nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2017‒11‒05
23 papers chosen by

  1. Technological catching-up and growth convergence among US industries By Jean-Philippe Boussemart; Hervé Leleu; Edward Mensah; Karina Shitikova
  2. The determinants of firms’ convergence to the European TFP frontier By Dolores Añón Higón; Juan A. Mañez; María E. Rochina-Barrachina; Amparo Sanchis; Juan A. Sanchis-Llopis
  3. Consistent inference in fixed-effects stochastic frontier models By Federico Belotti; Giuseppe Ilardi
  4. Eigenvalue Productivity: Measurement of Individual Contributions in Teams By Julia Müller; Thorsten Upmann
  5. The Porter Hypothesis Goes to China: Spatial Development, Environmental Regulation and Productivity. By Pedro Naso; Yi Huang Author Name: Tim Swanson
  6. Does Tax Haven FDI Influence Firm Performance? By Gerda Dewit; Dermot Leahy; Chris Jones; Yama Temouri
  7. The Magnitude of the Task Ahead: Macro Implications of Heterogeneous Technology By Markus Eberhardt; Francis Teal
  8. Credit Misallocation During the European Financial Crisis By Fabiano Schivardi; Enrico Sette; Guido Tabellini
  9. Capital Misallocation and Financial Development: A Sector-Level Analysis By Daniela Marconi; Christian Upper
  10. Specification Testing of Production in a Stochastic Frontier Model By Xu Guo; Gao-Rong Li; Michael McAleer; Wing-Keung Wong
  11. On the Relationship Between Quality and Productivity: Evidence from China's Accession to the WTO By Haichao Fan; Yao Amber Li; Stephen R. Yeaple
  12. Learning-by-Exporting across Export Destinations: Evidence from Lithuanian Manufacturing By Tobias D. Ketterer
  13. Services Trade Policy, Domestic Regulation and Economic Governance By Matteo Fiorini; Bernard Hoekman
  14. Performance Pay May Not Raise Performance – A Cautionary Tale Based On Evidence from Large Scale Field Experiments in a Retail Chain By Manthei, Kathrin; Sliwka, Dirk; Vogelsang, Timo
  15. Firm Response to Competitive Shocks: Evidence from China's Minimum Wage Policy By Harald Hau; Yi Huang; Gewei Wang
  16. Sustainable Development in Four East Asian Countries' Agricultural Sectors Post-World War II: Measuring Nutrient Balance and Estimating the Environmental Kuznets Curve By Shota Moriwaki
  17. Leapfrogging: Time of Entry and Firm Productivity By Götz, Georg; Ederington, Josh
  18. The Opportunities and Challenges Overview: Implementing Performance Based Standards Regulation for High Capacity Passenger Vehicle in Malaysia By Osmin, Muhamad Shaharudin; Md. Diah, Jezan; Mohd. Sharif, Sariwati
  19. Frontier Knowledge and Scientific Production: Evidence from the Collapse of International Science By Alessandro Iaria; Carlo Schwarz; Fabian Waldinger
  20. Measuring the “Free” Digital Economy Within the GDP and Productivity Accounts By Nakamura, Leonard I.; Samuels, Jon; Soloveichik, Rachel
  21. Determinants of Firm-Level Domestic Sales and Exports with Spillovers: Evidence from China By Badi H. Baltagi; Peter H. Egger; Michaela Kesina
  22. Growing Productivity without Growing Wages: The Micro-Level Anatomy of the Aggregate Labor Share Decline By Matthias Kehrig; Nicolas Vincent
  23. The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity By Johannes Boehm

  1. By: Jean-Philippe Boussemart (University of Lille 3 and IESEG School of Management (LEM 9221-CNRS)); Hervé Leleu (CNRS-LEM 9221 and IESEG School of Management); Edward Mensah (University of Illinois at Chicago and IÉSEG School of Management); Karina Shitikova (IÉSEG School of Management (LEM-CNRS 9221))
    Abstract: Using a non-parametric programming framework, we analyze input-output ratio convergence and technical efficiency catching-up among 63 North American industries over the period 1987-2014. We first separate efficiency gaps into two components: a technical efficiency effect taking into account industry size heterogeneity and a structural component which highlights the impacts of an input-output deepening or expanding effect on technological transfer over time. Secondly, a panel data analysis is performed to link input and output price evolutions with changes in technical efficiencies and input-output mixes. Results clearly show that convergence is observed for both technical and structural components. The impact of these convergence processes on the US economy is estimated at around 0.64% of additional growth. Moreover, these two convergence processes have positive influence onto final demand prices and profitability but negative impact onto suppliers’ prices while no effect can be established on employees or capital providers’ remunerations.
