nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2018‒02‒05
sixteen papers chosen by

  1. Measuring Imperfect Competition in Product and Labor Markets. An Empirical Analysis using Firm-level Production Data By Tortarolo, Dario; Zarate, Roman D.
  2. Assessing Hospital Performance in Indonesia: An Application of Frontier Analysis Techniques By Firdaus Hafidz; Tim Ensor; Sandy Tubeuf
  3. The mystery of TFP By Nicholas Oulton
  4. Sources of productivity differentials in manufacturing in post-transition urban South-East Europe By Katarina Bacic; Ivana Rasic Bakaric; Suncana Slijepcevic
  5. Do-it-yourself digital: the production boundary and the productivity puzzle By Diane Coyle
  6. Measuring the “Free” Digital Economy within the GDP and Productivity Accounts By Leonard Nakamura; Jon Samuels; Rachel Soloveichik
  7. Misallocation Measures: The Distortion That Ate the Residual By John Haltiwanger; Robert Kulick; Chad Syverson
  8. Is the production function Translog or CES? An empirical illustration using UK data By Elena Lagomarsino; Karen Turner
  9. The Differential Effects of Population Aging on Provincial GDP per capita and the Role of Productivity Growth as a Possible offset By Frank T. Denton; Byron G. Spencer
  10. Cost efficiency analysis of public higher education institutions in Uzbekistan By Shukhrat Kholmuminov; Robert E Wright
  11. Bringing it all back home? Backshoring of manufacturing activities and the adoption of Industry 4.0 technologies By Dachs, Bernhard; Kinkel, Steffen; Jäger, Angela
  12. The Overshooting of Firms Destruction, Banks and Productivity Shocks By Lorenza Rossi
  13. Bank competition and financial system stability in a developing economy: does bank capitalization and size matter? By Chileshe, Patrick Mumbi
  14. Elasticity of substitution between labor and capital: robust evidence from developed economies By Jakub Mućk
  15. A Comparison of Approaches to Deflating Telecoms Services Output By Mo Abdirahman; Diane Coyle; Richard Heys; Will Stewart
  16. Internalizing Global Value Chains: A Firm-Level Analysis By Laura Alfaro; Pol Antras; Davin Chor; Paola Conconi

  1. By: Tortarolo, Dario; Zarate, Roman D.
    Abstract: In this paper, we develop a simple theoretical model that allows us to disentangle empirically the extent of imperfect competition in product and labor markets using plant-level production data. The model assumes profit-maximizing producers that face upward-sloping labor supply and downward-sloping product demand curves. We derive a reduced-form formula for the ratio between markdowns and markups based on DeLoecker and Warzynski (2012). We use production function estimation techniques to estimate output elasticities and construct a measure of combined market power. We separate product and labor market power by estimating firm-level labor supply elasticities instrumenting wages with intermediate inputs. Our results suggest that both markets exhibit imperfect competition, but variation across industries is driven by the ease of firms to set prices above marginal costs. On average, manufacturing plants charge prices 78% higher than marginal costs, and pay wages 11% less than marginal revenue productivity of labor. We find a negative correlation between product and labor market power and more elastic labor supply curves for unskilled workers. Moreover, we obtain a positive correlation between firms’ product market power and productivity, size and exporter status, and a negative correlation of these measures with labor market power. In the last part, we estimate the relative gains of eliminating market power dispersion on allocative efficiency using the model by Hsieh and Klenow (2009). We find that market power dispersion in product markets is more important on TFP than labor markets, and that the negative correlation between the two measures of market power corrects in 7% the economic distortion derived from market power dispersion.
    Keywords: Desarrollo, Economía, Industria, Sector financiero,
    Date: 2018
  2. By: Firdaus Hafidz (Academic Unit of Health Economics, Leeds Institute of Health Sciences, University of Leeds); Tim Ensor (Leeds Institute of Health Sciences, University of Leeds); Sandy Tubeuf (Academic Unit of Health Economics, Leeds Institute of Health Sciences, University of Leeds)
    Abstract: Despite increased national health expenditure in health facilities in Indonesia, health outcomes remain poor. The aim of our study is to examine the factors determining the relative efficiency of hospitals. Using linked national data sources from facility, households, and village-based surveys, we measure the efficiency of 200 hospitals across fifteen provinces in Indonesia with output oriented data envelopment analysis (DEA) and stochastic frontier analysis (SFA). Inputs include the number of doctors, nurses and midwives, other staff, and beds while outputs are the number of outpatient visits and bed-days. We run truncated regression in second stage DEA and one stage SFA analysis to assess contextual characteristics influencing health facilities performance. Our results indicate a wide variation in efficiency between health facilities. High-performing hospitals are in deprived areas. Hospitals located in less concentrated health facilities, in Java and Bali Island, high coverage of insurance scheme for the poor perform better than in other geographical location. We find an inconclusive impact of quality of care, and ownership on efficiency. This paper concludes by highlighting the characteristics of hospitals that have the potential to increase efficiency.
