuarielles, Universite' Catholique de Louvain, Louvain-la-Neuve, Belgium); Paul W. Wilson (Department of Economics and School of Computing, Division of Computer Science, Clemson University, Clemson, SC 29634)
    Abstract: This paper demonstrates that standard central limit theorem (CLT) results do not hold for means of nonparametric conditional efficiency estimators, and provides new CLTs that do hold, permitting applied researchers to estimate confidence intervals for mean conditional efficiency or to compare mean efficiency across groups of producers along the lines of the test developed by Kneip et al. (JBES, 2015b). The new CLTs are used to develop a test of the "separability" condition that is necessary for second-stage regressions of efficiency estimates on environmental variables. We show that if this condition is violated, not only are second-stage regressions meaningless,but also first-stage, unconditional efficiency estimates are without meaning. As such,the test developed here is of fundamental importance to applied researchers using non-parametric methods for efficiency estimation. Our simulation results indicate that our tests perform well both in terms of size and power. We present a real-world empirical example by updating the analysis performed by Aly et al. (R. E. Stat., 1990) on U.S. commercial banks; our tests easily reject the assumption required for two-stage estimation, calling into question results that appear in hundreds of papers that have been published in recent years.
    Keywords: technical efficiency ; conditional efficiency ; two-stage estimation ; separability ; data envelopment analysis (DEA) ; free-disposal hull (FDH).
    Date: 2016
  14. By: Nestor Duch-Brown (European Commission – JRC); Andrea de Panizza (European Commission – JRC); Ibrahim Kholilul Rohman (European Commission – JRC)
    Abstract: This paper adds to the empirical literature on the relationships between R&D, innovation and productivity at the firm level. The focus is on Spanish enterprises in Information industries, which are acknowledged to be at the forefront for both innovative activity and R&D performance. The analysis is performed on ca. 1800 enterprises included in the PITEC database (the Spanish source of the EU Community Innovation Survey) for the period 2004-2013. Using a three-stage "CDM" model we consider: (i) factors affecting the decision to conduct R&D, including the role of perceived importance of innovation on firm's R&D performance, (ii) the impact of the predicted R&D effort on companies' effective undertaking of product, process, organisational and marketing innovations, as well as their simultaneous occurrence and (iii) whether and to what extent such innovations boost productivity. In the specific context of this R&D intensive array of industries, the decision of undertaking R&D appears to be strongly influenced by the importance attributed to enhancing existing products or creating new ones, as well as by the size of the company, the fact of being young and local, and the availability public funding. These elements also greatly impact on enterprises' R&D effort, thus providing some arguments in favour of R&D promotion policies, in particularly addressed to start-ups. Expected R&D performance, in turn, appears to be strongly related to the actual achievement of such innovations, including non-technical ones. By focusing on innovation patterns, it was possible to ascertain a strong complementarity between different families of innovation (as expected, given these industries' specificities), as well as to qualify existing evidence on the innovation-productivity conundrum. Indeed, we show that results depend on the way innovation types are modelled and combined. Controlling for complementarities, enterprises performing focused non-technical innovations and joint technical and non-technical ones (mixed-mode innovators) are likely to be more productive (in terms of sales per capita) than their peers, while stand-alone technical innovations give inconclusive results.
    Keywords: R&D, innovation, ICT sector, productivity, firm level data, panel
    JEL: O00 O31 O32 O47
    Date: 2016–07
  15. By: Julian Neira (University of Exeter)
    Abstract: Using a harmonized dataset constructed from national statistical agencies' data for a sample of OECD countries, I document a systematic positive relationship between i) aggregate productivity, ii) the employment share by large firms and iii) the proportion of large firms in the economy. I propose that differences in bankruptcy procedures can explain this relationship. In a model of financial intermediation and informational frictions, I show that as bankruptcy procedures worsen --- measured by the amount a lender can recover from bankrupt borrowers --- lenders respond by shifting their portfolio of loans to smaller (less productive) enterprises. This finding is supported by empirical evidence: across countries, efficient bankruptcy procedures are associated with a higher proportion of new bank loans allocated to large firms. In the model, moving the level of recovery rate from the U.S. level to that of the lowest recovery rate country in the OECD sample reduces TFP by 30%.