    Date: 2017–09
  2. By: Dolores Añón Higón (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Juan A. Mañez (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); María E. Rochina-Barrachina (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Amparo Sanchis (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).); Juan A. Sanchis-Llopis (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)
    Abstract: In this article we characterize Total Factor Productivity (TFP) frontier firms at the industry level within the European Union during the period 2003-2014, and explore the determinants of the firms’ distance to the frontier. We find that larger, more capital-intensive, and more labour skilled firms are closer to the productivity frontier. In contrast, older firms are further away from the frontier. In addition, we obtain that a number of countries' economic and institutional factors, such as tertiary education, trade openness, easiness in getting credit and governance quality, all positively affect the catching up of laggards towards the productivity frontier. We also examine the moderating effect of the Great Recession on these determinants and obtain differentiated patterns.
    Keywords: TFP, frontier firms, laggard firms, Great Recession, European Union countries
    JEL: F43 O47 O52
    Date: 2017–07
  3. By: Federico Belotti (University of Rome Tor Vergata); Giuseppe Ilardi (Bank of Italy)
    Abstract: The classical stochastic frontier panel data models provide no mechanism for disentangling individual time-invariant unobserved heterogeneity from inefficiency. Greene (2005a, b) proposed the ‘true’ fixed-effects specification, which distinguishes these two latent components while allowing for time-variant inefficiency. However, due to the incidental parameters problem, the maximum likelihood estimator proposed by Greene may lead to biased variance estimates. We propose two alternative estimation procedures that, by relying on a first-difference data transformation, achieve consistency when n goes to infinity with fixed T. Furthermore, we extend the approach of Chen et al. (2014) by providing a computationally feasible solution for estimating models in which inefficiency can be heteroskedastic and may follow a first-order autoregressive process. We investigate the finite sample behavior of the proposed estimators through a set of Monte Carlo experiments. Our results show good finite sample properties, especially in small samples. We illustrate the usefulness of the new approach by applying it to the technical efficiency of hospitals.
    Keywords: stochastic frontiers, fixed-effects, panel data, pairwise differencing
    JEL: C13 C16 C23
    Date: 2017–10
  4. By: Julia Müller; Thorsten Upmann
    Abstract: While the output of a team is evident, the productivity of each team member is typically not readily identifiable. In this paper we consider the problem of measuring the productivity of team members. We propose a new concept of coworker productivity, which we refer to as eigenvalue productivity (EVP). We demonstrate the existence and uniqueness of our concept and show that it possesses several desirable properties. Also, we suggest a procedure for specifying the required productivity matrix of a team, and illustrate the operational practicability of EVP by means of three examples representing different types of the available data.
    Keywords: coworker productivity, eigenvalue productivity, centrality, team production
    JEL: D24 J24 L23
    Date: 2017
  5. By: Pedro Naso; Yi Huang Author Name: Tim Swanson
    Abstract: We examine the relationship between environmental regulation and competitiveness in China. Exploiting exogenous changes in national pollution standards for three industries—ammonia, paper and cement—we test whether environmental regulation increases industry productivity. Our results show that the strong version of the Porter hypothesis does not hold, but that regulation might reallocate productivity spatially. We show that regulated industries that are located in newly developing cities see an increase in their productivity as compared to the same industries in other cities. This means that environmental regulation is more likely to drive the spatial distribution of productivity changes than it is to drive the pace and direction of technological change.
