nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2019‒02‒04
thirteen papers chosen by

  1. Misallocation in the market for inputs: enforcement and the organization of production By Boehm, Johannes; Oberfield, Ezra
  2. The productivity-wage premium: does size still matter in a service economy? By Berlingieri, Giuseppe; Calligaris, Sara; Criscuolo, Chiara
  3. Does Size influence Jail Efficiency?: A Metafrontier analyisis of local Jails in the United States By Alda, Erik
  4. Increasing differences between firms: market power and the macro-economy By Van Reenen, John
  5. The inverted-U relationship between credit access and productivity growth By Aghion, Philippe; Bergeaud, Antonin; Cette, Gilbert; Lecat, Rémy; Maghin, Hélène
  6. The efficiency of Uruguayan secondary schools: Evidence based on PISA 2015 data By Paola Azar; Federico González; Leonel Muinelo-Gallo
  7. State capitalism, economic systems and the performance of state owned firms By Estrin, Saul; Liang, Zhixiang; Shapiro, Daniel; Carney, Michael
  8. Terms of Trade Effects of Productivity Shocks and Economic Development By Özçelik, Emre; Tuğan, Mustafa
  9. Financial markets and the allocation of capital: the role of productivity By Di Mauro, Filippo; Hassan, Fadi; Ottaviano, Gianmarco I. P.
  10. Measuring Productivity: Lessons from Tailored Surveys and Productivity Benchmarking By David Atkin; Amit Khandelwal; Adam Osman
  11. Rent Sharing and Inclusive Growth By Bell, Brian; Bukowski, Pawel; Machin, Stephen
  12. How Do Large Banking Groups Manage the Efficiency of Their Subsidiaries? Evidence from CEE By Vaclav Hausenblas; Jitka Lesanovska
  13. Bank credit allocation and productivity: stylised facts for Portugal By Nuno Azevedo; Márcio Mateus; Álvaro Pina

  1. By: Boehm, Johannes; Oberfield, Ezra
    Abstract: The strength of contract enforcement determines how firms source inputs and organize production. Using microdata on Indian manufacturing plants, we show that production and sourcing decisions appear systematically distorted in states with weaker enforcement. Specifically, we document that in industries that tend to rely more heavily on relationship-specific intermediate inputs, plants in states with more congested courts shift their expenditures away from intermediate inputs and appear to be more vertically integrated. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The equilibrium organization of production and the network structure of input-output linkages arise endogenously from the producers' simultaneous cost minimization decisions. We identify the structural parameters that govern enforcement frictions from cross-state variation in the first moments of producers' cost shares. A set of counterfactuals show that enforcement frictions lower aggregate productivity to an extent that is relevant on the macro scale.
    Keywords: production networks; intermediate inputs; misallocation; productivity; contract enforcement; value chains
    JEL: E23 F12 O11
    Date: 2018–09
  2. By: Berlingieri, Giuseppe; Calligaris, Sara; Criscuolo, Chiara
    Abstract: Ever since Moore (1911) a large empirical and theoretical literature has established the existence of a firm size-wage premium. At the same time, a second regularity in empirical work, linking size and productivity, has inspired a vast literature in multiple fields. However, the majority of the existing evidence is based on manufacturing data only. With manufacturing nowadays accounting for a very small share of the economy in many countries, whether productivity, size, and wages are closely linked, and how tight this link is across sectors, is still an open question. Using a unique dataset that collects micro-aggregated firm-level information on productivity, size, and wages for the entire economy in 17 countries over the 1994-2012 period, this paper unveils a much more subtle picture. First, while in the manufacturing sector both productivity and wages increase monotonically with firm size, the same is not true in the service sector. Second, a tight and positive link between wages and productivity is instead found in both manufacturing and services. The combination of these results suggests that, when looking at data for a much larger share of the economy, the "size-wage premium" becomes more a "productivity-wage premium". Unbundling the relationship between size, wages, and productivity has first-order policy implications for both workers and firms.
    Keywords: productivity; size-premium; wages
    JEL: D2 E2 J3
    Date: 2018–07
  3. By: Alda, Erik
    Abstract: This study examines the efficiency of local jails for the year 2016. It employs a well-known non-parametric methodology (DEA) with metafrontiers. Metafrontiers envelop separate groups that have similar production technology and therefore allows for more accurate efficiency estimates. Using an input-oriented model with variable returns to scale, the results of this study suggest that, on average, jails could reduce or reallocate their inputs by 37% given their output level. Also, there are differences in efficiency between groups that operate on different production technologies. The group of small jails appears to operate more efficiently than the groups of large and mega-large jails. From a managerial perspective, this study presents evidence that jail managers need to assess more carefully how they allocate human and financial resources to try to improve operational efficiency. From a policy perspective, the results indicate that there is room for cost-saving approaches to maximize taxpayer dollars.
