nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2017‒11‒19
sixteen papers chosen by

  1. Air pollution spillovers and U.S. state productivity growth By Neophyta Empora
  2. Labor productivity, capital accumulation, and aggregate efficiency across countries: Some stylized facts By Mendez-Guerra, Carlos
  3. Profit efficiency of banks in Colombia with undesirable output: A directional distance function approach By Almanza Ramírez, Camilo; Mora, Jhon James; Cendales, Andrés
  4. The Effects of Land Markets on Resource Allocation and Agricultural Productivity By Chaoran Chen; Diego Restuccia; Raul Santaeulalia-Llopis
  5. Insolvency Regimes, Technology Diffusion and Productivity Growth: Evidence from Firms in OECD Countries By Muge Adalet McGowan; Dan Andrews; Valentine Millot
  6. Multinationals and Reallocation: Productivity Growth in the Canadian Manufacturing Sector By Gu, Wulong; Li, Jiang
  7. Fueling the US Economy: Energy as a Production Factor from the Great Depression until Today By Frieling, Julius; Madlener, Reinhard
  8. Misallocation, Selection and Productivity: A Quantitative Analysis with Panel Data from China By Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia
  9. Breaking the Shackles: Zombie Firms, Weak Banks and Depressed Restructuring in Europe By Dan Andrews; Filippos Petroulakis
  10. Financial Crisis, banking sector performance and economic growth in the European Union By Cândida Ferreira
  11. The Product-Related Environmental Regulation, Innovation, and Competitiveness: Empirical Evidence from Malaysian and Vietnamese Firms By Qizhong YANG; Tsunehiro OTSUKI
  12. Where to get the best bang for the buck in the United Kingdom?: Industrial strategy, investment and lagging regions By Rafał Kierzenkowski; Peter Gal; Gabor Fulop
  13. The Effect of Restructuring on Labor Reallocation and Productivity Growth: An Estimation for Korea By Choi, Hyelin; Jung, Sung Chun; Kim, Su Bin
  14. Structural policy indicators database for economic research (SPIDER) By Balázs Égert; Peter Gal; Isabelle Wanner
  15. Heterogeneous spillovers among Spanish provinces: A generalized spatial stochastic frontier model By Gude, Alberto; Álvarez, Inmaculada C.; Orea, Luis
  16. The Changing Importance of Foreign Control in Canadian Manufacturing By Baldwin, John R.; Li, Jiang

  1. By: Neophyta Empora
    Abstract: This study investigates the effect of pollution and pollution spillovers on the Total Factor Productivity (TFP) growth among the 48 contiguous U.S. states, for the period 1965-2002. Specifically, this study accounts for the spatial relationship between the states that arises from the transboundary nature of Sulphur dioxide (SO2) emissions and investigates how the dispersion of pollution affects economic growth. The relationship between TFP growth, pollution and pollution spillovers is estimated using a semiparametric smooth coefficient model that allows estimating the output elasticity of pollution and pollution spillovers for each state and each period and accounts for possible nonlinearities in the data. According to the results, the effect of spillover pollution on growth is negative and larger in magnitude than the positive effect of a state’s own emissions: decreases in emissions might not be so harmful for productivity growth.
    Keywords: TFP Growth; Pollution; Transboundary Pollution Spillovers; Semiparametric Estimation
    JEL: C14 O13 O40
    Date: 2017–11
  2. By: Mendez-Guerra, Carlos
    Abstract: This paper studies the cross-section dynamics of the proximate determinants of labor productivity: physical capital, human capital, and aggregate efficiency. Using a panel data set for 74 countries covering the 1950-2010 period, it first documents that labor productivity of the median country has been mostly stagnant, while cross-country differences have drastically increased. An evaluation of proximate sources points to a similar pattern of stagnation and increasing dispersion in both physical capital and aggregate efficiency. Human capital is the only variable where median progress and inequality reduction can be observed. Next, the paper shows how standard regression methods consistently overestimate the fraction of the variation in labor productivity that is explained by physical capital. The source of this upward bias appears is the unaccounted covariance between capital accumulation and aggregate efficiency. Taking this covariance into account, most of the variation in labor productivity turns out to be explained by differences in aggregate efficiency. Finally, the paper concludes arguing that allocative inefficiencies at the sectoral level, such as those predicted by dual-economy type models, are important for understanding the large and increasing differences in aggregate efficiency across countries.