    Keywords: Efficiency, hospitals, frontier analysis, data envelopment analysis, stochastic frontier analysis, Indonesia
    JEL: C50 I10
    Date: 2018
  3. By: Nicholas Oulton
    Abstract: I analyse TFP growth at the sectoral and aggregate level, using data for 10 industry groups covering the market sector for 18 countries over the period 1970-2007 drawn from the EU KLEMS dataset. TFP growth displays persistence at the aggregate level but not at the industry level, suggesting industry outputs are measured with error. In all countries resources have been shifting away from industries with high TFP growth towards industries with low TFP growth. Nevertheless I find that structural change (as measured by changes in value added shares) has favoured growth in most countries. Errors in measuring capital or in measuring the elasticity of output with respect to capital are unlikely to substantially reduce the role of TFP in explaining growth. The pattern of growth in these 18 countries is more consistent with an underlying two-sector model than with the one-sector (Solow) model. Standard theory suggests that TFP growth induces capital accumulation, at least in the long run. This is not the case with the raw EU KLEMS data used here. But standard theory finds some support when the data are smoothed to remove cyclical effects.
    Keywords: Total factor productivity, TFP, structural change, measurement error
    JEL: E01 O47 O11 E24
    Date: 2017–10
  4. By: Katarina Bacic (Knowledge Network Ltd.); Ivana Rasic Bakaric (The Institute of Economics, Zagreb); Suncana Slijepcevic (The Institute of Economics, Zagreb)
    Abstract: The paper analyses the effects of urbanization and localisation economies on manufacturing firms’ productivity across urban landscapes in post-transition South-East European (SEE) countries. Fixed-effects panel data estimations on a large sample of firms show that the factors accounting for productivity advantages of manufacturing firms in urban post-transition SEE are related to the firms and to the environment in which these firms operate. Firms located in diversified cities benefit from a productivity premium generated in this type of agglomeration, while no evidence was found that the relative specialization across industries has any effect on firm productivity levels.
    Keywords: city, manufacturing, total factor productivity, post-transition South-East Europe
    JEL: D24 R00 R12
    Date: 2017–11
  5. By: Diane Coyle
    Abstract: Part of the debate about the ‘productivity puzzle’ concerns the potential mismeasurement of digital activities. Specific measurement adjustments explored in previous research appear not to make a quantitatively large difference to real GDP or productivity growth estimates. However, although these potential adjustments may be small individually, taken together they could be wide in scope and quantitatively significant. This paper sets out a taxonomy of the range of potential measurement artefacts arising from digital innovations. It also specifically considers digitally-enabled substitutions in activity across the production boundary. I argue that these, along with other substitutions occurring within the production boundary, go beyond the effects of digital considered in earlier research; and may be making a meaningful contribution to the productivity puzzle as measured on existing statistical definitions.
    Keywords: digital, production boundary, productivity
    JEL: E01 C82 O40
    Date: 2017–06
  6. By: Leonard Nakamura; Jon Samuels; Rachel Soloveichik
    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 slower 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: 2017–12
  7. By: John Haltiwanger; Robert Kulick; Chad Syverson
    Abstract: A large literature on misallocation and productivity has arisen in recent years, with Hsieh and Klenow (2009; hereafter HK) as its standard empirical framework. The framework’s usefulness and theoretical founding make it a valuable starting point for analyzing misallocations. However, we show that the empirical lynchpin of this approach can be very sensitive to model misspecification. The condition in the HK model that maps from observed production behaviors to the misallocative wedges/distortions holds in a single theoretical case, with strict assumptions required on both the demand and supply sides. We demonstrate that applying the HK methodology when there is any deviation from these assumptions will mean that the “distortions” recovered from the data may not be signs of inefficiency. Rather, they may simply reflect demand shifts or movements of the firm along its marginal cost curve, quite possibly in directions related to higher profits for the business. The framework may then not just spuriously identify inefficiencies; it might be more likely to do so precisely for businesses better in some fundamental way than their competitors. Empirical tests in our data, which allow us to separate price and quantity and as such directly test the model’s assumptions, suggest the framework’s necessary conditions do not hold. We empirically investigate two of the possible sources of departures from the HK assumptions and implications and find support for both. We also find that measures of distortions that emerge from this approach are in fact strongly positively related with survival, suggesting they embody favorable profit conditions for the business. At the same time, however, once we condition on demand and supply fundamentals, the distortion measure becomes inversely related with survival. This suggests the measure may contain a distortionary component, but it is empirically swamped by other factors.
