nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2017‒01‒01
twenty papers chosen by

  1. Imported Intermediates, Absorptive Capacity and Productivity: Evidence from Ghanaian Manufacturing Firms By Luke Emeka Okafor; Mita Bhattacharya; Harry Bloch
  2. The influence of public subsidies on farm technical efficiency: A robust conditional nonparametric approach By Jean Joseph Minviel; Kristof De Witte
  3. Factor substitution and productivity in New Zealand By Daan Steenkamp
  4. Firing Costs, Misallocation, and Aggregate Productivity By Jose-Maria Da-Rocha; Marina Mendes Tavares; Diego Restuccia
  5. Productivity growth and the structure of production By Kim, Jiyoung; Nakano, Satoshi; Nishimura, Kazuhiko
  6. Evaluating Efficiency Gains from Tenancy Reform Targeting a Heterogeneous Group of Sharecroppers: Evidence from India By Kurosaki, Takashi; Parinduri, Rasyad; Paul, Saumik
  7. Economic impact of political protests (strikes) on manufacturing firms : evidence from Bangladesh By Shonchoy, Abu S.; Tsubota, Kenmei
  8. Recruiting for Small Business Growth: Micro-level Evidence By Gidehag, Anton; Lodefalk, Magnus
  9. The slowdown in US productivity growth - what explains it and will it persist? By Ursel Baumann; Melina Vasardani
  10. Industrial Productivity in a Hotter World: The Aggregate Implications of Heterogeneous Firm Investment in Air Conditioning By Joshua Graff Zivin; Matthew E. Kahn
  11. Immigration, trade and productivity in services: Evidence from U.K. firms By Ottaviano, Gianmarco I. P.; Peri, Giovanni; Wright, Greg C.
  12. The Productivity Challenge What to expect from better-quality labour and capital inputs? By Vincent Vandeberghe
  13. Banks credit and productivity growth in the EU By Hassan, Fadi; Di Mauro, Filippo; Ottaviano, Gianmarco I. P.
  14. Panel data estimators and aggregation By Biørn, Erik
  15. Idiosyncratic Distortions and Technology Adoption By Stephen Ayerst
  16. Efficiency of Public Education in a Multiproduct Context: The Case of Colombian Municipalities By Ligia Alba Melo-Becerra; Lucas Wilfried Hahn-De-Castro; Dalma Sofía Ariza-Hernández; Cristian Oswaldo Carmona-Sanchez
  17. The Effect of Banks' Financial Position on Credit Growth : Evidence from OECD Countries By David Rappoport
  18. Untitled Land, Occupational Choice, and Agricultural Productivity By Chaoran Chen
  19. Basis for Bank Credit Allocation in China’s Private Sector: Political Connection or Firm Performance? By Wenli Cheng; Yongzheng Wu
  20. How Does Technological Change Affect Quality-Adjusted Prices in Health Care? Systematic Evidence from Thousands of Innovations By Kristopher J. Hult; Sonia Jaffe; Tomas J. Philipson

  1. By: Luke Emeka Okafor; Mita Bhattacharya; Harry Bloch
    Abstract: This paper analyses whether the use of imported intermediates improves productivity using firm-level panel data of manufacturing firms in Ghana covering the period between 1991 and 2002. This includes examining the importance of absorptive capacity in enhancing the productivity gains from imported intermediates. We propose lagged relative productivity as a new measure of absorptive capacity (ABC). For any given period, ABC is defined as the natural logarithm of a firm’s total factor productivity in the previous period relative to the firm’s initial total factor productivity. An alternative measure of ABC considers real value added per worker in lieu of total factor productivity. Overall, we find that firms with high levels of absorptive capacity derive productivity gains from the contemporaneous and prior use of imported intermediates, particularly for firms operating in the input-intensive industries. Our findings are robust to different specifications of the base model and different estimation techniques.
    Keywords: Trade, Absorptive capacity, Productivity, Manufacturing, Imported intermediates,Ghana.
    JEL: F14 D22 D24 O33
    Date: 2016–11
  2. By: Jean Joseph Minviel; Kristof De Witte
    Abstract: The objective of this paper is to assess the impact of public subsidies on farm technical efficiency using recent advances in nonparametric efficiency analysis. To this end, we use robust conditional frontier techniques as well as insights from recent developments in nonparametric econometrics. The paper contributes to the ongoing methodological discussion on how to model the effect of public subsidies on farmers’ production decisions. The analysis is conducted using an unbalanced panel data of 1,604 observations from 313 French farms located in the French region Meuse over the period 2006-2011. The estimates indicate that public subsidies influence negatively the conditional technical efficiency of farms. This suggests that public subsidies affect the range of attainable values for the inputs and outputs, and hence the shape of the boundary of the attainable set, as well as the distribution of inefficiencies inside the attainable set.
