nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2018‒06‒18
sixteen papers chosen by

  1. Performance Pay and Enterprise Productivity: The Details Matter By Kato, Takao; Kauhanen, Antti
  2. A Tale of Two Sectors : Why is Misallocation Higher in Services than in Manufacturing? By Daniel A. Dias; Carlos Robalo Marques; Christine Richmond
  3. Testing productivity change, frontier shift, and efficiency change By Mette Asmild; Dorte Kronborg; Anders Rønn-Nielsen
  4. Impact of regulation on English and Welsh water-only companies: an input-distance function approach By Molinos-Senante, María; Porcher, Simon; Maziotis, Alexandros
  5. The Chinese are Here: Firm Level Analysis of Import Competition and Performance in Sub-Saharan Africa By Christian K. Darko; Giovanni Occhiali; Enrico Vanino
  6. Misallocation and Aggregate Productivity across Time and Space By Diego Restuccia
  7. Follow the leader: Evidence of the Productivity catch-up of European firms By Dolores Añón Higón; Juan A. Mañez; María E. Rochina-Barrachina; Amparo Sanchis; Juan A. Sanchis
  8. The Real Exchange Rate, Innovation and Productivity: Regional Heterogeneity, Asymmetries and Hysteresis By Laura Alfaro; Alejandro Cuñat; Harald Fadinger; Yanping Liu
  9. Directed Technological Change and Technological Congruence: A New Framework for the Smart Specialization Strategy. By Antonelli, Cristiano; Feder, Christophe; Quatraro, Francesco
  10. The productivity-wage premium: Does size still matter in a service economy? By Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo
  11. How to Measure Research Efficiency in Higher Education? Research Grants vs. Publication Output By Sabine Gralka; Klaus Wohlrabe; Lutz Bornmann
  12. Who Benefits From Productivity Growth? Direct and Indirect Effects of Local TFP Growth on Wages, Rents, and Inequality By Hornbeck, Richard; Moretti, Enrico
  13. Scale and (Quasi) Scope Economies in Airport Technology: an Application to UK Airports By Anna Bottasso; Maurizio Conti; Davide Vannoni
  14. Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers during the Great Recession By Bernstein, Shai; McQuade, Timothy James; Townsend, Richard R.
  15. Innovation and Firm Performance in the People’s Republic of China: A Structural Approach with Spillovers By Howell, Anthony
  16. Did the crisis make the Greek economy less inefficient? Evidence from the structure and dynamics of sectoral premia By Christopoulou, Rebekka; Monastiriotis, Vassilis

  1. By: Kato, Takao (Colgate University); Kauhanen, Antti (ETLA - The Research Institute of the Finnish Economy)
    Abstract: Much of the empirical literature on PRP (Performance Related Pay) focuses on a question of whether the firm can increase firm performance in general and enterprise productivity in particular by introducing PRP and if so, how much. However, not all PRP programs are created equal and PRP programs vary significantly in a variety of attributes. This paper provides novel and rigorous evidence on the productivity effect of varying attributes of PRP and shows that the details of PRP indeed matter. In so doing we exploit the panel nature of our Finnish Linked Employer-Employee Data on the details of PRP. We first establish that the omitted variable bias is serious, makes the cross-sectional estimates on the productivity effect of the details of PRP biased upward substantially. Relying on the fixed effect estimates that account for such bias, we find: (i) group incentive PRP is more potent in boosting enterprise productivity than individual incentive PRP; (ii) group incentive PRP with profitability as a performance measure is especially powerful in raising firm productivity; (iii) when a narrow measure (such as cost reduction) is already used, adding another narrow measure (such as quality improvement) yields no additional productivity gain; and (iv) PRP with greater Power of incentives (the share of PRP in total compensation) results in greater productivity gains, and returns to Power of incentives diminishes very slowly.
