nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2019‒02‒25
twelve papers chosen by
Angelo Zago
Università degli Studi di Verona

  1. Heterogeneity, Measurement Error, and Misallocation: Evidence from African Agriculture By Gollin, Douglas; Udry, Christopher
  2. Investment climate, outward orientation and manufacturing firm productivity: New empirical evidence By Mai Nguyen; Marie-Ange Veganzones-Varoudakis
  3. Misallocation in the Market for Inputs: Enforcement and the Organization of Production By Johannes Boehm; Ezra Oberfield
  4. Breaking the shackles: Zombie firms, weak banks and depressed restructuring in Europe By Andrews, Dan; Petroulakis, Filippos
  5. Policy Distortions and Aggregate Productivity with Endogenous Establishment-Level Productivity By Jose-Maria Da-Rocha; Diego Restuccia; Marina M. Tavares
  6. Agglomeration Economies and the Firm TFP: Different Effects across Industries By Martin Gornig; Alexander Schiersch
  7. The Impact of Contract Enforcement Costs on Outsourcing and Aggregate Productivity By Johannes Boehm
  8. Cluster externalities, firm capabilities, and the recessionary shock: How the macro-to-micro-transition shapes firm performance during stable times and times of crisis By Hundt, Christian; Holtermann, Linus; Steeger, Jonas; Bersch, Johannes
  9. Market power, efficiency and welfare performance of banks: evidence from the Ghanaian banking industry By Adeabah, David; Andoh, Charles
  10. The Productivity Slowdown in Canada: An ICT Phenomenon? By Jeffrey Mollins; Pierre St-Amant
  11. The 'Disciplinary Effect' of the Performance-based Research Fund Process in New Zealand By Buckle, Robert A.; Creedy, John
  12. Productivity Measurement: Racing to Keep Up By Daniel E. Sichel

  1. By: Gollin, Douglas; Udry, Christopher
    Abstract: Standard measures of productivity display enormous dispersion across farms in Africa. Crop yields and input intensities appear to vary greatly, seemingly in conflict with a model of efficient allocation across farms. In this paper, we present a theoretical framework for distinguishing between measurement error, unobserved heterogeneity, and potential misallocation. Using rich panel data from farms in Tanzania and Uganda, we estimate our model using a flexible specification in which we allow for several kinds of measurement error and heterogeneity. We find that measurement error and heterogeneity together account for a large fraction - as much as ninety percent -- of the dispersion in measured productivity. In contrast to some previous estimates, we suggest that the potential for efficiency gains through reallocation of land across farms and farmers may be relatively modest.
    Keywords: agricultural development; agricultural production function estimation; Agricultural Productivity; firm productivity dispersion; Misallocation; productivity measurement
    JEL: O11 O12 O13 Q12
    Date: 2019–01
  2. By: Mai Nguyen (KU Leuven - Katholieke Universiteit Leuven); Marie-Ange Veganzones-Varoudakis (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Drawing on the World Bank Enterprise Surveys (WBES), we revisit the link between investment climate and firm productive performance for a panel of enterprises surveyed twice in 70 developing countries and 11 manufacturing industries. We take advantage of the surveys done at different times in an increasing number of economies, to tackle the endogeneity issue which has been seen as a problem in previous studies. We also use pertinent econometric techniques to address other biases inherent in the data, in particular measurement errors, missing observations, and multicollinearity. Our results reinforce previous findings by validating, with a larger than usual sample of countries and industries, the importance of a larger set of environment variables. We show that infrastructure quality (Infra), information and communication technologies (ICT), skills and experience of the labor force (H), cost of and access to financing (Fin), security and political stability (CrimePol), competition (Comp) and government relation (Gov) contribute to firms' and countries' different performances. The empirical analysis also illustrates that firms which chose an outward orientation have higher productivity levels. Nevertheless, outward oriented enterprises are, at the same time, more sensitive to investment climate limitations. These findings have important policy implications by showing which dimensions of the business environment, in which industry, could help manufacturing firms to be more competitive in the present context of increasing globalization.
    Keywords: Investment climate,Outward orientation,Manufacturing,Total factor productivity,Firm survey data.
