nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2020‒01‒27
fourteen papers chosen by

  1. Estimation of Firm-Level Productivity in the Presence of Exports: Evidence from China's Manufacturing By Malikov, Emir; Zhao, Shunan; Kumbhakar, Subal C.
  2. The Illusions of Calculating Total Factor Productivity and Testing Growth Models: From Cobb–Douglas to Solow and Romer By Felipe , Jesus; McCombie, John
  3. Labor market reforms and allocative efficiency in Italy By Nicolò Gnocato; Chiara Tomasi; Francesca Modena
  4. Climate Change and U.S. Agriculture: Accounting for Multi-dimensional Slope Heterogeneity in Production Functions By Timothy Neal; Michael Keane
  5. Finance, property rights and productivity in Italian cooperatives By Donald A R George; Eddi Fontanari; Ermanno Tortia
  6. Aging labor, ICT capital, and productivity in Japan and Korea By Jong-Wha Lee; Do Won Kwak; Eunbi Song
  7. Ownership Structure Variation and Firm Efficiency By Sallahuddin Hassan; Zalila Othman; Mukaramah Harun
  8. Persistent Misallocation and the Productivity Slowdown in EU By Shalini Mitra
  9. On the Simultaneous Openness Hypothesis: FDI, Trade and TFP Dynamics in Sub-Saharan Africa By Simplice A. Asongu; Joseph Nnanna; Paul N. Acha-Anyi
  11. Endogenous Dynamic Efficiency in the Intertemporal Optimization Models of Firm Behavior By Tsionas, Mike G.; Malikov, Emir; Kumbhakar, Subal C.
  12. Land conflicts and land tenure effects on agriculture productivity in Chad By Djimoudjiel, Djekonbe; Tchoffo Tameko, Gautier
  13. ICT and productivity growth within value chains By Liu, Chuan; Saam, Marianne
  14. Merger Efficiency Gains: Evidence from a Large Transport Merger in France By Ariane Charpin; Joanna Piechuka

  1. By: Malikov, Emir; Zhao, Shunan; Kumbhakar, Subal C.
    Abstract: Motivated by the longstanding interest of economists in understanding the nexus between firm productivity and export behavior, this paper develops a novel structural framework for control-function-based nonparametric identification of the gross production function and latent firm productivity in the presence of endogenous export opportunities that is robust to recent unidentification critiques of proxy estimators. We provide a workable identification strategy, whereby the firm's degree of export orientation provides the needed (excluded) relevant independent exogenous variation in endogenous freely varying inputs, thus allowing us to identify the production function. We estimate our fully nonparametric IV model using the Landweber-Fridman regularization with the unknown functions approximated via artificial neural network sieves with a sigmoid activation function which are known for their superior performance relative to other popular sieve approximators, including the polynomial series favored in the literature. Using our methodology, we obtain robust productivity estimates for manufacturing firms from twenty eight industries in China during the 1999-2006 period to take a close look at China's exporter productivity puzzle, whereby exporters are found to exhibit lower productivity levels than non-exports.
    Keywords: ANN sieves, control function, export, nonparametric, productivity, proxy, regularized estimation, TFP
    JEL: D22 D24 F10 L10 L60
    Date: 2020
  2. By: Felipe , Jesus (Asian Development Bank); McCombie, John (University of Cambridge)
    Abstract: This paper shows that because growth models in the tradition of Solow’s and Romer’s are framed in terms of production functions, they are equally subject to a criticism developed by, among others, Phelps Brown (1957), Simon (1979a), and Samuelson (1979). These authors argued that production function estimations are flawed exercises. The reason is that the series of output, labor, and capital stock used are definitionally related through an accounting identity. Consequently, the identity predetermines the estimates that regressions yield. We show that the identity argument helps demystify two illusions in the literature: (i) finding the Holy Grail: total factor productivity is, by construction, a weighted average of dollars per worker and a pure number (the rate of profit or the rental rate of capital); and (ii) the possibility of testing: if estimated properly, production function regressions will yield: (a) a very high fit, potentially an of unity; and (b) estimated factor elasticities equal to the factor shares, hence they must always add up to 1. We illustrate these points by discussing a series of well-known growth accounting exercises and models directly derived from production functions. They are merely tautologies. We conclude that we know substantially less than we think about growth and that many of the discussions in the growth literature are Kuhnian puzzles that only make sense within the neoclassical growth model paradigm.
