nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2016‒10‒09
thirteen papers chosen by
Angelo Zago
Università degli Studi di Verona

  1. Persistent and Transient Efficiency of International Airlines By Heshmati, Almas; C. Kumbhakar, Subal; Kim, Jungsuk
  2. Financial Constraint and Productivity: Evidence from Canadian SMEs By Shutao Cao; Danny Leung
  3. Trade policy reform and firm-level productivity growth: Does the choice of production function matter? By John Kealey; Pau S. Pujolas; Cesar Sosa-Padilla
  4. Economic Impact of Political Protests (Strikes) on Manufacturing Firms: Evidence from Bangladesh By Shonchoy, Abu; Tsubota, Kenmei
  5. Effect of Power Supply on the performance of Small and Medium Size Enterprises: A comparative analysis between SMEs in Tema and the Northern part of Ghana By Nyanzu, Frederick; Adarkwah, Josephine
  6. Effects of Labor Reallocation on Productivity and Inequality: Insights from Studies on Transition By Tyrowicz, Joanna; Van der Velde, Lucas; Svejnar, Jan
  7. Privatization, Distortions, and Productivity By Kun Li
  8. Paving the way for better telecom performance: Evidence from the telecommunication sector in MENA countries By Riham Ahmed Ezzat
  9. Temporary employment protection reforms and productivity: evidence from an industry-level panel of EU countries By Kristel Jacquier
  10. The Elasticity of Factor Substitution Between Capital and Labor in the U.S. Economy: A Meta-Regression Analysis By Knoblach, Michael; Rößler, Martin; Zwerschke, Patrick
  11. Why is Pollution from U.S. Manufacturing Declining? The Roles of Trade, Regulation, Productivity, and Preferences By Joseph S. Shapiro; Reed Walker
  12. Female Entrepreneurship, Access to Credit, and Firms' Performance in Senegal By Abdoulaye Seck; Fatoumata Lamarana Diallo; Founty Alassane Fall; KARAMOKO CAMARA; Ndeye Khadidiatou Mouhamed DIOP; Abdelkrim Araar
  13. Business Owners, Employees and Firm Performance By Maliranta, Mika; Nurmi, Satu

  1. By: Heshmati, Almas (CESIS - Centre of Excellence for Science and Innovation Studies, & Department of Economics, Sogang University); C. Kumbhakar, Subal (Department of Economics, Binghamton University); Kim, Jungsuk (Institute of International and Area Studies)
    Abstract: This paper examines the efficiency of international airlines for the period 1998-2012 by using stochastic frontier panel data models. It estimates a four-component random error cost model for multi-output airline services, separating passenger and goods transportation at the national and international levels. The model distinguishes between firm heterogeneity, time-invariant persistent inefficiency, as well as transient (time-variant) inefficiency and random error components. This model is compared with two other models in which one of the four components is missing. All the models are estimated by using the maximum likelihood method. The models produce persistent, transient and overall efficiency for each airline and time period. The outcomes indicate that the four-component model has an advantage over the traditional panel data approach of separating airline heterogeneity and time-invariant inefficiency effects. The mean and dispersion of cost efficiency amongst airlines differ by model specifications and according to their geographical area of operations. The performance difference may be a consequence of different market structures and deregulation processes, and of specific competitive conditions such as resource availability and strategic alliances with competitors. The results confirm that in general the airlines are not able to achieve full cost efficiency. We find that carriers based in the Asia region are more efficient than carriers based in the European and North American regions. The bigger airlines are unable to take advantage of economies of scale and are not more efficient than their smaller counterparts.