    Keywords: performance pay and productivity
    JEL: M52 J33 J24 J53 O53
    Date: 2018–05
  2. By: Daniel A. Dias; Carlos Robalo Marques; Christine Richmond
    Abstract: Recent empirical studies document that the level of resource misallocation in the service sector is significantly higher than in the manufacturing sector. We quantify the importance of this difference and study its sources. Conservative estimates for Portugal (2008) show that closing this gap, by reducing misallocation in the service sector to manufacturing levels, would boost aggregate gross output by around 12 percent and aggregate value added by around 31 percent. Differences in the effect and size of productivity shocks explain most of the gap in misallocation between manufacturing and services, while the remainder is explained by differences in firm productivity and age distribution. We interpret these results as stemming mainly from higher output-price rigidity, higher labor adjustment costs, and higher informality in the service sector.
    Keywords: Misallocation ; Productivity ; Firm-level data ; Structural transformation ; Gelbach decomposition
    JEL: D24 O11 O41 O47
    Date: 2018–05–29
  3. By: Mette Asmild (Department of Food and Resource Economics, University of Copenhagen); Dorte Kronborg (Center for Statistics, Department of Finance, Copenhagen Business School); Anders Rønn-Nielsen (Center for Statistics, Department of Finance, Copenhagen Business School)
    Abstract: Inference about productivity change over time based on data envelopment (DEA) has focused primarily on the Malmquist index and is based on asymptotic properties of the index. In this paper we propose a novel set of significance tests for DEA based productivity change measures based on permutations and accounting for the inherent correlations when panel data are observed. The tests are easily implementable and give exact significance probabilities as they are not based on asymptotic properties. Tests are formulated both for the geometric means of the Malmquist index, and also of its components, i.e. the frontier shift index and the eciency change index, which together enable analysis of not only the presence of differences, but also gives an indication of whether the productivity change is due to shifts in the frontiers and/or changes in the efficiency distributions. Simulation results show the power of, and suggest how to interpret the results of, the proposed tests. Finally, the tests are illustrated using a data set from the literature.
    Keywords: Malmquist index, frontier shift, efficiency change, Data Envelopment Analysis (DEA), panel data, permutation tests, inference.
    JEL: C12 C14 C44 C46 C61 D24
    Date: 2018–06
  4. By: Molinos-Senante, María; Porcher, Simon; Maziotis, Alexandros
    Abstract: The assessment of productivity change over time and its drivers is of great significance for water companies and regulators when setting urban water tariffs. This issue is even more relevant in privatized water industries, such as those in England and Wales, where the price-cap regulation is adopted. In this paper, an input-distance function is used to estimate productivity change and its determinants for the English and Welsh water-only companies (WoCs) over the period of 1993–2009. The impacts of several exogenous variables on companies’ efficiencies are also explored. From a policy perspective, this study describes how regulators can use this type of modeling and results to calculate illustrative X factors for the WoCs. The results indicate that the 1994 and 1999 price reviews stimulated technical change, and there were small efficiency gains. However, the 2004 price review did not accelerate efficiency change or improve technical change. The results also indicated that during the whole period of study, the excessive scale of the WoCs contributed negatively to productivity growth. On average, WoCs reported relatively high efficiency levels, which suggests that they had already been investing in technologies that reduce long-term input requirements with respect to exogenous and service-quality variables. Finally, an average WoC needs to improve its productivity toward that of the best company by 1.58%. The methodology and results of this study are of great interest to both regulators and water-company managers for evaluating the effectiveness of regulation and making informed decisions.