    Keywords: Jails,Performance, Efficiency, Data Envelopment Analysis, Metafrontiers
    JEL: D61
    Date: 2019–01–28
  4. By: Van Reenen, John
    Abstract: A rich understanding of macro-economic outcomes requires taking into account the large (and increasing) differences between firms. These differences stem in large part from heterogeneous productivity rooted in managerial and technological capabilities that do not transfer easily between firms. In recent decades the differences between firms in terms of their relative sales, productivity and wages appear to have increased in the US and many other industrialized countries. Higher sales concentration and apparent increases in aggregate markups have led to the concern that product market power has risen substantially which is a potential explanation for the falling labor share of GDP, sluggish productivity growth and other indicators of declining business dynamism. I suggest that this conclusion is premature. Many of the patterns are consistent with a more nuanced view where many industries have become “winner take most/all” due to globalization and new technologies rather than a generalized weakening of competition due to relaxed anti-trust rules or rising regulation.
    Keywords: firm differences; concentration; market power; policy
    JEL: L2 M2 O14 O33
    Date: 2018–09
  5. By: Aghion, Philippe; Bergeaud, Antonin; Cette, Gilbert; Lecat, Rémy; Maghin, Hélène
    Abstract: In this paper we identify two counteracting effects of credit access on productivity growth: on the one hand, better access to credit makes it easier for entrepreneurs to innovate; on the other hand, better credit access allows less efficient incumbent firms to remain longer on the market, thereby discouraging entry of new and potentially more efficient innovators. We first develop a simple model of firm dynamics and innovation-base growth with credit constraints, where the above two counteracting effects generate an inverted-U relationship between credit access and productivity growth. Then we test our theory on a comprehensive French manufacturing firm-level dataset. We first show evidence of an inverted-U relationship between credit constraints and productivity growth when we aggregate our data at sectoral level. We then move to firm-level analysis, and show that incumbent firms with easier access to credit experience higher productivity growth, but that they also experienced lower exit rates, particularly the least productive firms among them. To confirm our results, we exploit the 2012 Eurosystem's Additional Credit Claims (ACC) program as a quasiexperiment that generated exogenous extra supply of credits for a subset of incumbent firms.
    Keywords: inverted-u relationship; credit; eurosystem
    JEL: J1 F3 G3
    Date: 2018–12
  6. By: Paola Azar (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Federico González; Leonel Muinelo-Gallo (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: While Uruguayan public education spending is limited so that increasing funding could still improve schooling outcomes, a better use of the current resources could also make a difference. This paper analyses the efficiency performance of a set of public and private schools and explores its main drivers based on PISA-2015 data. Efficiency is estimated by using PISA marks adjusted by the student socioeconomic condition as outputs in a Data Envelopment Analysis (DEA) and it is regressed on a set of explanatory variables by applying bootstrapped truncated regressions. Results show high inefficiencies for the average Uruguayan school with a considerable dispersion in the efficiency attainments. Efficiency gains are associated to school size, location, private management and the presence of non-teaching staff.
    Keywords: PISA, efficiency, DEA, private ownership
    JEL: C14 H52 I21
    Date: 2018–12
  7. By: Estrin, Saul; Liang, Zhixiang; Shapiro, Daniel; Carney, Michael
    Abstract: In this paper, we pursue two related research questions. First, we enquire whether state owned enterprises (SOEs) perform better than privately owned firms in a large variety of emerging markets. To test this, we develop a unique dataset using firm-level data from the World Bank Enterprise Survey (WBES), resulting in a sample of over 50,000 firms from 57 understudied countries including emerging capitalist, former socialist and state capitalist ones. Our results suggest that SOEs do display productivity advantages over private firms in these understudied economies. Our second research question asks whether the performance of state-owned firms in these understudied countries is context specific, namely whether performance depends on the institutional system to which a country is classified. We refer to these systems as configurations. In particular, we are interested in whether state owned firms perform better in “state capitalist” countries including China and Vietnam. We find empirical support for the argument that the “state led” configuration provides better institutional support for the ownership advantages of SOEs than others.
    Keywords: comparative economic systems; state ownership; varieties of institutional systems (VIS); firm performance
    JEL: L44 P31 P5
    Date: 2018–10–05
  8. By: Özçelik, Emre; Tuğan, Mustafa
    Abstract: This paper studies the terms of trade effects from unexpected economy-specific productivity increases in both developing and advanced economies using a panel vector autoregression model with interactive fixed effects and the “max-share” approach developed by Francis et al. (2014). First, we find that the terms of trade of developing economies do not deteriorate after unexpected productivity increases and display similar dynamics to those of advanced economies. Second, studying these shocks in a more detailed classification of developing economies shows that the terms of trade worsen following an unexpected productivity increase in the least developed economies, implying that economic underdevelopment can result in unexpected productivity increases causing a deterioration in the terms of trade. However, this adverse effect of productivity increases disappears in the developing economies with some success in moving up the ladder of economic development, as implied by our finding that the terms of trade of these economies improve after an unexpected productivity increase.