    Keywords: Tax competition; Production Technology and Environment and Development
    JEL: H71 O13 Q56 D24
    Date: 2017–10–04
  6. By: Gerda Dewit (Department of Economics, Finance and Accounting, Maynooth University.); Dermot Leahy (Department of Economics, Finance and Accounting, Maynooth University.); Chris Jones (Aston University, Birmingham, UK); Yama Temouri (.Aston University, Birmingham, UK)
    Abstract: This paper provides theoretical and empirical evidence of the link between the use of tax haven subsidiaries by multinational enterprises (MNEs) and firm performance, as measured by total factor productivity. We find that the use of tax havens has no impact on economic dynamism for a sample of MNEs from across the OECD. Our results have significant policy implications in terms of the role of tax havens in the world economy.
    Date: 2017
  7. By: Markus Eberhardt; Francis Teal
    Abstract: The empirical growth literature is dominated by accounting and regression methods which assume common production technology across countries. Our empirical model relaxes this assumption and further allows unobservable determinants of output (Total Factor Productivity, TFP) to differ across countries and time, while accounting for endogeneity and cross-section correlation arising from global shocks. Using manufacturing sector data for 48 economies we show that the assumption of common technology creates questionable results in accounting exercises and is rejected in our regressions. We illustrate that the erroneous choice of homogeneous technology has substantial impact on patterns and magnitudes of resulting TFP estimates.
    Keywords: Cross-Country Analysis; Heterogeneous Technology; Total Factor Productivity; Common Factor Model
    Date: 2017
  8. By: Fabiano Schivardi; Enrico Sette; Guido Tabellini
    Abstract: Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2004-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks were less likely to cut credit to non-viable firms. (ii) Credit misallocation increased the failure rate of healthy firms and reduced the failure rate of non viable firms. (iii) Nevertheless, the adverse effects of credit misallocation on the growth rate of healthier firms were negligible, and so were the effects on TFP dispersion. This goes against previous inuential findings that, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocation was modest.
    Keywords: bank capitalization, zombie lending, capital misallocation
    JEL: D23 E24 G21
    Date: 2017
  9. By: Daniela Marconi (Bank of Italy); Christian Upper (Bank for International Settlements)
    Abstract: This study investigates how financial development affects capital allocation across industries in a panel of countries at different stages of development (China, India, Mexico, Korea, Japan and the US) over the period 1980-2014. Following the approach proposed by Chari et al (2007) and Aoki (2012), we compute wedges for capital and labour inputs for 26 industrial sectors in the six countries and add them up to economy-wide measures of capital and labour misallocation. We find that more developed financial systems allocate capital investment more efficiently than less developed ones. If financial development is low, faster capital accumulation is associated with a worsening of allocative efficiency. This effect reverses for higher levels of financial development. Sectors with high R&D expenditures or high capital investment benefit most from financial development. These effects are not only statistically significant, they are also large in economic terms.
    Keywords: factor allocation, total factor productivity, financial development.
    JEL: E22 E23 O16 O47
    Date: 2017–10
  10. By: Xu Guo (Beijing Normal University); Gao-Rong Li (Beijing University of Technology); Michael McAleer (Econometric Institute, Erasmus University Rotterdam); Wing-Keung Wong (Asia University, Lingnan University)
    Abstract: Parametric production frontier functions are frequently used in stochastic frontier models, but there do not seem to be any empirical test statistics for its plausibility. To bridge the gap in the literature, we develop two test statistics based on local smoothing and an empirical process, respectively. Residual-based wild bootstrap versions of these two test statistics are also suggested. The distributions of technical inefficiency and the noise term are not specified, which allows specification testing of the production frontier function even under heteroscedasticity. Simulation studies and a real data example are presented to examine the finite sample sizes and powers of the test statistics. The theory developed in this paper is useful for production mangers in their decisions on production.