    Keywords: labor productivity, capital accumulation, aggregate efficiency, stylized facts
    JEL: E01 O4 O47
    Date: 2017–11–07
  3. By: Almanza Ramírez, Camilo; Mora, Jhon James; Cendales, Andrés
    Abstract: This study investigates the sources of bank efficiency in Colombia over the period 2000-2011. To perform this research, the authors propose a score of bank efficiency using the directional distance function, which was estimated using data envelopment analysis. Additionally, they use an ordered probit panel regression to explore the effects of some market-related and bank-specific factors on efficiency. The authors' results show that the non-inclusion of non-performing loans (NPLs) leads to higher bank inefficiency indicators, which are significantly different from those obtained when NPLs are included. Further, the authors find that economic growth, capital risk, foreign and national banks, and account liquidity risk explain, in part, the efficiency of Colombian banks.
    Keywords: data envelopment analysis,Colombia,directional distance function,nonperforming loans,ordered probit panel models
    JEL: D22 G21
    Date: 2017
  4. By: Chaoran Chen; Diego Restuccia; Raul Santaeulalia-Llopis
    Abstract: We assess the role of land markets on factor misallocation in Ethiopia--where land is owned by the state--by exploiting policy-driven variation in land rentals across time and space arising from a recent land certification reform. Our main finding from detailed micro data is that land rentals significantly reduce misallocation and increase agricultural productivity. These effects are nonlinear across farms--impacting more those farms farther away from their efficient operational scale. The effect of land rentals on productivity is 70 percent larger when controlling for non-market rentals--those with a pre-harvest rental rate of zero. Land rentals significantly increase the adoption of new technologies, especially fertilizer use.
    Keywords: Productivity, agriculture, land markets, rentals, misallocation, micro data.
    JEL: E02 O11 O13 O55 Q1
    Date: 2017–11–11
  5. By: Muge Adalet McGowan (OECD); Dan Andrews (OECD); Valentine Millot (OECD)
    Abstract: This paper explores the link between the design of insolvency regimes across countries and laggard firms’ multi-factor productivity (MFP) growth, using new OECD indicators of the design of insolvency regimes. Firm-level analysis shows that reforms to insolvency regimes that lower barriers to corporate restructuring are associated with higher MFP growth of laggard firms. These results are consistent with the idea that insolvency regimes that do not unduly inhibit corporate restructuring can incentivise experimentation and provide scope to reconfigure production and organisational structures in order to faciliate technological adoption. The results also highlight policy complementarities, with insolvency regimes that reduce the cost of entrepreneurial failure potentially enhancing the MFP gains from lowering administrative entry barriers in product markets. Finally, we find that reducing debt bias in corporate tax systems and well-developed venture capital markets are associated higher laggard firm MFP growth, suggesting that equity financing can also be an important driver of technological diffusion. These findings carry strong policy implications, in light of the fact that there is much scope to reform insolvency regimes in many OECD countries and given evidence that stalling technological diffusion has contributed to the aggregate productivity slowdown.
    Keywords: equity financing, insolvency, laggard firms, Productivity, technological diffusion, venture capital
    JEL: D24 G33 G34 K35 O16 O40 O43 O47
    Date: 2017–11–06
  6. By: Gu, Wulong; Li, Jiang
    Abstract: Output growth in Canadian manufacturing was slower in the 2000s than in the 1990s. The sector?s real output declined, in contrast to an overall increase in output in the business sector (Clarke and Couture 2017). It fell rapidly during the 2007-to-2009 financial crisis, and returned to its pre-crisis level only in 2016. The market share of foreign-controlled firms also declined after 2000 (Baldwin and Li 2017). This paper examines the role of multinationals and reallocation in productivity growth in the Canadian manufacturing sector for the period from 2001 to 2010, a period of significant change in this sector. It contributes to the literature on several fronts. First, it complements the literature by examining productivity growth at the firm level. This paper also seeks to examine whether the decline that started around 2006 was associated with changes in the effect of reallocation and the role of foreign multinationals in aggregate productivity growth.
    Keywords: Economic accounts, Manufacturing, Productivity accounts
    Date: 2017–10–30
  7. By: Frieling, Julius (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: We analyze the relationship between factor augmenting technical change and factor substitution through a nested CES function using capital, labor, and energy inputs. We use US aggregate data on output, factor use, and factor prices for the years 1929–2015 to show the interdependence and coevolution of the different input factors. We demonstrate the robustness of the system of equations approach for estimating such a production function. We find that the input factors are gross complements, and that in the time period considered, technical change was mostly labor saving, while the linear time trend of energy augmenting technical change was zero.