    Keywords: data envelopment analysis, conditional efficiency, nonparametric econometrics, public subsidies, farms
    JEL: Q12 Q18 C54 D24
    Date: 2016
  3. By: Daan Steenkamp (Reserve Bank of New Zealand)
    Abstract: This paper produces aggregate and industry estimates of Total Factor Productivity (TFP) for New Zealand. TFP is estimated based on Constant Elasticity of Substitution (CES) production functions that permit varying assumptions about factor augmentation and that allow for industry-specific values of the elasticity of substitution between inputs. The CES approach simultaneously explains changes in labour share and output over time, and provides estimates of the contribution of capital and labour to productivity in New Zealand. The results suggest that negative capital- augmenting technical change in several industries has weighed on productivity in New Zealand.
    Date: 2016–12
  4. By: Jose-Maria Da-Rocha; Marina Mendes Tavares; Diego Restuccia
    Abstract: We assess the quantitative impact of firing costs on aggregate total factor productivity (TFP) in a dynamic general-equilibrium framework where the distribution of establishment-level productivity is not invariant to the policy. Firing costs not only generate static factor misallocation, but also a worsening of the productivity distribution contributing to large aggregate TFP losses. Firing costs equivalent to 5 year's wages imply a drop in TFP of more than 20 percent. Factor misallocation accounts for 20 percent of the productivity loss, a relatively small drop in TFP, whereas the remaining 80 percent arises from the endogenous change in the productivity distribution.
    Keywords: firing costs, inaction, misallocation, establishments, productivity.
    JEL: O1 O4 E1 E6
    Date: 2016–12–23
  5. By: Kim, Jiyoung; Nakano, Satoshi; Nishimura, Kazuhiko
    Abstract: In this study, interactions between potential hierarchical value chains existing in the production structure and industry-wise productivity growths are sought. We applied generalized Chenery-Watanabe heuristics for matrix linearity maximization to triangulate the input-output incidence matrix for both Japan and the Republic of Korea, finding the potential directed flow of values spanning the industrial sectors of the basic (disaggregated) industry classifications for both countries. Sector specific productivity growths were measured by way of the Trönquvist index, using the 2000-2005 linked input-output tables for both Japan and Korea.
    Keywords: Productivity, Input-output tables, Triangulation, Linked Input-Output Tables, Linear Ordering Problem, Productivity Growth
    JEL: D24 D57 D58
    Date: 2016–12
  6. By: Kurosaki, Takashi; Parinduri, Rasyad; Paul, Saumik
    Abstract: This paper reevaluates the effect of a tenancy reform, popularly known as Operation Barga, on agricultural productivity in West Bengal, India. We employ a transparent empirical strategy based on synthetic control. We focus on the varying intensity of Operation Barga across West Bengal districts by comparing the districts' agricultural productivity with that of counterfactual districts using the synthetic control approach. Concerns over agro-climatic diversity and the recorded history of land reforms were also addressed while creating counterfactual districts. We find robust empirical evidence of a negligible effect on agricultural productivity growth. Next, we consider a theoretical framework to estimate the potential gains from Operation Barga in light of several types of sharecroppers. Consistent with the empirical findings, we conclude that the capacity of Operation Barga to enhance agricultural productivity is heavily constrained by the heterogeneity of sharecroppers in terms of wealth and livelihood structure.
    Keywords: land reform, agricultural productivity, synthetic control, India
    JEL: D60 O4 Q1 R11
    Date: 2016–11
  7. By: Shonchoy, Abu S.; Tsubota, Kenmei
    Abstract: Political protests in the form of strikes, locally known as hartal, remain quite common in the Indian subcontinent countries. Such a form of protests is associated with mass movement, intended to cause a total shutdown of economic activities and often results in coercion, violence, and damage to both public and private properties. Utilizing the World Bank Enterprise survey data of 2007 and 2013 of Bangladesh, this study examines the impacts of hartals on manufacturing firms. We find that political protests significantly increase costs for firms. Using flexible cost function based on factor analysis we see that the factor-neutral effect of strikes is positive and statistically significant, showing evidence of a reduction in 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 hartals.