    Keywords: Production frontier function; Stochastic frontier model; Specification testing; Wild bootstrap; Smoothing process; Empirical process; Simulations
    JEL: C0 C13 C14 D81
    Date: 2017–10–26
  11. By: Haichao Fan (Institute of World Economy, School of Economics, Fudan University, Shanghai, China); Yao Amber Li (Division of Economics, The Hong Kong University of Science and Technology; Institute for Emerging Market Studies, Hong Kong University of Science and Technology; Research Affiliate of the China Research and Policy Group at University of Western Ontario); Stephen R. Yeaple (Department of Economics, Pennsylvania State University; Research Associate at National Bureau of Economic Research; Research Affiliate at Ifo Institute)
    Abstract: This paper presents an analysis of the effect of China’s entry into the WTO on the quality choices of Chinese exporters in terms of their outputs and their inputs. Using highly disaggregated firm-level data, we show that the quality upgrading made possible by China’s tariff reductions was concentrated in the least productive Chinese exporters. These firms, which had been laggards in terms of quality prior to the tariff reduction, were the most aggressive in increasing the quality of their exports and their inputs and in redirecting their exports towards high income markets where demand for high quality goods is strong. Our empirical results are consistent with a simple model featuring scale effect and non-Hicks’ neutral productivity that disproportionately affects the efficiency with which firms use intermediate inputs. This latter feature does not appear in workhorse models of firm heterogeneity and endogenous quality choice which provide a distorted view of the impact of trade liberalization on quality upgrading.
    Date: 2017–10
  12. By: Tobias D. Ketterer
    Abstract: This paper investigates micro-level effects of export market entry on firm-level productivity. In particular, we study the effects of single and multiple export market entry, and additionally differentiate between the effects of export market entry by destination country. To isolate the impact of participation in foreign markets we employ matching techniques. Using micro-level trade and balance sheet data for firms in Lithuania, we show that single export market entry is linked with larger post-entry productivity growth for new export market entrants, relative to similar non-exporting firms. Moreover, we find support for more learning-by-exporting when looking at firms exporting to more sophisticated markets with presumably higher productivity standards.
    JEL: F14 F18 Q56
    Date: 2017–07
  13. By: Matteo Fiorini; Bernard Hoekman
    Abstract: This paper empirically investigates the role of governance institutions in shaping the economic impact of services trade reform. The analysis focuses on the effects of services trade policy on the productivity of manufacturing sectors that use services as intermediate inputs. We find that these effects depend on the quality of governance institutions in the country implementing trade and investment reform. The moderating effects of horizontal (cross-cutting) and services sector-specific dimensions of economic governance institutions are found to differ. For some services activities market access opening can substitute for weak regulation/governance; in others bad regulatory governance is a binding constraint and needs to be addressed directly for market opening to have the greatest benefits. Our empirical findings suggest these complementarity and substitution relationships may be associated with the types of market failure that arise in different services sectors and the effectiveness of regulatory regimes in addressing them. We also find that positive effects of services trade and investment reforms are higher in EU member states.
    JEL: L8 O43
    Date: 2017–07
  14. By: Manthei, Kathrin; Sliwka, Dirk; Vogelsang, Timo
    Date: 2017
  15. By: Harald Hau; Yi Huang; Gewei Wang
    Abstract: The large regional variation in minimum wage levels in the period 2002-08 in China implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labor to capital, reduce employment growth and accelerate total factor productivity growth–particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labor cost shocks can be explained by differences in management practices, and suggests that management quality and competitive pressure are complementary.