    Keywords: aggregate production; technical change; multi-factor production; energy demand
    JEL: C13 C32 E23 O33 Q43
    Date: 2017–05
  8. By: Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia
    Abstract: We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity in China by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture.
    Keywords: Agriculture, misallocation, selection, productivity, China.
    JEL: O11 O14 O4 E02 Q1
    Date: 2017–11–13
  9. By: Dan Andrews (OECD); Filippos Petroulakis (OECD)
    Abstract: This paper explores the connection between “zombie” firms (firms that would typically exit in a competitive market) and bank health and the consequences for aggregate productivity in 11 European countries. Controlling for cyclical effects, the results show that zombie firms are more likely to be connected to weak banks, suggesting that the zombie firm problem in Europe may at least partly stem from bank forbearance. The increasing survival of zombie firms congests markets and constrains the growth of more productive firms, to the detriment of aggregate productivity growth. Our results suggest that around one-third of the impact of zombie congestion on capital misallocation could be directly attributed to bank health and additional analysis suggests that this may partly be due to reduced availability of credit to healthy firms. Finally, improvements in bank health are more likely to be associated with a reduction in the prevalence of zombie firms in countries where insolvency regimes do not unduly inhibit corporate restructuring. Thus, leveraging the important complementarities between bank strengthening efforts and insolvency regime reform would contribute to breaking the shackles on potential growth in Europe.
    Keywords: Credit Constraints, Factor Reallocation, Productivity, Zombie Firms
    JEL: D24 G21 L25 O47
    Date: 2017–11–20
  10. By: Cândida Ferreira
    Abstract: This paper uses static and dynamic panel estimates in a sample including all 28 European Union countries during the last decade and provides empirical evidence on the important role that well-functioning EU banking institutions can play in promoting economic growth.The banking sector performance is proxied by the evolution of some relevant financial ratios and economic growth is represented by the annual Gross Domestic Product growth rate. In order to analyse the possible differences arising after the outbreak of the recent international financial crisis, the estimations consider two panels: one for the time period 1998–2012 and another for the subinterval 2007–2012. The results obtained allow us to draw conclusions not only on the importance of the variation of the different operational, capital, liquidity and assets quality financial ratios to economic growth but also on some differences evidenced in the two considered panels, reflecting the consequences of the recent financial crisis and the correspondent reactions of the European banking institutions.
    Keywords: ank performance, economic growth, European Union, financial crisis, panel estimates
    JEL: F30 F40 G20 G30 O40
    Date: 2017–10
  11. By: Qizhong YANG (The Graduate School of Economics, Osaka University); Tsunehiro OTSUKI (Osaka School of International Public Policy, Osaka University)
    Abstract: This study examined the impact of two PRERs released by the EU—RoHS and REACH—on Malaysian and Vietnamese firms’ compliance. The analysis considers productivity as a realization of innovations and examines the R&D enhancement effect of PRERs. The effect of PRERs on productivity is also broken down into direct and indirect effects through R&D enhancement. The result shows that the response to REACH can create incentives to advance R&D, and productivity can increase through both direct and indirect channels. No relationship between the response to RoHS and R&D expenditure is found. Further analysis shows that firms comply with RoHS and REACH in different ways, but just the ability to continue exporting to the EU motivates compliance.
    Keywords: RoHS, REACH, Innovation, Productivity, Porter Hypothesis
    JEL: F18 O31 Q55 Q56
    Date: 2017–11
  12. By: Rafał Kierzenkowski (OECD); Peter Gal (OECD); Gabor Fulop (OECD)
    Abstract: The United Kingdom is preparing a modern industrial strategy to boost labour productivity across the whole country and to narrow regional gaps in living standards. This raises the question of the optimal allocation of scarce resources in meeting these targets. This study identifies industrial strengths of each region and scope to boost regional productivity through the channel of higher capital intensity. Overall regional investment ratios appear weakly linked to regional productivity, but the sectoral composition of regions and their type of investment are more important determinants. Each region has productivity leaders, but the concentration of such firms is the highest in the south of England. Differences in the representation of the most productive firms in regions are strongly related to differences in regional productivity. The empirical methodology quantifies the productivity effects of raising the capital intensity in each sector-region, focusing on viable firms falling behind the national productivity frontier in all but the finance and insurance sectors over 1995-2014. To enhance labour productivity of lagging regions, the industrial strategy should promote the catch up of firms with the national best performers in services sectors, in particular knowledge intensive services such as ICT and business services, but also wholesale and retail trade. This finding is consistent with the UK’s leading global position in high value-added services sectors. The type of investment matters: boosting research and development in the manufacturing sector in some lagging regions would also be effective in stimulating productivity. Manufacturing investment cannot be a substitute to investment in services given the small size of the manufacturing sector and its high exposure to competition from rapidly emerging global hubs. However, this study does not quantify the effects of skills, the benefits of greater industrial diversification and the positive impact that larger cities would have on agglomeration effects.