    Date: 2019–02–11
  3. By: Johannes Boehm (Département d'économie); Ezra Oberfield (Princeton University)
    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 O11 F12
    Date: 2018–08
  4. By: Andrews, Dan; Petroulakis, Filippos
    Abstract: This paper explores the connection between ”zombie” firms (firms that would typically exit in a competitive market) and bank health and the consequences for aggregate productivity in 11 European countries. Controlling for cyclical effects, the results show that zombie firms are more likely to be connected to weak banks, suggesting that the zombie firm problem in Europe may at least partly stem from bank forbearance. The increasing survival of zombie firms congests markets and constrains the growth of more productive firms, to the detriment of aggregate productivity growth. Our results suggest that around one-third of the impact of zombie congestion on capital misallocation can be directly attributed to bank health and additional analysis suggests that this may partly be due to reduced availability of credit to healthy firms. Finally, improvements in bank health are more likely to be associated with a reduction in the prevalence of zombie firms in countries where insolvency regimes do not unduly inhibit corporate restructuring. Thus, leveraging the important complementarities between bank strengthening efforts and insolvency regime reform would contribute to breaking the shackles on potential growth in Europe. JEL Classification: D24, G21, L25, O47
    Keywords: credit constraints, factor reallocation, productivity, zombie firms
    Date: 2019–02
  5. By: Jose-Maria Da-Rocha; Diego Restuccia; Marina M. Tavares
    Abstract: What accounts for differences in output per capita and total factor productivity (TFP) across countries? Empirical evidence points to resource misallocation across heterogeneous production units as an important factor. We study misallocation in a general equilibrium model of establishment productivity where the distribution of productivity is characterized in closed form and responds to the same policy distortions that create misallocation. In this framework, policy distortions not only misallocate resources across a given set of productive units (static effect), but also create disincentives for productivity improvement thereby altering the productivity distribution and equilibrium prices (dynamic effect), further lowering aggregate output and TFP. The dynamic effect is substantial contributing to a doubling of the static misallocation effect. Reducing the dispersion in distortions by 25 percentage points to the level of the U.S. benchmark economy implies an increase in relative aggregate output of 123 percent, where 54 percent arises from factor misallocation (static effect).
    Keywords: distortions, misallocation, investment, endogenous productivity, establishments.
    JEL: O11 O3 O41 O43 O5 E0 E13 C02 C61
    Date: 2019–02–07
  6. By: Martin Gornig; Alexander Schiersch
    Abstract: This paper analyzes the effect of agglomeration economies on firms’ total factor productivity. We propose the use of a control function approach to overcome the econometric issue inherent to the two-stage approach commonly used in the literature. Estimations are conducted separately for four industry groups, defined by technological intensity, to allow for non-uniform effects of agglomeration economies on firms given their technological level. In addition, R&D is included to account for the firms’ own efforts to foster productivity through creating and absorbing knowledge. Finally, radii as well as administrative boundaries are used for defining regions. The results confirm differences in the strength and even in the direction of agglomeration economies: While urban economies have the largest effect on TFP for firms in high-tech industries, they have no effect on TFP in low-tech industries. For firms in the latter industries, however, the variety of the local economic structure has an impact, while this is irrelevant for the TFP of firms in high-tech industries. Only localization economies have a positive and significant effect on TFP throughout, but the effect increases with technological intensity of industries. Throughout, R&D is also found to have a positive effect that increases with technological intensity.
    Keywords: Total factor productivity, manufacturing firms, agglomeration economies, spatial concentration, structural estimation
    JEL: R11 R12 R15 D24
    Date: 2019
  7. By: Johannes Boehm (Département d'économie)
    Abstract: Contracting frictions affect the organization of firms, but how much does this matter on the aggregate level? This paper studies how costly supplier contract enforcement shapes the patterns of intermediate input use and quantifies the impact of these distortions on aggregate productivity and welfare. Using the frequency of litigation between US firms to measure the potential for hold-up problems, I find a robust relationship between countries’ input-output structure and their quality of legal institutions: in countries with high enforcement costs, firms have lower expenditure shares on intermediate inputs in sector pairs where US firms litigate frequently for breach of contract. I adapt a Ricardian trade model to the study of intersectoral trade, and show that the variation in intermediate input shares that is explained by contracting frictions is large enough to generate sizeable welfare increases when enforcement institutions are improved.
    Date: 2018–12
  8. By: Hundt, Christian; Holtermann, Linus; Steeger, Jonas; Bersch, Johannes
    Abstract: In this paper, we examine the macro-to-micro-transition of cluster externalities to firms and how it is affected by the macroeconomic instability caused by the recessionary shock of 2008/2009. Using data from 16,166 manufacturing and business services firms nested in 390 German regions, we employ within-firm regression techniques to estimate the impact of cross-level interactions between firm- and cluster-level determinants on phase-related differences in firm performance between a pre-crisis (2004-2007) and a crisis period (2009-2011). The empirical results validate the existence of a macro-to-micro-transition that evolves best in the case of broad firm-level capabilities and variety-driven externalities. Furthermore, the results indicate that the transition strongly depends on the macroeconomic cycle. While the transition particularly benefits from a stable macroeconomic environment (2004-2007), its mechanisms are interrupted when being exposed to economic turmoil (2009-2011). Yet, the crisis-induced interruption of the transition is mainly restricted to the national recession in 2009. As soon as the macroeconomic pressure diminishes (2010-2011), we observe a reversion of the transmission mechanisms to the pre-crisis level. Our study contributes to the existing literature by corroborating previous findings that the economic performance of firms depends on a working macro-to-micro transition of external resources, which presupposes sufficient cluster externalities and adequate firm-level combinative capabilities. In contrast to previous studies on this topic, the transition mechanism is not modeled as time-invariant. Instead, it is coupled to the prevailing macroeconomic regime.