    Keywords: Productivity shocks; The terms of trade; Developing economies; Advanced economies.
    JEL: O11 O19 O47 O57
    Date: 2019–01
  9. By: Di Mauro, Filippo; Hassan, Fadi; Ottaviano, Gianmarco I. P.
    Abstract: The efficient allocation of credit is a key element for the success of an economy. Traditional measures of allocative efficiency focus on the Q-theory of investment and, in particular, on the elasticity of finance to investment opportunities proxied by firm real value added. This paper introduces a theorybased alternative measure that focuses instead on the elasticity of credit to firm productivity. In doing so, it develops a simple theoretical framework that delivers clear predictions for the elasticity of credit to current and future productivity depending on capital market frictions. When applied to the novel firm-level dataset of the Competitiveness Research Network (CompNet) set up by the EU System of Central Banks, the proposed measure leads to normative statements about the efficiency of credit allocation across the largest Eurozone economies, changing the conclusions that one would reach based on traditional empirical applications of Q-theory.
    Keywords: bank credit; capital allocation; productivity; credit constraints
    JEL: D92 G10 G21 G31 O16
    Date: 2018–07–01
  10. By: David Atkin; Amit Khandelwal; Adam Osman
    Abstract: We use tailored surveys and benchmarking in the flat-weave rug industry to better understand the shortcomings of standard productivity measures. TFPQ performs poorly because of variation in product specifications across firms. Controlling for specifications aligns TFPQ with lab benchmarks. We also collect quality metrics to construct quality productivity (the ability to produce quality given inputs) and find substantial dispersion across firms. This motivates interest in multi-dimensional productivity, or capability. As quality productivity is negatively correlated with TFPQ, TFPR may perform better at capturing capabilities in settings where better firms make products with more demanding specifications that have greater input requirements.
    JEL: D2 F0
    Date: 2019–01
  11. By: Bell, Brian (King's College London); Bukowski, Pawel (Central European University); Machin, Stephen (London School of Economics)
    Abstract: The long-run evolution of rent sharing is empirically studied. Based upon a comprehensive and harmonized panel of the top 300 publicly quoted British companies over thirty five years, the paper reports evidence of a significant fall over time in the extent to which firms share rents with workers. It confirms that companies do share their profits with employees, but at much smaller scale today than they did during the 1980s and 1990s. This is a robust finding, corroborated with industry-level analysis for the US and EU. The decline in rent sharing is coincident with the rise of product market power that has occurred as worker bargaining power has dropped. Although firms with more market power previously shared more of their profits, they experienced a stronger fall in rent sharing after 2000.
    Keywords: rent sharing, inclusive growth
    JEL: J30
    Date: 2018–12
  12. By: Vaclav Hausenblas; Jitka Lesanovska
    Abstract: We analyse the cost efficiency over the period 2002-2015 of subsidiaries of selected international banking groups (IBGs) that built up significant banking businesses in Central and Eastern Europe (CEE) in the 1990s and 2000s. Using Bayesian stochastic efficiency analysis, we find evidence of superior efficiency management by IBGs of their subsidiaries, particularly in the period following the crisis of 2008-2009. We find that the subsidiaries of IBGs were in general more cost-efficient than their peers in CEE and that the difference further increased in the post-crisis period. While the overall heterogeneity of banks in CEE in terms of efficiency increased and remained at a higher level in the post-crisis period, the IBGs were able to get it close to the pre-crisis level or to reduce it even further. Although we find bank efficiency to be relatively persistent, we also find evidence of beta-convergence for all the analysed IBGs towards the estimated long-term mean, which is expected to be significantly higher than that of the control group for the majority of the IBGs.
    Keywords: Banking groups, convergence, efficiency, governance
    JEL: G21 G39
    Date: 2018–10
  13. By: Nuno Azevedo; Márcio Mateus; Álvaro Pina
    Abstract: With a dataset covering 95% of total outstanding credit to non-financial corporations recorded in the Portuguese credit register, we investigate whether outstanding loans by resident banks to 64 economic sectors have been granted to the most productive firms. We find evidence of misallocation, which reflects the joint effects of credit supply and credit demand decisions taken over the course of time, and the adverse cyclical developments following the accumulation of imbalances in the Portuguese economy for a protracted period. In 2008-2016, the share of outstanding credit granted to firms with very low productivity (measured or inferred) was always substantial, peaking at 44% in 2013, and declining afterwards with the rebound in economic activity and the growing allocation of new loans towards lower risk firms and away from higher risk firms. Furthermore, we find that misallocation is associated with slower reallocation. The responsiveness of credit growth to firm relative productivity is much lower in sectors with relatively more misallocated credit and when banks have a high share of such credit in their portfolios.
    JEL: D24 G21 O16 O40 O47
    Date: 2018

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