nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2018‒04‒30
nineteen papers chosen by

  1. The impact of pollution abatement investments on production technology: a nonparametric approach By Jean Pierre Huiban; Camilla Mastromarco; Antonio Musolesi; Michel Simioni
  2. An Internally Consistent Approach to the Estimation of Market Power and Cost Efficiency with an Application to U.S. Banking By Tsionas, Mike; Malikov, Emir; Kumbhakar, Subal C.
  3. The post-crisis TFP growth slowdown in CEE countries: exploring the role of Global Value Chains By Chiacchio, Francesco; Gradeva, Katerina; Lopez-Garcia, Paloma
  4. Creditor Rights, Technology Adoption, and Productivity: Plant-Level Evidence By Nuri Ersahin
  5. Absorptive capacity in New Zealand firms: Measurement and importance By Richard Harris; Trinh Le
  6. Worker flows, entry, and productivity in New Zealand’s construction industry By Adam Jaffe; Nathan Chappell
  7. The Impact of Management Practices on SME Performance By Forth, John; Bryson, Alex
  8. Foreign investment regulation and firm productivity: Granular evidence from Indonesia By Genthner, Robert; Kis-Katos, Krisztina
  9. The IT Revolution and Southern Europe's Two Lost Decades By Schivardi, Fabiano; Schmitz, Tom
  10. Resource Allocation in Multi-divisional Multi-product Firms By Gong, Binlei; Sickles, Robin C.
  11. On Barriers to Technology Adoption, Appropriate Technology and Deep Integration (with implications for the European Union) By Jean Mercenier; Ebru Voyvoda
  12. The relationship between construction quality and energy efficiency in newly built residential buildings By Agnieszka Zalejska-Jonsson; Rosane Hungria-Gunnelin
  13. “New Imported Inputs, Wages and Worker Mobility” By Italo Colantone; Alessia Matano; Paolo Naticchioni
  14. Using Massive Online Choice Experiments to Measure Changes in Well-being By Erik Brynjolfsson; Felix Eggers; Avinash Gannamaneni
  15. Rent creation and sharing: new measures and impacts on TFP By Gilbert Cette; Jimmy Lopez; Jacques Mairesse
  17. Firm Performance and Macro Forecast Accuracy By Mari Tanaka; Nicholas Bloom; Maiko Koga; Haruko Kato
  18. Bank lending standards over the cycle: the role of firms’ productivity and credit risk By Gabriel Jiménez; Enrique Moral-Benito; Raquel Vegas
  19. An Estimation of Production Indices for Industry and Agriculture in Imperial Russia By Suhara, Manabu

  1. By: Jean Pierre Huiban (INRA-ALISS, France); Camilla Mastromarco (University of Salento, Lecce, Italy); Antonio Musolesi (University of Ferrara, Italy); Michel Simioni (INRA, UMR 1110 MOISA, Montpellier, France)
    Abstract: This paper estimates the impact of pollution abatement investments on the production technology of firms by pursuing two new directions. First, we take advantage of recent econometric developments in productivity, effciency analysis and nonparametric kernel regression by adopting a conditional nonparametric frontier analysis. Second, we focus not only on the average effect but also search for potential nonlinearities. We provide new results suggesting that pollution abatement capital affects with a bell-shaped fashion technological catch-up (ineffciency distribution) and does not affect technological change (shifts in the frontier). These results have relevant implications both for modeling and for the purposes of advice on environmentally friendly policy.
    Keywords: Pollution abatement investments, technology, conditional nonparametric frontier analysis, full and partial order frontiers, location-scale nonparametric regression, infinite order cross-validated local polynomial regression, separability condition.
    Date: 2018–09
  2. By: Tsionas, Mike; Malikov, Emir; Kumbhakar, Subal C.
    Abstract: We develop a novel unified econometric methodology for the formal examination of the market power -- cost efficiency nexus. Our approach can meaningfully accommodate a mutually dependent relationship between the firm's cost efficiency and marker power (as measured by the Lerner index) by explicitly modeling the simultaneous determination of the two in a system of nonlinear equations consisting of the firm's cost frontier and the revenue-to-cost ratio equation derived from its stochastic revenue function. Our framework places no a priori restrictions on the sign of the dependence between the firm's market power and efficiency as well as allows for different hierarchical orderings between the two, enabling us to discriminate between competing quiet life and efficient structure hypotheses. Among other benefits, our approach completely obviates the need for second-stage regressions of the cost efficiency estimates on the constructed market power measures which, while widely prevalent in the literature, suffer from multiple econometric problems as well as lack internal consistency/validity. We showcase our methodology by applying it to a panel of U.S. commercial banks in 1984-2007 using Bayesian MCMC methods.
