nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2020‒02‒10
twelve papers chosen by

  1. Measuring productivity: theory and British practice By Nicholas Oulton
  2. Productivity differences among firms in Latin American and the Caribbean By Lucas Figal Garone; Paula A. López Villalba; Alessandro Maffioli; Christian A. Ruzzier
  3. Does Import Competition Reduce Domestic Innovation? Evidence from the 'China Stock' and Firm-Level Data on Canadian Manufacturing By Myeongwan Kim
  4. Productivity and finance: the intangible assets channel - a firm level analysis By Lilas Demmou; Guido Franco; Irina Stefanescu
  5. The Role of Nonemployers in Business Dynamism and Aggregate Productivity By Pedro Bento; Diego Restuccia
  6. A Detailed Analysis of Newfoundland and Labrador's Productivity Performance, 1997-2018 By Andrew Sharpe; John Tsang
  7. Economic and environmental sustainability performance of environmental policies in agriculture By Gwendolen DeBoe
  8. Has mismatch got us down? Skills and productivity in Canada By Miana Plesca; Fraser Summerfield
  9. Productivity growth determinants of differently developed countries: comparative capital input results By Toma Lankauskiene
  10. An exploratory threshold regression model of the relationship between student performance and attendance By Stewart, Chris
  11. Housing Booms and the U.S. Productivity Puzzle By Jose Carreno
  12. Impacts of agricultural policies on productivity and sustainability performance in agriculture: A literature review By Gwendolen DeBoe

  1. By: Nicholas Oulton
    Abstract: This paper lays out the basic theory behind productivity measurement, whether at the level of the country, region, industry or firm. The theory is illustrated using recent data from UK official publications. Productivity growth over time and differences in productivity levels between countries or regions at a point in time are both covered. Labour productivity and multi-factor productivity (MFP) are discussed. In the case of MFP special attention is paid to the measurement of capital inputs. Wherever possible, an accompanying spreadsheet supplies data from recent publications by the United Kingdom's Office for National Statistics so that readers can reproduce official estimates or even employ alternative assumptions to produce their own estimates. Limitations in the underlying theory are highlighted as are empirical difficulties in implementing the theory.
    Keywords: productivity, measurement, MFP, capital, labour
    JEL: E23 E22 E24 O47
    Date: 2020–01
  2. By: Lucas Figal Garone (IDB); Paula A. López Villalba (Universidad de San Andrés); Alessandro Maffioli (IDB); Christian A. Ruzzier (Universidad de San Andrés)
    Abstract: While the accumulation of factors of production, both physical and human capital, has helped Latin America and the Caribbean (LAC) to narrow the income gap with developed economies, aggregate productivity is still relatively low. Although there are numerous determinants of aggregate productivity, it is largely based on the underlying productivity of all firms in the economy. Using firm-level data from several waves of the World Bank Enterprise Survey and Chile’s National Manufacturing Survey, we explore the ‘what’ question on productivity dispersion in LAC. We document three stylized facts: (i) there are significant differences in firm productivity within industries – the firm at the 90th percentile of the productivity distribution produces almost seven times as much output (using the same measured inputs) as the 10th percentile firm; (ii) productivity differences persist over time – regressing a firm’s current productivity on its one-year lagged productivity yields an autoregressive coefficient of around 0.9; and (iii) most of the growth in aggregate productivity comes from improvements in the productivity of existing firms. Next, we discuss the factors that explain these persistent productivity differences – the ‘why’ question. We argue that the large productivity differences within industries can be traced back to differences in firm strategy and organization (internal factors), and in the environment in which firms operate (external factors). Finally, we review the existing empirical evidence on the impacts of these factors on firm-level productivity (with a focus on developing countries) and identify knowledge gaps and opportunities for public, private and institutional investments.