    Keywords: accounting identity; Cobb–Douglas; dual TFP; growth accounting; primal TFP; production function; Romer; Solow
    JEL: E22 E23 E25 O11 O33 O47
    Date: 2019–10–28
  3. By: Nicolò Gnocato; Chiara Tomasi; Francesca Modena
    Abstract: This paper examines the extent to which labour market reforms of temporary contracts introduced in Italy at the beginning of the century influenced aggregate productivity via their e↵ects on the eciency of resource allocation. Using firm-level data from the Italian manufacturing sector, we measure resource misallocation by computing the covariance between firm size and productivity at the sectoral-regional level. We then implement a di↵erence-in-di↵erences approach to study the impact of the reforms, exploiting the cross-region and sector di↵erences in the timing of adoption. Our results suggest that the e↵ect on allocative eciency depends on the policy considered. While the reform of apprenticeship contracts made the reallocation of resources across heterogeneous firms more eciency enhancing, the deregulation of the use of fixed-term contracts did not have, on average, the intended results. The apprenticeship reform might have induced more productive firms, in particular, to invest in human capital by hiring workers to whom they provided job training, gaining market shares in so doing. In contrast, the uncertainty related to the newly lawful motives under which firms were allowed to temporarily hire workers might have reduced the incentive to use fixed-term contracts.
    Keywords: Allocative efficiency, Resource allocation, Labor market reforms
    JEL: F10 F14 F36 G20 G32 L25
    Date: 2020
  4. By: Timothy Neal (UNSW School of Economics); Michael Keane (UNSW School of Economics)
    Abstract: We study potential impacts of future climate change on U.S. agricultural productivity using county-level yield and weather data from 1950 to 2015. To account for adaptation of production to different weather conditions, it is crucial to allow for both spacial and temporal variation in the production process mapping weather to crop yields. We present a new panel data estimation technique, called mean observation OLS (MO-OLS) that allows for spatial and temporal heterogeneity in all regression parameters (intercepts and slopes). Both forms of heterogeneity are important: We find strong evidence that production function parameters adapt to local climate, and also that sensitivity of yield to high temperature declined from 1950-89. We use our estimates to project corn yields to 2100 using 19 climate models and three greenhouse gas emission scenarios. We predict unmitigated climate change will greatly reduce yield. Our mean prediction (over climate models) is that adaptation alone can mitigate 36% of the damage, while emissions reductions consistent with the Paris targets would mitigate 76%.
    JEL: C23 C54 D24 Q15 Q51 Q54 Q55
    Date: 2020–01
  5. By: Donald A R George; Eddi Fontanari; Ermanno Tortia
    Abstract: Standard economic theory predicts that the accumulation of capital by means of indivisible reserves would lead to underinvestment and undercapitalization due to the truncated temporal horizon of worker members in cooperatives (the so called Furubotn-Pejovich effect). To test the real effects of collective capital on productivity, we use a large panel of Italian worker and social cooperatives to estimate the productivity effects of collective and individual reserves of capital. The panel puts together firm-level balance sheet data from Bureau van Dijk Aida database, with social security data concerning employment contracts in all Italian enterprises. Differently from previous contributions, we are able to single out firm-level employment in terms of full-time worker equivalents. We investigate the determinants of total factor productivity by means of an augmented Cobb-Douglas production function. After controlling for factor productivity, individual capital ownership, age of the organization and other standard firm-level and sectoral controls, we find a positive and significant relation between the extent of collective ownership andtotal factorproductivity. This result is robust to different specifications of the model. We interpret the result by highlighting the positive role of collective capital in strengthening financial sustainability, patrimonial and employment stability in the long run, and in favouring specific investments.