    Keywords: firm productivity, capital investment, minimum wage policy
    JEL: D24 G31 J24 J31 O14
    Date: 2017
  16. By: Shota Moriwaki
    Abstract: The purpose of this study is to measure agricultural waste and estimate the environmental Kuznets curve in four East Asian countries using time series data from the 1960s to the 2010s. Positive nutrient balance (NB) suggests there is pressure on arable land, causing water pollution and greenhouse gases. For crop farming, only China's NB per arable land unit (NBAL) has risen recently, while NB per product (NBP) in all four countries has declined. Regarding livestock farming, NBAL in all countries except Japan has risen. Even more recently, China's NBP has risen differently to other countries' movements. The estimation results of the environmental Kuznets curve suggest China's NBAL will rise continuously with gross domestic product per capita increases in crop farming. For livestock farming, the estimated indexes are confirmed to have worsened with the advance of economic growth.
    Keywords: nutrient balance, farm gateway method, environmental Kuznets curve, breaking point unit-root test, non-linear co-integrating
    Date: 2017–09–11
  17. By: Götz, Georg; Ederington, Josh
    Abstract: We develop a model in which ex ante identical firms make endogenous entry and technology adoption decisions. We show that this model is capable of matching the stylized facts in which entry is dispersed over time and that, in many industries, it is the newest firms which are the most likely to exhibit high productivity growth and adopt new innovations (i.e., leapfrogging). We then derive the characteristics of those industries where such leapfrogging is likely to occur.
    JEL: L11
    Date: 2017
  18. By: Osmin, Muhamad Shaharudin; Md. Diah, Jezan; Mohd. Sharif, Sariwati
    Abstract: Road accidents involving heavy commercial passenger vehicle (HCPV) in Malaysia have always been in the spotlight and various efforts have been taken with much attention given on operational issues. At present, the weight and dimensions of HCPV in Malaysia generally regulated under prescriptive standards regulations which do not provide clear safety outcomes and often limits the flexibility about how to achieve it. This paper provides an overview of opportunities and challenges of implementing Performance Based Standards (PBS) regulation for HCPV vehicle in Malaysia based on the Australian PBS regulation implementation for heavy vehicle. It was found that Tail Swing, Braking Efficiency and Maximum Stable Inclination Angle under the existing regulation have or partly met the PBS approach. The opportunities for implementing PBS regulation were explained in terms of the possibility adopting PBS approaches in the existing regulation and second, the institutional readiness to develop and implement it. However, challenges were expected, for example increase in cost of vehicle’s assessment. Implementing PBS regulation for HCPV in Malaysia will provide various benefits such as increase productivity, efficiency and most importantly safety.
    Keywords: High capacity passenger vehicle, prescriptive standard regulations, performance based standards regulation, opportunities, challenges
    JEL: K23 R48
    Date: 2017–09–08
  19. By: Alessandro Iaria; Carlo Schwarz; Fabian Waldinger
    Abstract: We show that WWI and the subsequent boycott against Central scientists severely interrupted international scientific cooperation. After 1914, citations to recent research from abroad decreased and paper titles became less similar (evaluated by Latent Semantic Analysis), suggesting a reduction in international knowledge flows. Reduced international scientific cooperation led to a decline in the production of basic science and its application in new technology. Specifically, we compare productivity changes for scientists who relied on frontier research from abroad, to changes for scientists who relied on frontier research from home. After 1914, scientists who relied on frontier research from abroad published fewer papers in top scientific journals, produced less Nobel Prize-nominated research, introduced fewer novel scientific words, and introduced fewer novel words that appeared in the text of subsequent patent grants. The productivity of scientists who relied on top 1% research declined twice as much as the productivity of scientists who relied on top 3% research. Furthermore, highly prolific scientists experienced the starkest absolute productivity declines. This suggests that access to the very best research is key for scientific and technological progress.