    Keywords: Productivity, Competitiveness, Efficiency, Market Power, Lerner Index, Banks, Quiet Life Hypothesis
    JEL: C11 C30 D24 D40 G21
    Date: 2018
  3. By: Chiacchio, Francesco; Gradeva, Katerina; Lopez-Garcia, Paloma
    Abstract: Using micro-aggregated firm information for nine Central and Eastern European (CEE) countries and data from input-output tables, we examine the role of Global Value Chains (GVCs) for technology diffusion across EU countries. Our empirical results provide support for a two-stage diffusion process of technology across countries. In the first stage, the most productive firms in the host economy benefit from their direct exposure to new technology created in parent firms as a result of their GVC participation. In the second stage, technology spills over to the rest of firms in the host economy via domestic production networks. In addition, we show that the import of intermediate inputs –i.e. backward linkages- is the main channel of technology diffusion within GVCs. We use these results to explain the pronounced post-crisis drop in Total Factor Productivity (TFP) growth in CEE countries. We show that due to their deep integration in GVCs, CEE countries have been exposed to two recent developments highly correlated with their TFP performance: (i) a slowdown in TFP growth of parent firms located in non-CEE EU countries; and (ii) a global slowdown in the growth rate of GVC participation, which is evident also for CEE countries from 2011 onwards. Moreover, we find that the capacity of host firms in CEE countries to absorb and understand new knowledge has decreased since the crisis. We argue that this is related to the drop in R&D investment in the CEE region during the post-crisis period. JEL Classification: O33, O47, O57, C33
    Keywords: Central and Eastern Europe, Global Value Chains, technology diffusion, TFP growth
    Date: 2018–04
  4. By: Nuri Ersahin
    Abstract: I analyze the impact of stronger creditor rights on productivity using plant-level data from the U.S. Census Bureau. Following the adoption of anti-recharacterization laws that give lenders greater access to the collateral of firms in financial distress, total factor productivity of treated plants increases by 2.6 percent. This effect is mainly observed among plants belonging to financially constrained firms. Furthermore, treated plants invest in capital of younger vintage and newer technology, and become more capital-intensive. My results suggest that stronger creditor rights relax borrowing constraints and help firms adopt more efficient production technologies.
    Keywords: Creditor Rights; Technology Adoption; Productivity; Bankruptcy
    JEL: D24 G32 G33 K22
    Date: 2018–04
  5. By: Richard Harris (Durham University Business School and New Zealand Productivity Commission); Trinh Le (Motu Economic and Public Policy Research)
    Abstract: To the best of our knowledge, this paper reports the first set of nationally representative results on the importance of ‘absorptive capacity’. Absorptive capacity is generally defined as a firm's ability to internalise external knowledge. Using data principally from the New Zealand Business Operations Survey, we measure absorptive capacity across a 10-year period and investigate if it remains stable in the long term. This is followed by considering how firms’ characteristics vary across levels of absorptive capacity and most importantly whether such capacity determines firms’ productivity performance across the primary, manufacturing and service sectors. Our results show that relative to other influences, absorptive capacity as measured here has a substantial influence on exporting, innovation, and undertaking R&D. Set against relatively poor performance, the paper concludes with a discussion of how government should consider helping firms to boost their levels of absorptive capacity.
    Keywords: Exports; R&D; innovation; absorptive capacity
    JEL: L25 O24 O32 R11
    Date: 2018–02
  6. By: Adam Jaffe (Motu Economic and Public Policy Research and Queensland University of Technology); Nathan Chappell (Motu Economic and Public Policy Research)
    Abstract: We use administrative data on the population of New Zealand construction firms from 2001-2012, along with linked data on their employees and working proprietors, to study the relationships among worker flows, entry, and firm productivity. We find that job churn is prevalent in construction, with around 60 percent of firm-worker pairs not existing previously or not existing subsequently. The data also show that firms gaining or losing any labour are more productive than static firms, and that firms gaining labour from other construction firms are 4-6 percent more productive than the industry average in a given year. Our analysis suggests such firms are productive in part because of knowledge flows from other construction firms; in our preferred specification, with firm fixed effects, a standard deviation increase in the productivity of new employees’ previous firms is associated with a 0.6 percent increase in productivity. New entrants are more productive than pre-existing firms. Firms that enter briefly and disappear exhibit high productivity for that brief period, and firms that enter and persist exhibit a persistent productivity advantage that averages about 5%, but which grows as experience accumulates. The entry and worker-knowledge-flow phenomena are distinct, in that the entry effect is not explained by employee composition, and non-entrant firms also benefit from worker knowledge flows.