    Keywords: cooperatives, total factor productivity, self-finance, undercapitalization, collective capital, individual capital
    Date: 2019
  6. By: Jong-Wha Lee; Do Won Kwak; Eunbi Song
    Abstract: This study examines how aging affects labor productivity using industry-level data of Japan and Korea. The analysis shows that, for both Japan and Korea, aging has positive effects on labor productivity when older workers are working in industries with a large share of information and communication technology (ICT) in the capital stock. We also find that, on average, older workers exert positive effects on labor productivity across all industries when they are low-educated in Japan and high-educated in Korea. In addition, a complementary effect between ICT capital and older workers is observed for both high- and low-educated workers in Japan but only for low-educated workers in Korea. We discuss the interplay among educational attainment, industry characteristics, and production techniques to explain the differences between the two countries in the productivity of their older workers.
    Keywords: aging, ICT capital, productivity, Japan, Korea
    JEL: J11 J14 O41 O47 O53
    Date: 2020–01
  7. By: Sallahuddin Hassan; Zalila Othman; Mukaramah Harun
    Abstract: Firms with different ownership structures could be argued to have different levels of efficiency.Highly concentrated firms are expected to be more efficient as this type of ownership structure may alleviate the conflict of interest between managers and shareholders.In Malaysia, public-listed firms have been found to have highly concentrated ownership structure.However, whether this evidence holds for every industry has not been established.Hence, the objective of this paper is to investigate whether there are variations in ownership structure and firm's efficiency across sectors.To achieve this objective, the frequency distributions of ownership structure were calculated and firms efficiency scores for consumer products, industrial products, construction and trading/services sectors were measured.Data Envelopment Analysis(DEA) under the assumptions of constant returns to scale(CRS) and variable returns to scale(VRS) was employed to estimate firms efficiency scores.A sample of 156 firms listed on the Kuala Lumpur Stock Exchange(KLSE) was selected using the stratified random sampling method. The findings have shown that there are variations in firm ownership structure and efficiency across sectors.
    Date: 2020–01
  8. By: Shalini Mitra
    Abstract: Why did the productivity slowdown in EU happen at a time of increasing financial market deregulation and generally easing credit conditions? The fact that productivity growth was declining at a time of rising credit is in contrast to the standard prediction of macroeconomic models which find a positive relation between credit and productivity growth. I argue in this paper that if the conventional channel though which such a productivity increase occurs - the reallocation of capital from less to more productive businesses - is impaired, then a decline in credit constraints has the opposite effect in the standard model and aggregate productivity declines. There is in fact ample evidence in the literature to support the impairment of capital reallocation in the EU during this period.
    Keywords: capital misallocation, financial constraints, heterogenous firms, productivity slowdown, aggregate productivity, EU
    JEL: D24 D5 D61
    Date: 2018–04
  9. By: Simplice A. Asongu (Yaoundé/Cameroon); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria); Paul N. Acha-Anyi (Walter Sisulu University, South Africa)
    Abstract: This study assesses the simultaneous openness hypothesis that trade modulates foreign direct investment (FDI) to induce positive net effects on total factor productivity (TFP) dynamics. Twenty-five countries in Sub-Saharan Africa and data for the period 1980 to 2014 are used. The empirical evidence is based on the Generalised Method of Moments. First, trade imports modulate FDI to overwhelmingly induce positive net effects on TFP, real TFP growth, welfare TFP and real welfare TFP. Second, with exceptions on TFP and welfare TFP where net effects are both positive and negative, trade exports modulate FDI to overwhelmingly induce positive net effects on real TFP growth and welfare real TFP. In summary, the tested hypothesis is valid for the most part. Policy implications are discussed.
    Keywords: Productivity; Foreign Investment; Sub-Saharan Africa
    JEL: E23 F21 F30 L96 O55
    Date: 2020–01
  10. By: Niar, Hikma; Jamali, Hisnol
    Abstract: This study investigates the Determinants of profitability and firm values in the Manufacturing Sector of Firms in Indonesia. A total of 55 companies listed on the Indonesia Stock Exchange were used as samples. Observation data is used from 2014 to 2016. The Structural Equation Modeling Test using analysis of moment structures ver. 22 provides evidence that Investment decisions has a positive and significant effect on profitability but not for firm values. Capital structure has a positive and significant effect on profitability but not for firm values. Company's growth has a positive and significant effect on profitability and firm values and then the last causality is Profitability has a positive and significant effect on firm values