    Date: 2016
  16. By: Christophe André; Thomas Chalaux
    Abstract: Boosting productivity growth is necessary to raise living standards and well-being for all. Aggregate productivity has fallen, mainly driven by manufacturing, although service industries have also tended to underperform. Reviving productivity requires improving framework conditions further so labour and capital can more easily move to the most dynamic sectors and firms, making the tax system more growth-friendly, and supporting innovation, basic research and young firms’ financing. This working paper relates to the 2016 OECD Economic Survey of Finland ( Stimuler la productivité en Finlande Il faut stimuler la croissance de la productivité pour améliorer le niveau de vie et de bien-être de tous. La productivité globale a reculé, principalement sous l’influence du secteur manufacturier, même si les services ont eu tendance à faire de moins bon résultats. Pour gagner en productivité, il faut améliorer encore les conditions générales de telle façon que le travail et le capital puissent être redéployés plus facilement vers les secteurs et les entreprises les plus dynamiques, rendre le système fiscal plus propice à la croissance et soutenir le financement de l’innovation, de la recherche fondamentale et des jeunes entreprises. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Finlande 2016 ( ique-finlande.htm).
    Keywords: taxation, economic growth, innovation, research and development, labour productivity, productivité du travail, recherche et développement, taxation, innovation, croissance économique
    JEL: D24 H21 J24 K20 O30 O38 O47
    Date: 2016–07–27
  17. By: Elisa Fusco ("Sapienza" University of Rome); Bernardo Maggi ("Sapienza" University of Rome)
    Abstract: In light of the recent financial world crisis, is crucial to investigate into the responsibilities of the main actors in the credit sectors, i.e. banks and local governments. In this framework, we propose a methodology able to analyze the quality of the problem loans adopted by banks, their level of efficiency in the risk management strategies and the governments policy action in the supervision of the local banking system. Our approach is based on the introduction of the “Non performing Loans” variable as an undesirable output in an output distance function (as stochastic frontier) in order to estimate the efficiency of the bank and calculate the shadow price of the NPLs (not normally observable) per each year, bank and country. Then we compare the management of the NPLs and their price across geographic areas and bank dimension over time in order to map the responsibilities and to draw some policy implications. From an econometric point of view, we -to our knowledge- for first adopt the semi-nonparametric Fourier specification which, among the functional-flexibleform alternatives, is capable to guarantee the convergence of the estimated parameters and the related X-efficiency to the true ones.
    Keywords: Commercial bank, Financial world crisis, Non performing loans, Efficiency, Flexible forms, Distance function.
    JEL: G21 D24 C33 C51 L23
    Date: 2016–07
  18. By: Jean Pierre Huiban (INRA-ALISS, France); Camilla Mastromarco (University of Salento, Lecce, Italy); Antonio Musolesi (University of Ferrara, Italy); Michel Simioni (INRA, UMR 1110 MOISA, Montpellier, France)
    Abstract: This paper estimates the impact of pollution abatement investments on the production technology of firms by pursuing two new directions. First, we take advantage of recent econometric developments in productivity and eciency analysis and compare the results obtained with two complementary approaches: parametric stochastic frontier analysis and conditional nonparametric frontier analysis. Second, we focus not only on the average e ect but also on its heterogeneity across firms and over time and search for potential nonlinearities. We provide new results suggesting that the e ect of pollution abatement investments on the production process is heterogeneous both within firms and over time and also indicating that such an e ect is not monotonic. These results have relevant implications both for modeling and for the purposes of advice on environmentally friendly policy.
    Keywords: Pollution abatement investments, technology, stochastic frontier analysis, conditional nonparametric frontier analysis, full and partial order frontiers, generalized product kernels, infinite order cross-validated local polynomial regression.
    Date: 2016–07
  19. By: Sushama Murty (Department of Economics, University of Exeter and Jawaharlal Nehru University); R. Robert Russell (University of California, Riverside)
    Abstract: We study the link between the by-production approach of Murty, Russell, and Levkoff [2012 J. Environ. Econ.] (MRL) and the axiomatic approach of Murty [2015 Econ. Theory] to modelling emission-generating technologies. We show that the by-production technology of MRL, obtained as an intersection of two independent sub-technologies, satisfies all the Murty axioms. Conversely, a technology satisfying all these axioms decomposes into two independent subtechnologies having the MRL features. These two sub-technologies, refl ect, respectively, the relations between goods in intended-output production designed by human engineers, on the one hand, and the emission-generating mechanism of nature governed by material-balance considerations, on the other. In either approach, the technology can be functionally represented by two radial distance functions with well-defined properties. These distance functions can also serve as measures of technological and environmental efficiency. We exploit the link between the by-production and axiomatic approaches to offer preliminary suggestions about suitable functional forms for the empirical estimation of the two distance functions.
    Keywords: emission-generating technologies, by-production technologies, free input and output disposability, costly disposability, distance function.
    JEL: D20 D24 Q50
    Date: 2016

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