    Keywords: Firm productivity, firm churn, job churn, creative destruction, knowledge flows
    JEL: D24 L74 J63
    Date: 2018–02
  7. By: Forth, John (National Institute of Economic and Social Research (NIESR)); Bryson, Alex (University College London)
    Abstract: We examine the impact of management practices on firm performance among SMEs in Britain over the period 2011-2014, using a unique dataset which links survey data on management practices with firm performance data from the UK's official business register. We find that SMEs are less likely to use formal management practices than larger firms, but that such practices have demonstrable benefits for those who use them, helping firms to grow and increasing their productivity. The returns are most apparent for those SMEs that invest in human resource management practices, such as training and performance-related pay, and those that set formal performance targets.
    Keywords: SMEs, small and medium-sized enterprises, employment growth, high-growth firms, productivity, workplace closure, management practices, HRM, recession
    JEL: L25 L26 M12 M52 M53
    Date: 2018–03
  8. By: Genthner, Robert; Kis-Katos, Krisztina
    Abstract: Based on a yearly census of Indonesian manufacturing firms for 2000-2014, we investigate the effects of a sector-specific investment policy reform on firm productivity. Hereby we exploit a protectionist foreign direct investment reform (the so-called negative investment list) that designated certain sectors at the five-digit level to become closed or only conditionally open to foreign investors. The list was first released in 2000 and has been repeatedly revised by the Indonesian authorities since. Our empirical analysis links the changes within this regulatory framework to variation in firm-level productivity in a large firm panel. Controlling for an extensive set of fixed effects as well as potential drivers of endogeneous regulation, we find robust evidence of declining foreign capital shares in sectors subject to restrictions on foreign direct investment, followed by a sizable decrease in firm productivity. From the different types of conditions, sector-wide FDI bans were linked to the largest productivity declines. We also document the presence of negative backward productivity spillovers of regulation that propagate throughout the value chain.
    Keywords: FDI,regulation,Indonesia,total factor productivity,spillovers
    JEL: F23 L51 D24 F21 L6
    Date: 2018
  9. By: Schivardi, Fabiano; Schmitz, Tom
    Abstract: Since the middle of the 1990s, productivity growth in Southern Europe has been substantially lower than in other developed countries. In this paper, we argue that this divergence was partly caused by inefficient management practices, which limited Southern Europe's gains from the IT Revolution. To quantify this effect, we build a multi-country general equilibrium model with heterogeneous firms and workers. In our model, the IT Revolution generates divergence for three reasons. First, inefficient management limits Southern firms' productivity gains from IT adoption. Second, IT increases the aggregate importance of management, making its inefficiencies more salient. Third, IT-driven wage increases in other countries stimulate Southern high-skill emigration. We calibrate our model using firm-level evidence, and show that it can account for 28% of Italy's, 39% of Spain's and 67% of Portugal's productivity divergence with respect to Germany between 1995 to 2008.
    Keywords: Divergence; IT; Management; Southern Europe; Technology adoption; TFP
    JEL: L23 O33
    Date: 2018–04
  10. By: Gong, Binlei (China Academy for Rural Development); Sickles, Robin C. (Rice University)
    Abstract: This paper is concerned with specifying and estimating the productive characteristics of multidivisional multiproduct companies at the divisional level. In order to accomplish this, we augment division-level information with inputs that are imputed based on profit-maximizing allocations within each division. This study builds on work by De Loecker et al. (2016) as well as Olley and Pakes (1996), Levinsohn and Petrin (2003) and Ackerberg et al. (2015), and extends this work by lifting a key assumption that single- and multi-product/division firms have the same production technique for the same product/segment. We estimate the production function and impute input allocations simultaneously in the absence of this key assumption as well as the constant share constraint of the input portfolio. Finally, our approach is applied to estimate the division-specific productivity of firms that compete in five segments of the global oilfield market.
    JEL: D02
    Date: 2018–03
  11. By: Jean Mercenier (Department of Economics, Université Panthéon-Assas, and CIRED, Paris, France); Ebru Voyvoda (Department of Economics, Middle East Technical University, Ankara, Turkey)
    Abstract: Based on two strands of research, namely 'barriers to technology adoption' and 'appropriate technology', we propose a formal reappraisal of 'deep integration', a broad concept often used in trade policy discussions. We then evaluate the 2004-7 EU enlargement wave utilizing this operational reappraisal. More specifically, we first estimate, using 2007 data, total labor productivity (TLP) in the 27 EU member states, and show that in all but a few sectors, new member states clearly stand below the lower envelope technology frontier of the older members in their use of skilled and unskilled labor. We interpret this as being the result of past barriers to technology adoption that are likely to be removed by the integration process into the EU, with these new counties' TLP shifting to the incumbent members' lower envelope. We then explore the potential effects on all 27 EU member states of this 'deep integration' experiment using a calibrated intertemporal multisectoral general equilibrium model. Our main finding is that, for most parameter configurations, workers' welfare in incumbent member countries is not negatively impacted despite the rather drastic improvement in competitiveness experienced by new members.