    Keywords: Macro-to-micro-transition, combinative capabilities, agglomeration economies, cluster-level externalities, unrelated variety, related variety, macroeconomic regimes, Great Recession, eco-nomic resilience
    JEL: C33 R11 R58
    Date: 2019–01–28
  9. By: Adeabah, David; Andoh, Charles
    Abstract: The study analyses the welfare performance of banks’ lending services in the Ghanaian banking industry with emphasis on the role of market power and efficiency. We made use of pooled OLS regression with fixed effect model. For robustness, we adopted Prais–Winsten (1954) regression and two-stage least squares (2SLS) instrumental variables procedures on an unbalanced panel data of 24 banks for years 2009 through 2017. The results reveal that during our study period, there was a welfare loss of about 0.433 percent of observed total loans. Encouragingly, cost efficiency in the banking system fits well within the world’s mean efficiency but has been decreasing over time. Further, there is evidence that prices have not moved toward a competitive level. Cost efficiency estimates are found to be negatively associated with loss of consumer surplus estimates. Market power is found to be positively related to a loss in consumer surplus. Additional analysis shows that the market power effect is dominant in both domestic and large banks. Overall, the results indicate that market power and bank efficiency are competing interests for policymakers in their consideration of policy reforms geared toward an efficient and well-functioning banking system. An additional implication of these results suggests that antitrust enforcement may be socially beneficial to provide an incentive for competitive pricing in the lending business segment of banking. Other implications are also discussed.
    Keywords: Welfare Performance,Bank Efficiency,Market Power,Data Envelopment Analysis,Ghana
    JEL: D12 D18 D60 G21
    Date: 2019
  10. By: Jeffrey Mollins; Pierre St-Amant
    Abstract: We ask whether a weaker contribution of information and communication technologies (ICT) to productivity growth could account for the productivity slowdown observed in Canada since the early 2000s. To answer this question, we consider several methods capturing channels through which ICT could affect aggregate productivity growth. This includes an approach “à la Cette et al. (2015)” that focuses on the use of ICT capital. We also examine two-sector models including a simple approach with use and production effects, and an approach “à la Oulton (2012)” that highlights the role of relatively weak growth in ICT prices. However, Oulton’s approach is based on strong assumptions about the structure of the economy, some of which are clearly inconsistent with Canadian data. We therefore propose a different model based on assumptions that are less restrictive but that still capture various channels (production, capital deepening, price effects). Our results indicate that ICT continues to contribute to productivity growth, but that this contribution has declined and accounts for part of the productivity slowdown. However, the slowdowns in productivity and in the contribution of ICT do not seem to have the same timing. While productivity slowed in the early 2000s, ICT contribution does not appear to have fallen until around the Great Recession. This prompts the conclusion that while ICT had little to no role in the initial productivity slowdown, it has been a major determinant of the subdued productivity growth since around the recession.
    Keywords: Productivity
    JEL: D24 O4 O41 O47
    Date: 2019
  11. By: Buckle, Robert A.; Creedy, John
    Abstract: This paper examines how the research quality of academic disciplines within New Zealand universities has evolved since the first Performance-based Research Fund (PBRF) assessment in 2003. The analysis uses a database consisting of an anonymous ‘quality category’ (QC) for each person assessed in the 2003 and 2012 PBRF assessment rounds. Individual researchers are assigned to academic discipline groups and the paper measures the distribution of researchers across disciplines and the discipline composition of universities. There has been little change in the distribution and their concentration within and across universities. However, exceptions are increases in the shares of medicine and agriculture, and a reduction in the share of education. Research Average Quality Scores are derived for discipline groups. All groups substantially increased their scores. Transition matrices show that there are significant differences in the dynamics of the various disciplines during the PBRF process. The paper shows that changes in the discipline composition of universities explains little of the proportional improvement of research quality among New Zealand universities.
    Keywords: Academic disciplines, Education policy, New Zealand universities, Performance-based Research Fund, Productivity, Research, Transitions,
    Date: 2019
  12. By: Daniel E. Sichel
    Abstract: This paper provides a non-technical review of the literature and issues related to the measurement of aggregate productivity. I begin with a discussion of productivity measures, their performance in recent decades, and key measurement puzzles that emerge from the data. The remainder of the review focuses on two important questions. First, how do we make more accurate the measures of prices used to deflate nominal output so as to win (or at least not lose) the race for economic measurement to keep up with a changing economy? This section frames the issues and points to the most important and promising areas for further research. Second, what does or should GDP measure? I defend GDP as a valuable measure of production and offer suggestions for improving it. At the same time, I emphasize the importance of measuring economic welfare (well being) and highlight the value of supplementing GDP with a satellite account that measures economic welfare.
    JEL: E01 E22 E24 E31
    Date: 2019–02

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