    Keywords: International airlines; firm heterogeneity; persistent inefficiency
    JEL: C23 C51 D24 L25 L93 N70
    Date: 2016–09–30
  2. By: Shutao Cao; Danny Leung
    Abstract: The degree to which financial constraint is binding is often not directly observable in commonly used business data sets (e.g., Compustat). In this paper, we measure and estimate the likelihood of a firm being constrained by external financing using a data set of small- and medium-sized Canadian firms. Our measure separates the need for financing from the degree of constraint, conditional on the need for financing. We find that firm size, the current-debt-to-asset ratio and cash flow are robust indicators that can be used as a proxy for financial constraint. The total debt-to-asset ratio is not, however, a statistically significant indicator of financial constraint. In addition, firms with higher cash flow are less likely to need external financing and to be constrained if they do need it. We then estimate firm-level total factor productivity by taking into account the measured likelihood of binding financial constraint. Estimates of the coefficients for labour and capital in the structural estimation of the production function can be downward-biased if financial constraint is omitted, because production inputs are negatively correlated with the likelihood of being constrained by external financing. This in turn leads to an upward bias of total factor productivity estimates, which is about 4 per cent according to our estimation.
    Keywords: Firm dynamics, Productivity
    JEL: D24 G32 L25
    Date: 2016
  3. By: John Kealey; Pau S. Pujolas; Cesar Sosa-Padilla
    Abstract: This paper considers whether a fairly well-established empirical relationship between liberalized trade and firm productivity growth is sensitive to the choice of an identification strategy for production function estimation. We estimate the productivity of Colombian manufacturing plants using the methods of Levinsohn and Petrin (2003), Ackerberg, Caves, and Frazer (2006), and Gandhi, Navarro, and Rivers (2012), and at times come to surprisingly different conclusions about the country's experience with trade policy reform during the 1980s. Results from a quantile regression model and a productivity growth decomposition exercise tend to vary as we experiment with different specifcations of the production function. Research that is concerned with the short and medium-term impact of trade liberalization on domestic manufacturing industries should therefore pay close attention to issues of robustness to alternative strategies for estimating the productivity of firms.
    Keywords: Trade liberalization, production function estimation
    JEL: F1 C14
    Date: 2016–06
  4. By: Shonchoy, Abu; Tsubota, Kenmei
    Abstract: Political protests in the form of strikes, locally known as hartals, remain quite common in the Indian subcontinent countries. Such a form of protests is associated with a mass movement, intended to cause a total shutdown of economic activities and often results in coercion, violence, and damage to public and private properties. Utilizing the World Bank enterprise survey data of 2007 and 2013 of Bangladesh, this study examines the impacts of hartal on manufacturing firms. We find that political protests significantly increase the cost for firms. Using flexible cost function based on factor analysis we see the factor-neutral effect of strikes is positive and statistically significant, showing evidence of reduction of firm productivity due to hartals. However, we did not find any evidence for systematic factor re-optimization by firms -- in response to political strikes – suggesting that firms do not reallocate factor shares to tackle uncertain and irregular shocks like hartal.
    Keywords: Political strikes, translog cost function, factor biased technological change
    JEL: D24 D74 O14
    Date: 2016–09–29
  5. By: Nyanzu, Frederick; Adarkwah, Josephine
    Abstract: Electricity provision in Ghana has been marred by low generation, poor supply and frequent power outages. The situation compel firms to adopt strategies to cope with this poor public supply of power for their business. To this end, this study analysed the effect of power supply on the performance of SMEs: a comparative analysis between two regions in Ghana where Small and Medium firms are located. The study uses the current World Bank 2013 Enterprise Survey on Ghana which consist of 710 firms. The study employs both chi-square and t-test to do pattern analysis. In addition, ordinary regression analysis (OLS) was employed to regress firm performance variable on electricity supply variable and other covariates. The results show that, the presence of power outages, thus, the number of times power outages experienced and hours of power outages negatively affected firms performance (profitability). In addition, it was further realized that power outages (power interruptions) severely affects SMEs located in the Northern part of Ghana than SMEs located elsewhere. The study therefore recommends that government should implement policies and programs such as power mix approach and renewable energy and bring in private sector participation to install competition and efficiency. This is in the interest to mitigate the unreliable electricity supply. Also, SMEs should consider alternative sources of power such as solar power, inverter, biogas, generators, which would help curb the cost power outage brings to their production and to boost output.
    Keywords: Medium and Small Scale Enterprise, Power Supply, Firm Performance, Ghana.