    Keywords: Barriers to technology adoption, appropriate technology, technological upgrading, deep integration, European integration, calibrated general equilibrium
    JEL: D58 E23 F12 J31 O14 R13
    Date: 2018–04
  12. By: Agnieszka Zalejska-Jonsson; Rosane Hungria-Gunnelin
    Abstract: Considering the climate change and urgent need for adaption of a new approach in building design and construction, the feedback from users is a highly valuable data. It is imperative to gather, analyse, and compare data on measured consumption for the purpose to increase our understanding about energy performance. Earlier research results indicate that energy and environmental targets are hard to deliver post-occupancy. It has been suggested that difference in the expected and delivered performance might be related to problems or lack of commissioning, inadequate building operation and even occupants’ behaviour. In this paper, we intent to test the assumption that the quality of the designed building is expressed in its final product. We examine a number of building features where end-users reported problems and discuss their potential effect on the buildings’ energy performance. We investigate if the occurrence of problem varies depending on climate zone, production year, building size and energy performance class. The data for this study was collected through survey. A total of 1,563 letters were posted with regular mail to all chairmen of condominium boards of residential estates built in Sweden between 2006 and 2014. We received 436 responses. We analysed data with help of descriptive statistics, principle component analysis (PCA) and Mann-Whitney test. PCA is used to group factors describing different quality problems and the Mann-Whitney test is used to investigate the significance level of differences in occurrence of specific-feature problems within subgroups. The results suggest that problems which occur in the new produced residential buildings are related to construction quality and may have significant effect on energy performance. The analysis of data suggests that new construction faces problem with building air tightness (especially the quality of windows and doors) and installations (HVAC), which have a direct impact on energy performance. Moreover, we observe that quality varies over time and may be dependent on market conditions.
    Keywords: Condominium apartments; Construction quality; Energy Performance; Residential Real Estate
    JEL: R3
    Date: 2017–07–01
  13. By: Italo Colantone (Bocconi University); Alessia Matano (AQR-IREA, University of Barcelona.); Paolo Naticchioni (Roma Tre University IZA and INPSA.)
    Abstract: We provide a comprehensive assessment of the effects of new imported inputs on wage dynamics, on the skill-composition of the labor force, on worker mobility,and on the efficiency of matching between firms and workers. We employ matched employer-employee data for Italy, over 1995-2007. We complement these data with information on the arrival of new imported inputs at the industry level. We find new imported inputs to have a positive effect on average wage growth at the firm level. This effect is driven by two factors: (1) an increase in the white-collar/blue-collar ratio; and (2) an increase in the average wage growth of blue-collar workers, while the wage growth of white collars is not significantly affected. The individual-level analysis reveals that the increase in the average wage of blue collars is driven by the displacement of the lowest paid workers, while continuously employed individuals are not affected. We estimate the unobserved skills of workers following Abowd et al(1999). We find evidence that new imported inputs lead to a positive selection of higher-skilled workers, and to an improvement in positive assortative matching between firms and workers.
    Keywords: F14, F16. JEL classification: New imported inputs; wages; matched employer-employee data.
    Date: 2018–04
  14. By: Erik Brynjolfsson; Felix Eggers; Avinash Gannamaneni
    Abstract: GDP and derived metrics (e.g., productivity) have been central to understanding economic progress and well-being. In principle, the change in consumer surplus (compensating expenditure) provides a superior, and more direct, measure of the change in well-being, especially for digital goods, but in practice, it has been difficult to measure. We explore the potential of massive online choice experiments to measure consumers’ willingness to accept compensation for losing access to various digital goods and thereby estimate the consumer surplus generated from these goods. We test the robustness of the approach and benchmark it against established methods, including incentive compatible choice experiments that require participants to give up Facebook for a certain period in exchange for compensation. The proposed choice experiments show convergent validity and are massively scalable. Our results indicate that digital goods have created large gains in well-being that are missed by conventional measures of GDP and productivity. By periodically querying a large, representative sample of goods and services, including those which are not priced in existing markets, changes in consumer surplus and other new measures of well-being derived from these online choice experiments have the potential for providing cost-effective supplements to existing national income and product accounts.