    Keywords: Productivity, Manufacturing industries, Mass movement, Political strikes, Translog cost function, Factor biased technology
    JEL: D24 D74 O14
    Date: 2015–03
  8. By: Gidehag, Anton (Örebro University and HUI Research); Lodefalk, Magnus (The Ratio Institute)
    Abstract: We examine the link between new employees in leading positions and subsequent productivity in small- and medium-sized (SME) enterprises. Managers and professionals are likely to possess important tacit knowledge. They are also in a position to influence the employing firm. Exploiting rich and comprehensive panel data for Sweden in the 2001-2010 period and employing semi-parametric and quasi-experimental estimation techniques, we find that newly recruited leading personnel have a positive and statistically significant impact on the productivity of the hiring SME. Interestingly, our results suggest that professionals with experience from international firms and enterprise groups contribute the most to total factor productivity. Overall, the findings suggest the importance of mobility of leading personnel for productivity-enhancing knowledge spillovers to SMEs.
    Keywords: recruitment; knowledge spillovers; firm growth; productivity; SME
    JEL: D22 D24 D83 J24 J62
    Date: 2016–12–15
  9. By: Ursel Baumann (European Central Bank); Melina Vasardani (Bank of Greece)
    Abstract: The US recovery following the Great Recession has been marked by persistent low growth. At the same time, productivity growth has consistently disappointed in the aftermath of the last recession. This has raised doubts about the long-term growth prospects of the US economy and led to worries about secular stagnation. This paper contributes to the debate by empirically revising the main determinants of labour productivity growth over the period 1999-2013 for a panel of US states, focusing on capital deepening, R&D spending, the sectoral composition, financial factors and business dynamism. We find that more than half of the slowdown in productivity growth in the period 2011-13 relative to its sample average is due to a decline in the rate of capital deepening. The other major factor explaining the recent weakness in productivity growth - more closely related to TFP - is the slowdown in business dynamism experienced by the US economy. By contrast, financial factors appear to have become supportive of productivity growth in that period.
    Keywords: Labour productivity; Total factor productivity; Potential output; Business dynamism.
    JEL: D24 E24 J24 O47
    Date: 2016–11
  10. By: Joshua Graff Zivin; Matthew E. Kahn
    Abstract: How will a nation’s aggregate urban productivity be affected by climate change? The joint distribution of climate conditions and economic activity across a nation’s cities will together determine industrial average exposure to climate risk. Air conditioning (AC) can greatly reduce this heat exposure. We develop a simple model of air conditioning adoption by heterogeneous firms within an industry. Our analysis suggests that high productivity firms are more likely to adopt AC since they suffer larger productivity losses when it is hot. Given that the most productive firms produce a disproportionate share of industry-level output, we present aggregation results highlighting how the industry’s output is insulated from the heat. Our empirical analysis of the impacts of heat on total factor productivity in U.S manufacturing yields findings broadly consistent with our model’s predictions.
    JEL: L25 L6 O44 O47 Q54
    Date: 2016–12
  11. By: Ottaviano, Gianmarco I. P.; Peri, Giovanni; Wright, Greg C.
    Abstract: This paper explores the impact of immigrants on the imports, exports and productivity of service- producing firms in the U.K. Immigrants may substitute for imported intermediate inputs (offshore production) and they may impact the productivity of the firm as well as its export behavior. The first effect can be understood as the re-assignment of offshore productive tasks to immigrant workers. The second can be seen as a productivity or cost cutting effect due to immigration, and the third as the effect of immigrants on specific bilateral trade costs. We test the predictions of our model using differences in immigrant inflows across U.K. labor markets, instrumented with an enclave-based instrument that distinguishes between aggregate and bilateral immigration, as well as immigrant diversity. We find that immigrants increase overall productivity in service-producing firms, revealing a cost cutting impact on these firms. Immigrants also reduce the extent of country-specific offshoring, consistent with a reallocation of tasks and, finally, they increase country-specific exports, implying an important role in reducing communication and trade costs for services.