    JEL: M00 M10 M30
    Date: 2016–10–01
  6. By: Tyrowicz, Joanna (Warsaw University); Van der Velde, Lucas (Warsaw University); Svejnar, Jan (Columbia University)
    Abstract: From a theoretical perspective the link between the speed and scope of rapid labor reallocation and productivity growth or income inequality is ambiguous. Do reallocations with more flows tend to produce higher productivity growth? Does such a link appear at the expense of higher income inequality? We explore the rich evidence from earlier studies on worker flows in the period of massive and rapid labor reallocation, i.e. the economic transition from a centrally planned to a market-oriented economy in Central and Eastern Europe. We have collected over 450 estimates of job flows from the literature and used these inputs to estimate the short-run and long-run relationship between labor market flows, labor productivity and income inequality. We apply the tools typical for a meta-analysis to verify the empirical regularities between labor flows and productivity growth as well as income inequality. Our findings suggest only weak and short term links with productivity, driven predominantly by business cycles. However, data reveal a strong pattern for income inequality in the short-run - more churning during reallocation is associated with a level effect towards increased Gini indices.
    Keywords: transition, job creation, job destruction, worker flows, unemployment
    JEL: D21 D24 D92 G21
    Date: 2016–09
  7. By: Kun Li (Toulouse School of Economics)
    Abstract: I develop a new framework for analyzing the direct and indirect effects of privatization on productivity and distortion. To do so, I propose a novel method to jointly estimate distortions, productivity and production function parameters. I then apply the method to Chinese National Bureau of Statistics (NBS) industrial annual surveys from 1998 to 2007. I find that when a firm is privatized, it immediately realizes a 5% increase in productivity, which is equivalent to one year of productivity growth for an average manufacturing firm in the sample. Coupled with the estimated persistent productivity process, overall privatization increases privatized firms’ productivity about 14% at 2007. Meanwhile, privatization reduces distortions by 2%. Privatization directly contributes 5% in the aggregate productivity growth in the sample, mainly through its impact on firm productivity. In contrast, the gains from improved factor reallocation due to privatization appear to have limited effects on firm revenues and aggregate TFP.
    Date: 2016
  8. By: Riham Ahmed Ezzat (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, FEPS - Faculty of Economics and Political Science)
    Abstract: Since the 1980s, developing countries started adopting telecom reforms due to pressures from international institutions. However, Middle East and North African (MENA) countries lagged in adopting such reforms. Even after introducing telecom reforms in the MENA region beginning in 1995, not all countries became better off in terms of various performance indicators. Therefore, this paper empirically assesses the effects of regulation, privatization and liberalization reforms, as well as their simultaneous presences, in the telecommunication sector on the sector's performance using a sample of 17 MENA countries for the period 1995-2010. We assume that different reforms are affected by institutional, political and economic variables with respect to the level of democracy, the legal origin, the natural resources rents per country and the year of independence from colonization. We correct for the endogeneity of telecom reforms, and we use IV-2SLS (Instrumental Variable-Two Stages Least Squares) estimation to analyze their effect on telecom performance in terms of access, productivity and affordability. We find that the privatization of the main incumbent operator and the fixed-line market's liberalization affect the sector's performance negatively in terms of fixed access and affordability. Moreover, we find that the simultaneous presence of an independent regulator and a privatized incumbent helps to eliminate the drawbacks on the sector performance resulting from privatization. However, the simultaneous presences of the other reforms in terms of regulation-competition and privatization-fixed competition do not help to improve the sector's performance.
    Keywords: regulation,privatization,competition,Telecom industry,MENA region
    Date: 2015–04
  9. By: Kristel Jacquier (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We investigate the impact of reforms on employment protection for temporary contracts on Total Factor Productivity (TFP) using panel data of industries across 14 European countries. Within-industry variation over the period 1992-2007 is exploited to capture reforms. The legislation on temporary contracts (EPT) affects the use of such contracts, making it a valid instrument to prove a causal relationship between a change in legislation and macroeconomic performances. Indeed, the two stage estimates emphasize the negative relationship between the share of temporary employment and TFP at the industrial level. Marginal effects prove that increasing regulation on temporary jobs has a strong negative impact on the use of fixed-term contracts if employment protection on regular contract (EPR) is low. When employment protection on open-ended contract reaches its highest level; this effect is stronger. Our study shows that asymmetric institutional change might indeed leads to lower productivity growth through a surge in temporary employment.