    JEL: E01 O0 O4
    Date: 2018–04
  15. By: Gilbert Cette; Jimmy Lopez; Jacques Mairesse
    Abstract: This analysis proposes new measures of rent creation or (notional) mark-up and workers’ share of rents on cross-country-industry panel data. While the usual measures of mark-up rate implicitly assume perfect labor markets, our approach relaxes this assumption, and takes into account that part of firms’ rent created in an industry is shared with workers to an extent which can vary with their skills. Our results are based on a cross-country-industry panel covering 14 OECD countries and 19 industries over the 1985-2005 period. In a first part of our analysis we draw on OECD indicators of product and labor market (anticompetitive) regulations to test how they are related to our new measures of mark-up and rent-sharing. We find that anti-competitive Non-Manufacturing Regulations (NMR) affect mark-up rates positively, and hence firms’ rent creation and workers’ share of rent, whereas Employment Protection Legislation (EPL) has no impact on rent creation, but boosts workers’ wages per hour. However, we observe that these wage increases are offset by a negative impact from EPL on hours worked per output unit, leading to a non-significant impact of EPL on workers’ share of rents. The effects of EPL for low-skilled workers appear to be more pronounced than those for medium-skilled workers, both being much greater than for highly-skilled workers. In the second part of our analysis, we estimate the impacts of our new measures on Total Factor Productivity (TFP) in the framework of a straightforward regression model. We use the OECD regulations indicators as relevant instrument to take care of endogeneity and to make sure that the resulting estimates assess the proper regulation impacts of rent creation and sharing without being biased by other confounding effects. We find that less competition in the product and labor markets as assessed by our measures of mark-up and workers’ share of rents have both substantial negative impacts on TFP.
    Keywords: product market regulations, labor market regulations, mark-up, rent-sharing, TFP.
    JEL: E22 E24 O30 L50 O43 O47 C23
    Date: 2018
    Date: 2018
  17. By: Mari Tanaka (Hitotsubashi University, Graduate School of Economics); Nicholas Bloom (Stanford University, Department of Economics); Maiko Koga (Bank of Japan); Haruko Kato (Bank of Japan)
    Abstract: Ever since Keyenes' famous quote about animal spirits, there has been an interest in linking firms' expectations and actions. But the empirical evidence on this is scarce because of the lack of firm panel data on expectations and outcomes. In this paper, we combine a unique survey of Japanese firms' GDP forecasts with their accounting data for 27 years for over 1,000 large Japanese firms. We find four main results. First, we find that firms' GDP forecasts are positively and significantly associated with firms' input choices, such as investment and employment, and with firm's sales, even after controlling for year and firm fixed effects. These results are stronger for cyclical firms, suggesting a firm's input decision is particularly dependent on its manager's forecasts when its demand is more sensitive to the macro economy. Second, both optimistic and pessimistic forecast errors lower profitability because it is costly to have too much or too little capacity. Third, while over optimistic forecasts lower measured productivity, over pessimistic forecasts do not tend to have an impact on productivity. Finally, larger and more cyclical firms make more accurate forecasts, presumably reflecting the higher return from accurate forecasts. More productive, older, and bank owned firms also make more accurate forecasts, suggesting that forecasting ability is also linked to management ability, experience and governance. Collectively, this highlights the importance of firms' forecasting ability for micro and macro performance.
    Keywords: Forecast; investment; employment; productivity
    JEL: D22 D84
    Date: 2018–04–17
  18. By: Gabriel Jiménez (Banco de España); Enrique Moral-Benito (Banco de España); Raquel Vegas (Banco de España)
    Abstract: We show that bank lending standards are influenced by macroeconomic conditions. We use monthly data from the Banco de España Central Credit Register, which allow us to monitor all loan applications made by non-financial firms to non-current banks from 2002 to 2015. To test the pro-cyclicality of banks’ appetite for risk, we investigate how two firm characteristics (ex-ante credit risk and productivity) interacting with two macroeconomic indicators (business cycle and the monetary policy stance) affect the probability of granting a loan. In order to enhance identification we account for unobserved heterogeneity by means of firm and banktime fixed effects. Our findings indicate that banks soften their credit standards during booms or when monetary policy is loose to harden them during busts or when short-term interest rates increase. This pattern is especially relevant in the case of firms’ productivity, which might partly explain the dismal evolution of aggregate productivity in Spain during the pre-crisis period. Finally, we also find that these results are more pronounced among less capitalized, less liquid and more profitable banks.
    Keywords: productivity, credit risk, bank supply, lending standards
    JEL: G21 E51 D24 O47
    Date: 2018–04
  19. By: Suhara, Manabu
    Date: 2018–03

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