    JEL: D2 D4 D6 E2 L1 L2
    Date: 2018–01
  8. By: Elena Lagomarsino (; Karen Turner (Centre for Energy Policy, University of Strathclyde)
    Abstract: Computable general equilibrium (CGE) studies are increasingly in-terested in informing keys parameters of their models using empirical data. Energy and environmental CGE ndings have been found to be particularly sensible to changes in the values of the elasticities of substitution between inputs of production. Although applied econometric literature provides numerous estimates of substitution elasticities obtained from fexible functional forms cost or production functions, the number of papers dealing with Constant Elasticities of Substitution (CES) production functions, generally favoured in a CGE framework, is still limited. The contribution of this paper is to estimate the substitution relationship between energy and other inputs for the United Kingdom using a new approach that allows to understand whether a nested CES production function is adequate to describe the true input-output relationship. Moreover, the approach can be used to obtain an indication on which nested structure should is the most appropriate for the data considered. Findings suggest that the analysed dataset might support a four-input nested CES production function where the energy-capital are combined in an inner nest.
    Keywords: elasticities of substitution, Translog production function, nested CES, input separability, general equilibrium
    JEL: D24 C68 D58 R15 Q43
    Date: 2017–11
  9. By: Frank T. Denton; Byron G. Spencer
    Abstract: A shift in population distribution toward older ages is underway in industrialised countries throughout the world and will continue well into the future. We provide a framework for isolating the pure effects of population aging on per capita GDP, employ the framework in calculations for the ten provinces of Canada, and derive the rates of productivity growth required to offset those effects. For comparison, as possible alternative offsets, we consider also some changes relating to the supply of labour.
    JEL: J1 J11 O4
    Date: 2018–01
  10. By: Shukhrat Kholmuminov (Banking and Finance Academy of the Republic of Uzbekistan); Robert E Wright (Department of Economics, University of Strathclyde)
    Abstract: Over the last decade, the revenue structure of public higher education institutions (HEIs) in Uzbekistan has changed from full government funding to mostly tuition funding. In this paper, a stochastic cost frontier analysis is used in order to examine whether the institutional financial resources obtained mostly from tuition revenue have been utilised efficiently or inefficiently at 58 public HEIs during the period of 2000 to 2013. The Battese and Coelli (1995) method is applied to measure the influences of institution, staff and student characteristics on cost efficiency of the universities. According to mean efficiency scores, the Uzbek universities are not remarkably cost efficient in producing education and research outputs, although the significant improvements in the efficiency followed throughout the sample period. Findings also reveal that HEIs with a greater share of government allocations are less cost efficient relative to those institutions with a smaller share of government allocations.
    Keywords: stochastic frontier, cost efficiency, higher education, Uzbekistan
    JEL: I21 P20
    Date: 2017–03
  11. By: Dachs, Bernhard; Kinkel, Steffen; Jäger, Angela
    Abstract: We investigate the relationship between backshoring of production activities and investments in digital manufacturing technologies, also known as Industry 4.0. We argue that Industry 4.0 supports backshoring of manufacturing activities: First, because productivity increases by I4.0 technologies can neutralize cost advantages of offshoring locations and make labour arbitrage less appealing. Second, because increased flexibility provided by I4.0 technologies offers an incentive for firms to locate production close to their European customers. The empirical test is based on a large dataset of more than 2,000 manufacturing firms. Backshoring is still a rare event with a share of no more than 4% of all firms. Descriptive statistics as well as regression results indicate a positive correlation between the adoption of I4.0 technologies and companies’ backshoring propensity.