    Keywords: productivity growth; service quality; efficiency; regulation; water industry; technical change
    JEL: J50
    Date: 2017–07–01
  5. By: Christian K. Darko (University of Birmingham); Giovanni Occhiali (Fondazione Eni Enrico Mattei and Overseas Development Institute); Enrico Vanino (London School of Economics)
    Abstract: This study uses firm level data on 19 Sub-Saharan Africa countries between 2004 and 2016 to provide a rigorous analysis on the impact of Chinese import competition on productivity, skills, and performance of firms., We measure import competition and ports accessibility at the city-industry level to identify the relevance of firms’ location in determining the impact of Chinese imports competition. To address endogeneity concerns, a time-varying instrument for Chinese imports based on the interaction between an exogenous geographic characteristic and a shock in transportation technology is developed. The results show that imports competition has a positive impact on firm performance, mainly in terms of productivity catch-up and skills upgrading. Of particular interest is the finding that the effects of import competition from China are stronger for more remote firms that have lower port accessibility, an indication that Chinese imports in remote areas improves productivity of laggard firms, employment, and intensity of skilled workers. Our findings indicate that African firms are improving their performance as a consequence of the higher Chinese import intensity, mainly through direct competition and the use of higher quality inputs of production sourced from China.
    Keywords: Import Competition, Productivity Catch-up, Trade Infrastructure, Skills, Employment, Sub-Saharan Africa, China
    JEL: F16 R11 J21 J24
    Date: 2018–05
  6. By: Diego Restuccia
    Abstract: Productivity is at the core of the large differences in income per capita across countries. What accounts for international productivity differences? I discuss cross-country differences in the allocation of inputs across heterogeneous production units-misallocation-as a potential factor in accounting for aggregate productivity. Policies and institutions generating misallocation are prevalent in poor and developing countries and may also be responsible for differences in the selection of operating producers and technology used, contributing substantially to aggregate productivity differences across countries.
    Keywords: productivity, misallocation, selection, technology, regulation, trade, financial frictions, agriculture.
    JEL: O11 O14 O4
    Date: 2018–06–11
  7. 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 (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, R&D stock, easiness in getting credit and governance quality, affect positively the catching up of laggards towards the productivity frontier. We also examine the moderating effect of the Great Recession as well as the effect of productivity improvements at the frontier.
    Keywords: TFP, frontier firms, laggard firms, Great Recession, European Union countries
    JEL: F43 O47 O52
    Date: 2018–06
  8. By: Laura Alfaro; Alejandro Cuñat; Harald Fadinger; Yanping Liu
    Abstract: We evaluate manufacturing firms' responses to changes in the real exchange rate (RER) using detailed firm-level data for a large set of countries for the period 2001-2010. We uncover the following stylized facts: In export-oriented emerging Asia, real depreciations are associated with faster growth of firm-level TFP, higher sales and cash-flow, and higher probabilities to engage in R&D and to export. We find negative effects for firms in other emerging economies, which are relatively more import dependent, and no significant effects for firms in industrialized economies. Motivated by these facts, we build a dynamic model in which real depreciations raise the cost of importing intermediates, affect demand, borrowing-constraints and the profitability of engaging in innovation (R&D). We decompose the effects of RER changes on productivity growth across regions into these channels. We estimate the model and quantitatively evaluate the different mechanisms by providing counterfactual simulations of temporary RER movements and conduct several robustness analyses. Effects on physical TFP growth, while different across regions, are non-linear and asymmetric.
    JEL: F0 O0
    Date: 2018–05
  9. By: Antonelli, Cristiano; Feder, Christophe; Quatraro, Francesco (University of Turin)
    Abstract: Technological congruence implements the analysis of directed technological change showing how the match between the relative size of outputs’ elasticity and the relative abundance and cost of production factors has powerful effects on total factor productivity (TFP). Smart specialization strategies can rely upon technological congruence to support the introduction and diffusion of new directed technologies characterized by the best mix of factors relative cost -as determined by pecuniary externalities in the regional factor markets- and output elasticity. The evidence of 278 European regions in the years 1980-2011 confirms that the levels and the changes in technological congruence, brought about by the introduction of directed technological changes, have significant effects on the levels and the changes of TFP. The key policy implication is that the optimal S3 policy mix should not only look at the history of local industrial or technological specializations, but it should also take into account the pecuniary externalities that characterize local factor markets to promote technological changes directed to augmenting the output elasticity of the cheaper regional production factors.