    Keywords: Immigration,Services Trade
    JEL: F16 F10 F22 F23
    Date: 2016
  12. By: Vincent Vandeberghe (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: The aim of this paper is to develop and implement an analytical framework assessing whether better-quality inputs, via a rise of TFP, could compensate an ageing-induced slowing of economic growth. Here "better-quality" means more educated and older/more experienced workforces; and also better-quality capital proxied by its ICT content. Economic theory predicts that these trends should raise TFP. To assess these predictions, we use EU-KLEMS data, with information on the age/education mix of the workforce, as well as the importance on ICT in total capital, for 34 industries within 16 OECD countries, between 1970 and 2005. We generalise the Hellerstein-Neumark labour-quality index method to simulateneously capture workers’ age/experience or education contribution to TFP growth, alonside that of ICT. The conclusion of the paper is that the quality of inputs matters for TFP. We find robust microeconometric evidence that better-educated and older/more experienced workers are more productive than their less-educated and younger/less-experienced peers. Also, ICT capital turns out to be more productive than other forms of capital. And when used in a growth accounting exercise covering the 1995-2005 period, these estimates suggest that up to 40% of the recorded TFP growth could be ascribed to the rising quality of inputs.
    Keywords: TFP growth, Ageing, Input quality, ICT
    JEL: J11 J24 D24 O30
    Date: 2016–12–15
  13. By: Hassan, Fadi; Di Mauro, Filippo; Ottaviano, Gianmarco I. P.
    Abstract: Financial institutions are key to allocate capital to its most productive uses. In order to examine the relationship between bank credit and firm-level productivity in the context of different financial markets set-ups, we introduce a model of overlapping generations of entrepreneurs under complete and incomplete credit markets. Then, we exploit firm-level data for a group of European countries to explore the relation between bank credit and productivity following the main predictions of the model. We estimate an extended set of elasticities of bank credit with respect to a series of productivity measures of firms. We focus not only on the elasticity between bank credit and productivity during the same year, but also on the elasticity between credit and future realised productivity. Our estimates show a clear Euro-zone core-periphery divide, for instance the elasticities between credit and productivity estimated in France and Germany are consistent with complete markets, whereas in Italy they are consistent with incomplete markets. The implication is that in countries that are consistent with an incomplete market setting, firms turn to be constrained in their long-term investments and bank credit is allocated less efficiently than in other countries. Hence capital misallocation by banks can be a key driver of the long-standing slow productivity growth that characterises periphery countries.
    Keywords: Bank Credit,Capital Allocation,Productivity,Credit Constraints
    JEL: G10 G21 G31 D92 O16
    Date: 2016
  14. By: Biørn, Erik (Dept. of Economics, University of Oslo)
    Abstract: For a panel data regression equation with two-way unobserved heterogeneity, individual-specific and period-specific, ‘within-individual’ and ‘within-period’ estimators, which can be given Ordinary Least Squares (OLS) or Instrumental Variables (IV) interpretations, are considered. A class of estimators defined as linear aggregates of these estimators, is defined. Nine aggregate estimators, including between, within, and Generalized Least Squares (GLS), are special cases. Other estimators are shown to be more robust to simultaneity and measurement error bias than the standard aggregate estimators and more efficient than the ‘disaggregate’ estimators. Empirical illustrations relating to manufacturing productivity are given.
    Keywords: Panel data; Aggregation; IV estimation; Robustness; Method of moments; Factor productivity
    JEL: C13 C23 C43
    Date: 2016–12–17
  15. By: Stephen Ayerst
    Abstract: Empirical evidence indicates that resource misallocation has a substantial negative effect on aggregate productivity in developing countries. I show that the same underlying institutions that create misallocation are also important for explaining cross-country technology differences. I study a model of heterogeneous firms that choose both labour and technology inputs. Distortions are modeled as idiosyncratic wedges on firm revenues and delay adoption by disincentivizing firms from investing in newer technologies. At the aggregate level, distortions targeting high productivity firms delay the initial adoption of new technologies. In the calibrated model, distortions account for a large portion of the observed cross-country technology differences. Moving from the distortions of the bottom decile economy to the United States' level explains just under half of the observed adoption lag and increases productivity by 89%. Over half of the productivity increase is from firms adjusting technology.
    Keywords: Productivity, Misallocation, Technology Diffusion.