    Keywords: Backshoring, offshoring; Industry 4.0; technology
    JEL: F23 M11 O3 O33
    Date: 2017–12
  12. By: Lorenza Rossi (Department of Economics and Management, University of Pavia)
    Abstract: Using U.S.quarterly data we show that in response to a positive productivity shock:i) firms creation increases ii) firms destruction reduces at impact,it then overshoots its long run level,peaking three years later above its steady state. iii) banks markup reduces.To address these three facts,we provide an NK-DSGE model where firms dynamics is endogenous, the banking sector is monopolistic competitive and defaulting firms do not repay loans to banks. We show that the interaction between firms and banks is key to replicate the empirical evidence. Contrary to the conventional wisdom,in the baseline model thee efects of the shock are dampened with respect to a model without banks.
    Keywords: firms creation, firms destruction, monopolistic banks,countercyclical banks, markup, productivity shocks,overshooting of firms destruction, BVAR.
    JEL: E32 E44 E52 E58
    Date: 2018–01
  13. By: Chileshe, Patrick Mumbi
    Abstract: This study investigates the effect of bank competition, bank size, diversification and capitalization on risk taking behavior of commercial banks using panel data from Zambia. In addition, the study investigates the effect of capitalization and bank size on the bank competition-stability nexus. The empirical analysis is performed in two stages. In the first stage, time varying bank-specific Lerner Index is estimated. Then this measure of market power as well as other control variables are regressed on measures of bank soundness such as credit risk and overall stability (Z-Score and ZROE). Using a quarterly panel data of Zambian Banks covering the period Q1 2005 to Q4 2016, in general results from the study show that there is a positive relationship between market power and bank stability. In particular, results show that an increase in market power reduces a banks credit risk while it increases overall bank stability. These results are consistent with the ‘concentration-stability’ hypothesis common in some empirical literature. Furthermore, bank size and capitalization are associated with improvement in bank stability while lack of income diversification reduces bank stability. Finally, results of this study also indicate that larger and well-capitalized banks with market power are more stable than smaller and less capitalized ones. Policy implications for supervisory authorities in Zambia and other developing countries can be drawn from this study. First, there is need for supervisory authorities in Zambia to tread carefully with regard to enhancing competition in the banking sector as the results clearly indicate that it can have negative effects on financial stability. Secondly, results in this study render support to the use of stringent capital requirements under the Basel II and Basel III. Finally, it would be prudent for supervisory policies to include income diversification regulations thresholds among the commercial banks.
    Keywords: Panel Data, Lerner Index, Stability, Non-Performing Loans, Z-SCORE, ZROE
    JEL: E43 G21 L2
    Date: 2017–06
  14. By: Jakub Mućk
    Abstract: This paper provides estimates of the aggregate elasticity of substitution between labor and capital (σ) in developed economies. Our empirical strategy consists in estimating two- and three-equation supply-side systems which combine a normalized CES production function and first order conditions for factors of production. Using a panel of 12 advanced economies between 1980 and 2006, it is found that capital and labor are gross complements and σ is on average around 0.7. Moreover, we also document net labor-augmenting technical progress. Our main findings remain robust to various assumptions on time-varying factor-augmenting technical change. Furthermore, we replicate the benchmark results with two alternative datasets. To strengthen these findings a systematic evidence of capital-labor substitution is provided at the country level. Although substantial cross-country variation in σ can be found, a wide range of estimates confirms that labor and capital are gross complements and technical change is net labor-augmenting.
    Keywords: normalized CES production function, elasticity of substitution between labor and capital, factor-augmenting technical change, factor shares
    JEL: C22 C23 E23 E25 O47
    Date: 2017
  15. By: Mo Abdirahman; Diane Coyle; Richard Heys; Will Stewart
    Abstract: The telecommunications services industry has experienced very large technological progress in the past decades, as measured by technological output metrics. However, the industry’s economic output statistics do not appear to reflect this. Between 2010 and 2015, for example, data usage in the UK expanded by around 900% but real Gross Value Added (GVA) for the industry fell by 4%. While the direction of growth in Telecoms GVA is not the same for all countries, there nonetheless appears to be a wider disconnect between the technological performance and economic measurement of the industry in the UK. This paper argues this can be primarily resolved through strengthening the deflators that are applied to nominal output to produce real GVA. This paper contrasts two methodologically distinct options to estimate the potential bias in the current deflator, informed by both an economic and engineering perspective. Our findings indicate that the current deflator is upward biased and that telecommunications services prices could have fallen between 35% and 90% between 2010 and 2015, considerably more than the current deflator, suggesting the need for continued research in this area.
    Keywords: Deflators, telecommunications and productivity
    JEL: E31 L96 O47 L15
    Date: 2017–12
  16. By: Laura Alfaro; Pol Antras; Davin Chor; Paola Conconi
    Date: 2018

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