    Date: 2018–04
  10. By: Giuseppe Berlingieri (OECD); Sara Calligaris (OECD); Chiara Criscuolo (OECD)
    Abstract: The literature has established two robust stylised facts: (i) the existence of a firm size-wage premium; and (ii) a positive relationship between firm size and productivity. However, the existing evidence is mainly based on manufacturing data only. With manufacturing nowadays accounting for a small share of the economy, whether productivity, size, and wages are closely linked, and how tight this link is across sectors, is still an open question. Using a unique micro-aggregated dataset covering the whole economy in 17 countries over 1994-2012, this paper compares these relationships across sectors. While the size-wage and size-productivity premia are significantly weaker in market services compared to manufacturing, the link between wages and productivity is stronger. The combination of these results suggests that, in a service economy the “size-wage premium” becomes more a “productivity-wage premium”. These results have first-order policy implications for both workers and firms.
    Keywords: Productivity, Size-Premium, Wages
    JEL: D2 E2 J3
    Date: 2018–06–12
  11. By: Sabine Gralka; Klaus Wohlrabe; Lutz Bornmann
    Abstract: An ongoing debate in the literature on efficiency of higher education institutions concerns the indicator for research output in the empirical analysis. While several studies chose to use the number of publications, others rely on the overall amount of research grants. The present study investigates whether both lead to similar or different assessments of universities. Besides the amount of research grants and the absolute number of publications, the number of publications belonging to the 10% and 1% most frequently cited papers in the corresponding subject category and publication year are evaluated. We show that there is a high correlation of efficiency values between the estimations using these indicators; however, the concordance is partly lower. The results do not only provide a helpful guideline for researchers, but are also valuable for policy makers deciding which incentives to create through funding.
    Keywords: efficiency, data envelopment analysis, stochastic frontier analysis, higher education, universities, Germany
    JEL: A23 H52 I21 I23 D61
    Date: 2018
  12. By: Hornbeck, Richard; Moretti, Enrico
    Abstract: We estimate the local and aggregate effects of total factor productivity growth on US workers' earnings, housing costs, and purchasing power. Drawing on four alternative instrumental variables, we consistently find that when a city experiences productivity gains in manufacturing, there are substantial local increases in employment and average earnings. For renters, increased earnings are largely offset by increased cost of living; for homeowners, the benefits are substantial. Strikingly, local productivity growth reduces local inequality, as it raises earnings of local less-skilled workers more than the earnings of local more-skilled workers. This is due, in part, to lower geographic mobility of less-skilled workers. However, local productivity growth also has important general equilibrium effects through worker mobility. We estimate that 38% of the overall increase in workers' purchasing power occurs outside cities directly affected by local TFP growth. The indirect effects on worker earnings are substantially greater for more-skilled workers, due to greater geographic mobility of more-skilled workers, which increases inequality in other cities. Neglecting these general equilibrium effects would both understate the overall magnitude of benefits from productivity growth and misstate their distributional consequences. Overall, US workers benefit substantially from productivity growth. Summing direct and indirect effects, we find that TFP growth from 1980 to 1990 increased purchasing power for the average US worker by 0.5-0.6% per year from 1980 to 2000. These gains do not depend on a worker's education; rather, the benefits from productivity growth mainly depend on where workers live.
    Date: 2018–05
  13. By: Anna Bottasso (Department of Economics, University of Genova, Italy); Maurizio Conti (Department of Economics, University of Genova, Italy); Davide Vannoni (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: In this study we consider a sample of the largest UK airports in order to estimate, for the first time for this sector, a multiproduct cost function using a flexible technology that nests most of the specifications commonly employed in the empirical literature. Another novelty of this work is that we provide estimates of (quasi) scope economies for the airport industry. Our main results suggest the existence of (quasi) scope economies that tend to decline with the size of the airport. The finding on quasi scope economies coupled with a set of cost complementarity tests suggest that cost savings mainly arise from the joint provision of services for national and international passengers and, to a lesser extent, to the addition of cargo transport activities; in turn, the production of non aeronautical services seems to be characterized by anti-cost complementarities. Finally, we confirm previous findings in the literature that global economies of scale are exhausted at about five million passengers in the case of the UK airport industry.