    Keywords: capital intensity, firms, industrial policy, industry, investment, productivity, R&D, regions, sectors, United Kingdom
    JEL: L52 O14 O18 O25
    Date: 2017–11–06
  13. By: Choi, Hyelin (Korea Institute for International Economic Policy); Jung, Sung Chun (Korea Institute for International Economic Policy); Kim, Su Bin (Korea Institute for International Economic Policy)
    Abstract: Productivity is considered one of the most important factors for economic growth. Total productivity grows through technological progress or reallocation of resources. This paper analyses their contribution to economic growth for total economy and by sectors. The main finding is that economy-wide increases but this is mainly due to internal technological improvements. On the one hand, inter-sector reallocation of labor negatively contributes to economic growth as employment moves to service sectors with low productivity. Further, when looking at the sectoral-level productivity growth, both internal and external restructuring make positive contributions to aggregate economic growth. However, internal technological progress and reallocation of employment appear to similarly contribute to the sectoral-level economic growth in the manufacturing sector, whereas internal restructuring makes a larger contribution to economic growth in the service sector. This suggests that there is more room for reallocation of resources to contribute to the productivity growth in service sectors. Therefore, the productivity growth of the service sector would foster economy-wide productivity and it can be achieved by the mitigation of misallocation of resources in service sectors.
    Keywords: Productivity; Employment; Labor reallocation
    JEL: E01 E20 E22 E23 E24
    Date: 2017–09–15
  14. By: Balázs Égert (OECD); Peter Gal (OECD); Isabelle Wanner (OECD)
    Abstract: This document describes the OECD’s new Structural Policy Indicators Database for Economic Research (SPIDER). The database compiles data from various existing databases. It contains indicators capturing structural policies (including institutions, framework condition policies and policies specifically related to labour markets and drivers of productivity and investment such as trade, skills and innovation). It also contains some basic macroeconomic indicators. The main idea of the database is to provide all the data needed for empirical analysis on structural policies in one place to facilitate empirical investigations. The indicators collected comprise three types of data: data with long-time series covering OECD countries, data covering a larger set of countries for a varying number of years, and finally a set of time-invariant indicators. The paper illustrates the use of the database on the basis of different growth regressions employed in the literature.
    Keywords: database, economic growth, economic research, emerging economies, indicators, OECD, structural policies
    JEL: C82 O11 O47 Y1
    Date: 2017–11–17
  15. By: Gude, Alberto; Álvarez, Inmaculada C.; Orea, Luis
    Abstract: This paper introduces new spatial stochastic frontier models to examine Spanish provinces’ efficiency and its evolution over the period 2000-2013. We use a heteroscedastic version of the spatial stochastic frontier models introduced by Glass et al. (2016) that, in addition, allows us to identify the determinants of the spatial dependence among provinces. We contribute to the heterogeneous spatial models that have been introduced in recent years, such as Aquaro et al. (2015) and LeSage and Chih (2016) allowing measures of spatial dependence specific to each observation. This feature of the model lets us rank all Spanish provinces in accordance with their degree of spatial dependence, information that will aid policymakers to better allocate public resources between provinces. The period examined is of special interest given that it coincides with a break in the economic growth tendency, which leads to a deterioration in Spain´s economic situation.
    Date: 2017
  16. By: Baldwin, John R.; Li, Jiang
    Abstract: The paper investigates recent changes in the importance of foreign ownership in Canadian manufacturing in the 2000s, and also compares these changes to those in the previous decades from 1973 to 1999. The importance of foreign firms in manufacturing is measured by the share of output under foreign control, and its changes are examined at different levels: aggregate, sector and industry.
    Keywords: Balance of international payments, Business ownership, Business performance and ownership, Economic accounts
    Date: 2017–10–30

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.