    Keywords: frontier knowledge, scientific production, international knowledge flows, WWI
    JEL: O3 N3 N4 O31 O5 N30 N40 J44 I23
    Date: 2017–10
  20. By: Nakamura, Leonard I. (Federal Reserve Bank of Philadelphia); Samuels, Jon (U.S. Bureau of Economic Analysis); Soloveichik, Rachel (U.S. Bureau of Economic Analysis)
    Abstract: We develop an experimental methodology that values ”free” digital content through the lens of a production account and is consistent with the framework of the national accounts. We build upon the work in Nakamura, et al. (2016) by combining marketing- and advertising-supported content and find that the impact of ”free” digital content on U.S. gross domestic product (GDP) has accelerated in recent years, particularly since 2005. However, the explosion in ”free” digital content is partially offset by a decrease in ”free” print content like newspapers. Including these, real GDP growth would grow at 1.53 percent a year from 2005 to 2015 rather than the official growth rate of 1.42 percent, a tenth of a percent faster. Thus, there is a substantive impact on 2005 to 2015 real growth, even when we do not measure the full consumer surplus benefits of free goods. In addition, from 1995 to 2005, real GDP growth, including ”free” content, would grow 0.07 percentage point faster, and in the earlier period, from 1929 to 1995, 0.01 percentage point faster. We further find that the personal consumption expenditures (PCE) and core PCE deflators would have risen about 0.1 percentage point more slowly from 2005 to 2015. To analyze the impact of ”free” content on measured private business total factor productivity (TFP) growth, we account for inputs of ”free” content used in production. We find that TFP would grow faster by 0.07 percentage point per year from 2005 to 2014 and faster by 0.07 percentage point from 1995 to 2005.
    Keywords: Internet; productivity; advertising; marketing; measurement; GDP
    JEL: C82 L81 M37 O3
    Date: 2017–10–23
  21. By: Badi H. Baltagi (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244); Peter H. Egger (ETH Zurice, CEPR, CESifo, GEP); Michaela Kesina (ETH Zurich)
    Abstract: This paper studies the determinants of firm-level revenues, as a measure of the performance of firms in China's domestic and export markets. The analysis of the determinants of the aforementioned outcomes calls for a mixed linear-nonlinear econometric approach. The paper proposes specifying a system of equations, which is inspired by Basmann's work and recent theoretical work in international economics and conducts comparative static analyses regarding the role of exogenous shocks to the system to flesh out the relative importance of transmissions across outcomes.
    Keywords: Spatial Econometrics, Spillovers, Panel-Data Econometrics, Nonlinear Systems, Firm- Level Sales, Chinese Firms
    JEL: C23 C31 D24 L65
    Date: 2017–09
  22. By: Matthias Kehrig; Nicolas Vincent
    Abstract: The aggregate labor share in U.S. manufacturing declined dramatically over the last three decades: Since the mid-1980’s, the compensation for labor declined from 67% to 47% of value added which is unseen in any other sector of the U.S. economy. The labor share of the typical U.S. manufacturing plants, in contrast, rose by over 5 percentage points. We reconcile these two facts by documenting (1) an important reallocation of production towards “hyper-productive plants†and (2) a downward adjustment of the labor share of those same plants over time. These two related forces account for almost all the change in the trend of aggregate labor share in the manufacturing sector, with only a small role for exit of high-labor-share plants. Relative to their peers, plants that account for the majority of production by the late 2000's arrive at a low labor share by gradually increasing value added by a factor of three while keeping employment and compensation unchanged.
    Keywords: labor share, productivity, firm size distribution, organization of markets
    JEL: E20 L10 L20 L60 O40
    Date: 2017
  23. By: Johannes Boehm (Sciences Po)
    Abstract: Legal institutions affect economic outcomes, but how much? This paper studies how costly supplier contract enforcement shapes the patterns of intermediate input use and quantifies the impact of these distortions on aggregate productivity and welfare. Using the frequency of litigation between US firms to measure the potential for hold-up problems, I find a robust relationship between countries' input-output structure and their quality of legal institutions: in countries with high enforcement costs, firms have lower expenditure shares on intermediate inputs in sector pairs where US firms litigate frequently for breach of contract. I adapt a Ricardian trade model to the study of intersectoral trade, and show that the variation in intermediate input shares that is explained by contracting frictions is large enough to generate sizeable welfare increases when enforcement institutions are improved.
    Date: 2017

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.