    Date: 2018–03–18
  11. By: Tsionas, Mike G.; Malikov, Emir; Kumbhakar, Subal C.
    Abstract: Existing methods for the measurement of technical efficiency in the dynamic production models obtain it from the implied distance functions without making use of the information about intertemporal economic behavior in the estimation beyond an indirect appeal to duality. The main limitation of such an estimation approach is that it does not allow for the dynamic evolution of efficiency that is explicitly optimized by the firm. This paper introduces a new conceptualization of efficiency that directly enters the firm's intertemporal production decisions and is both explicitly costly and endogenously determined. We build a moment-based multiple-equation system estimation procedure that incorporates both the dynamic and static optimality conditions derived from the firm's intertemporal expected cost minimization. We operationalize our methodology using a modified version of a Bayesian Exponentially Tilted Empirical Likelihood adjusted for the presence of dynamic latent variables in the model, which we showcase using the 1960-2004 U.S. agricultural farm production data. We find that allowing for potential endogenous adjustments in efficiency over time produces significantly higher estimates of technical efficiency, which is likely due to inherent inability of the more standard exogenous-efficiency model to properly credit firms for incurring efficiency-improvement adjustment costs. Our results also suggest material improvements in efficiency over time at an about 2.6% average annual rate, which contrasts with near-zero estimates of the exogenous efficiency change.
    Keywords: dynamic efficiency, endogenous efficiency, intertemporal optimization, Bayesian analysis, Markov Chain Monte Carlo, sequential Monte Carlo
    JEL: C11 D24 Q10
    Date: 2019–11–27
  12. By: Djimoudjiel, Djekonbe; Tchoffo Tameko, Gautier
    Abstract: The objective of this article is to measure the extent of land conflicts and climate change on agricultural productivity and yields in the most conflict-prone regions of Chad. We obtained the results that, the interaction of land conflicts in agricultural activity is a barrier to productivity and the improvement of agricultural yields. The effects of climate change on yields and productivity are dwindle by government reforms and subventions in the agriculture’ sector. Hence, we recommend government to promote customary land tenure to reduce conflict and in other hand to trace transhumance corridors in order to support the State's agricultural reform efforts.
    Keywords: Land conflicts, Land tenure, Agriculture productivity, Climate change
    JEL: Q15 Q16 Q54
    Date: 2019–12–18
  13. By: Liu, Chuan; Saam, Marianne
    Abstract: To what extent have economies become better off because of the diffusion of information and communication technologies (ICT)? We analyze this question based on a growth accounting approach at the level of final output. This approach traces productivity improvements not within sectors but within value chains. It allows judging in a better way to what extent more or better products have become available to final users, in particular consumers, as a result of the diffusion of ICT. A main result is that more than half of the productivity gains related to ICT capital deepening for manufactured goods are contributed by upstream industries. The major part of this contribution is domestic rather than foreign. Moreover, the high sectoral growth in total factor productivity (TFP) in the ICT sector contributes only moderately to TFP growth in non-ICT value chains via the use of intermediates.
    Keywords: ICT,economic growth,productivity,value chains,growth accounting
    JEL: E22 F62 O47
    Date: 2019
  14. By: Ariane Charpin; Joanna Piechuka
    Abstract: Many industries are seeing an increase in concentration, leading to a discussion on the effectiveness of horizontal merger enforcement. The policy debate shows that one of the key arguments put forward when supporting potential mergers is the possibility of realization of merger efficiency gains, specifically in the transport industry. Yet, there exists little empirical evidence on the actual effects of realized mergers on cost efficiencies. We exploit a large and highly debated merger that took place in the French transport industry to evaluate whether a merger between two major transport groups may give rise to merger efficiency gains. We exploit the industry setting to employ a difference-in-differences methodology evaluating the effect of the merger on operating costs of merging transport groups. Our results show that the merger did not lead to any merger specific efficiency gains for the merging parties. Our study relies on the use of several control groups and is robust to a great number of robustness checks as well as to the introduction of heterogeneous treatment effects, depending on the identity of the merging party, the contract type in place, as well as the closeness of competition of local operators. Overall, our study contributes to a growing number of case studies undertaken by economists that can help determine whether horizontal merger policy is being properly enforced.
    Keywords: Ex-post Evaluation; Mergers; Transport industry; Merger cost efficiencies
    JEL: C31 L40 L50 L92
    Date: 2020

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