    Keywords: Scope and Scale Economies, Composite Cost Function, Airports.
    JEL: L93 L23 C3
    Date: 2018–06
  14. By: Bernstein, Shai (Stanford University); McQuade, Timothy James (Stanford University); Townsend, Richard R. (University of California, San Diego)
    Abstract: We investigate how the deterioration of household balance sheets affects worker productivity, and whether such effects mitigate or amplify economic downturns. To do so, we compare the output of innovative workers who were employed at the same firm and lived in the same area at the onset of the 2008 crisis, but who experienced different declines in housing wealth. We find that following a negative wealth shock, innovative workers become less productive, and generate lower economic value for their firms. Consistent with a financial distress channel, the effects are more pronounced among those with little home equity before the crisis and those with fewer outside labor market opportunities.
    Date: 2018–03
  15. By: Howell, Anthony (Asian Development Bank Institute)
    Abstract: We adopt a structural framework to study the process of indigenous innovation and its impact on firm performance in the People’s Republic of China (PRC). In our analysis we use a rich source of panel data comprising almost 70,000 private Chinese firms operating in the PRC from 2004 to 2007. Relying on a structural innovation framework, we estimate the effects of technological learning during each phase of the structural model: (i) the firm’s decision to innovate, (ii) the innovation effort, (iii) the innovation throughput, and (iv) the firm performance. We show that in the early stages of innovation, Chinese firms fail to incorporate learning spillovers into their innovation effort, even when considering their absorptive capacity. Conversely, we found that in the later stages of innovation, learning spillovers positively increase firms’ innovation output as well as their performance, especially for firms with high absorptive capacity.
    Keywords: innovation; firm performance; learning; agglomeration; institutions; People’s Republic of China
    JEL: O30
    Date: 2018–02–08
  16. By: Christopoulou, Rebekka; Monastiriotis, Vassilis
    Abstract: It is generally understood that the Greek economy has long been characterised by a range of structural and institutional inefficiencies – which, arguably, are at least partly responsible for the crisis that engulfed the country since 2009. In turn, the crisis has also led to a significant adjustment of the Greek economy, both behaviourally (e.g., with regard to labour supply) and institutionally (e.g., with regard to labour market regulations). In this paper we ask whether this adjustment has helped resolve some of the inefficiencies that characterised the Greek economy in the past. We focus on the particular case of sectoral wage premia and examine (a) whether these did indeed reflect economic inefficiency in the past and (b) whether they have declined systematically since the crisis. Sectoral wage premia are generally linked to unobserved worker heterogeneity and compensating differentials (in a competitive framework) or to market distortions, such as monopsony power or information asymmetries (in an imperfect markets framework). Our results show that sectoral premia in Greece are only weakly linked to unobserved worker heterogeneity, but strongly linked to non-competitive factors reflecting market inefficiency. Looking at three such factors – the availability of rents (as measured by sectoral profitability), the potential for rents (measured via a proxy for intra-sectoral competition) and workers’ ability to extract such rents (measured by the share of public sector jobs) – we find that the crisis altered the relative contribution of such factors but did not lead to a decline in sectoral premia on the whole. Indeed, wage premia appear to have increased in the least competitive sectors while the overall disparity of wages across sectors increased. We conclude that market inefficiencies, as manifested by the presence of unaccounted-for sectoral wage differentials, intensified despite all policy efforts in the opposite direction.
    JEL: J1
    Date: 2018–05

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