    Date: 2016–12–18
  16. By: Ligia Alba Melo-Becerra (Banco de la República de Colombia); Lucas Wilfried Hahn-De-Castro (Banco de la República de Colombia); Dalma Sofía Ariza-Hernández (Departamento Nacional de Planeación); Cristian Oswaldo Carmona-Sanchez (Departamento Nacional de Planeación)
    Abstract: This paper estimates the local efficiency of the public provision of education in Colombia between 2007 and 2014. The empirical analysis relies on a multiproduct function that assesses public performance considering two types of education products: quality and enrolment. Results for Colombian municipalities show efficiencies that vary between 10% and 90%, suggesting that better results in quality and enrolment in public education could be accomplished using the same resources. Sources of inefficiency are explored, such as institutional environment and fiscal autonomy. Differing regional patterns are observed for the cases of education quality and enrolment. Classification JEL: C23, D24, H75, I20
    Keywords: Education, Technical Efficiency, Multiproduct Function, Colombia
    Date: 2016–12
  17. By: David Rappoport
    Abstract: This paper presents empirical evidence on the effect of banks' financial position on credit growth using a sample of 29 OECD countries. The failure of the exogeneity assumption of explanatory variables is addressed using dynamic panel type instruments. The empirical results show that among capital, profits and liquidity at the end of the previous year, capital is the most important predictor of credit growth in the current year. The relationship between capital and credit growth is non-linear. Point estimates from the preferred econometric specification imply that at the sample mean a one standard deviation increase (decrease) in capital is associated with an increase (decrease) of 0.8 (0.3) percentage points in credit growth upon impact and 1.6 (0.6) percentage points in the long-run.
    Keywords: Bank lending ; Banking ; Bank financial position ; Credit supply ; OECD
    JEL: G21 E44 G28
    Date: 2016–09–19
  18. By: Chaoran Chen
    Abstract: The prevalence of untitled land in poor countries helps explain the international agricultural productivity differences. Since untitled land cannot be traded across farmers, it creates land misallocation and distorts individuals' occupational choice between farming and working outside agriculture. I build a two-sector general equilibrium model to quantify the impact of untitled land. I find that economies with higher percentages of untitled land would have lower agricultural productivity; land titling can increase agricultural productivity by up to 82.5%. About 42% of this gain is due to eliminating land misallocation, and the remaining due to eliminating distortions in individuals' occupational choice.
    Keywords: Agricultural Productivity, Untitled Land, Misallocation, Occupational Choice.
    JEL: J24 O13 Q12
    Date: 2016–12–23
  19. By: Wenli Cheng; Yongzheng Wu
    Abstract: We study the roles of political connection and firm performance in bank credit allocation in China’s private sector. Based on data from the 9th Nationwide Survey of Privately Owned Enterprises in China conducted in 2010, we find that: (1) Politically connected firms were more likely to gain access to bank credit, but good firm performance did not seem to have improved firms’ chances of obtaining bank loans; (2) Good performance did help firms get more loans - of the firms that had access to bank credit, those with better performance in the previous year had larger amounts of bank loans; and (3) politically connected firms performed better; and better performance had a small effect of helping the owner establish political connection. These suggest that political connection was used as a signal for credit worthiness that entails not only good performance, but also some other intangible assets unrelated to firm performance (e.g., ability to obtain government bailouts) which would protect the firm from financial ruin.
    Keywords: political connection, firm performance, access to bank credit, private firms in China
    JEL: G21
    Date: 2016–11
  20. By: Kristopher J. Hult; Sonia Jaffe; Tomas J. Philipson
    Abstract: Medical innovations have improved survival and treatment for many diseases but have simultaneously raised spending on health care. Many health economists believe that technological change is the major factor driving the growth of the heath care sector. Whether quality has increased as much as spending is a central question for both positive and normative analysis of this sector. This is a question of the impact of new innovations on quality-adjusted prices in health care. We perform a systematic analysis of the impact of technological change on quality-adjusted prices, with over six thousand comparisons of innovations to incumbent technologies. For each innovation in our dataset, we observe its price and quality, as well as the price and quality of an incumbent technology treating the same disease. Our main finding is that an innovation’s quality-adjusted prices is higher than the incumbent’s for about two-thirds (68%) of innovations. Despite this finding, we argue that quality-adjusted prices may fall or rise over time depending on how fast prices decline for a given treatment over time. We calibrate that price declines of 4% between the time when a treatment is a new innovation and the time when it has become the incumbent would be sufficient to offset the observed price difference between innovators and incumbents for a majority of indications. Using standard duopoly models of price competition for differentiated products, we analyze and assess empirically the conditions under which quality-adjusted prices will be higher for innovators than incumbents. We conclude by discussing the conditions particular to the health care industry that may result in less rapid declines, or even increases, in quality-adjusted prices over time.
    JEL: I1 O3
    Date: 2016–12

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