    Keywords: productivity,employment protection
    Date: 2015–03
  10. By: Knoblach, Michael; Rößler, Martin; Zwerschke, Patrick
    Abstract: The elasticity of factor substitution between capital and labor is a crucial parameter in many economic fields. However, despite extensive research, there is no agreement on its value. Utilizing 738 estimates from 41 studies published between 1961 and 2016, this paper provides the first meta-regression analysis of capital-labor substitution elasticities for the U.S. economy. We show that heterogeneity in reported estimates is driven by the choice of estimation equations, the modeling of technological dynamics, and data characteristics. Based on the underlying meta-regression sample and a "best practice" specification, we estimate a long-run elasticity in the range of 0.6 to 0.7. For all estimated elasticities the hypothesis of a Cobb-Douglas production function is rejected.
    Keywords: Elasticity of Factor Substitution,Capital,Labor,Cobb-Douglas,CES Production Function,Meta-Regression Analysis,Meta Regression,Meta Analyse,Substitutionselastizität,Cobb-Douglas,CES Produktionsfunktion,Arbeit,Kapital
    JEL: E23 O30 O40
    Date: 2016
  11. By: Joseph S. Shapiro (Cowles Foundation, Yale University); Reed Walker (University of California, Berkeley, IZA, & NBER)
    Abstract: Between 1990 and 2008, air pollution emissions from U.S. manufacturing fell by 60 percent despite a substantial increase in manufacturing output. We show that these emissions reductions are primarily driven by within-product changes in emissions intensity rather than changes in output or in the composition of products produced. We then develop and estimate a quantitative model linking trade with the environment to better understand the economic forces driving these changes. Our estimates suggest that the implicit pollution tax that manufacturers face doubled between 1990 and 2008. These changes in environmental regulation, rather than changes in productivity and trade, account for most of the emissions reductions.
    Keywords: Cap-and-trade, Market-based instruments, NOx Budget Program, Pollution, Productivity, Trade
    JEL: F18 F64 H23 Q56
    Date: 2015–01
  12. By: Abdoulaye Seck; Fatoumata Lamarana Diallo; Founty Alassane Fall; KARAMOKO CAMARA; Ndeye Khadidiatou Mouhamed DIOP; Abdelkrim Araar
    Abstract: Despite an increase in the share of female-owned existing and new start-up firms in Senegal, there is still a wide belief that female entrepreneurs are discriminated against in the credit market. This paper empirically investigates such gender-based discrimination, and the extent to which it might be translated into lower efficiency. Using firm-level data and a methodological approach that consists of the data envelopment analysis, an endogenous switching regression and a propensity score matching, the paper finds no evidence to support the common wisdom that women are discriminated in the credit market. In addition, to the extent that they benefit from credit, female reap equal returns from the funds, efficiency-wise. These results do not however call for the abandonment of gender-biased public policies aiming at promoting access to credit and entrepreneurship, but suggest they be grounded on more robust footings such as managers’ education, firms’ ownership, sectorial activities with respect to capital intensity, and geographical locations.
    Keywords: Gender, access to credit, firms’ efficiency, Senegal.
    JEL: G21 J16 L25
    Date: 2015
  13. By: Maliranta, Mika; Nurmi, Satu
    Abstract: Abstract The novel Finnish Longitudinal OWNer-Employer-Employee (FLOWN) database was used to analyze how the characteristics of owners and employees relate to firm performance as determined by labor productivity, survival and employment growth. Focusing on the role of the owner’s formal education and previous experience as an employee, the results show that previous experience in a high-productivity firm strongly predicts high productivity and probability of survival for the entrepreneur’s new firm. This can be interpreted as evidence of knowledge spillover through labor mobility. Strikingly, firms established in times of intensive excess job reallocation were found to exhibit superior productivity performance in the later phases of their life cycles.
    Keywords: Entrepreneurship, ownership, firm performance, human capital, diffusion of knowledge
    JEL: L25 L26 J24 J62 O33
    Date: 2016–10–06

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