    Keywords: Aggregate productivity, firm-level productivity, TFP, Latin America and the Caribbean
    JEL: D24 L20 M20 O30 O47 O54
    Date: 2020–01
  3. By: Myeongwan Kim
    Abstract: A key economic issue in Canada is the declining Business Enterprise Research and Development in manufacturing since the early 2000s. Accompanying this, the total factor productivity (TFP) growth in manufacturing slowed after 2000. However, there has not been a definitive explanation for these trends. To deepen our understanding of this phenomenon, we focus on the increasing Chinese import share in the total domestic absorption in Canadian manufacturing since the early 2000s, which appears to be driven by positive supply shocks within Chinese manufacturing. Based on a firm-level database covering all incorporated firms in Canadian manufacturing, we find that rising Chinese import competition led to declines in R&D expenditure and TFP growth within firms but reallocated employment towards more productive firms and induced less productive firms to exit. The negative within-effects were pronounced for firms that were initially smaller, less profitable, and less productive. These firms also experienced declines in their profit margins due to rising Chinese import competition while larger and better-performing firms did not. Our estimates imply that rising Chinese import competition can explain about 7 per cent of the total decline of $1.36 billion (2007 CAD) in R&D expenditure in Canadian manufacturing between 2005 and 2010. Although it led to declines in TFP within firms, the positive reallocation effects more than offset the negative within-effect. Had there been no increase in Chinese import competition between 2005 and 2010, TFP in Canadian manufacturing would have declined by 1.26 per cent per year instead of the actual 1.09 per cent per year over this period.
    Keywords: China Shock, Canada, Imports, Productivity, Innovation
    JEL: F62 O32 O51 O53 L60
    Date: 2019–08
  4. By: Lilas Demmou; Guido Franco; Irina Stefanescu
    Abstract: Using a cross-country firm level panel dataset from 1995 to 2015, this paper revisits the finance–productivity nexus by looking at the role of intangible assets. It argues that due to their specific characteristics, such as valuation uncertainty and lower pledgeability, financing the purchase of intangible assets is more difficult than that of tangible assets. As a result, financial frictions are expected to be more binding for productivity growth in sectors where intangibles have become a pivotal component in firms production function. The analysis relies on a panel fixed effects econometric approach, several indices to capture financial frictions at the firm level and a new measure of intangible intensity at the industry level. We provide evidence that financial frictions act as a drag on productivity growth and especially so with respect to firms operating in intangible intensive sectors. These findings, which are robust to alternative specifications, shed light on the role of financial factors in explaining the productivity slowdown in OECD countries and provide support for using intangible intensity as a new dimension to proxy the relative exposure of industries to financing frictions.
    Keywords: financial constraints, intangible assets, productivity
    JEL: D22 D24 G31 O33
    Date: 2020–02–03
  5. By: Pedro Bento; Diego Restuccia
    Abstract: A decline in the net entry rate of employer firms in the United States in the last decades, a decline in business dynamism, may explain the observed productivity slowdown. We consider the role of nonemployers, businesses without paid employees, in business dynamism and aggregate productivity. Despite the decline in the growth of employer firms, the total number of firms has increased since the early 1980s, which in the context of a standard model of firm dynamics implies an average annual growth of aggregate productivity of 0.26-0.39\%, over one quarter of the productivity growth in the data.
    Keywords: nonemployers, employer firms, business dynamism, productivity, TFP.
    JEL: O4 O51 E1
    Date: 2020–01–31
  6. By: Andrew Sharpe; John Tsang
    Abstract: The main goal of this report is to describe and explain the trends in productivity in Newfoundland and Labrador, as well as trends in the variables used in the calculation of productivity, including output, labour input, and capital input. The main take-away from the report is the importance of the oil and gas sector to the economy of Newfoundland and Labrador. That sector has been responsible for most of Newfoundland and Labrador's economic growth, and now accounts for the largest share of the province’s business sector value added among 2-digit NAICS subsectors, even though it employed only 3.8 per cent of the province’s business sector workers in 2018. Due to the size of the mining and oil and gas extraction sector, its productivity performance strongly affects the performance of the overall business sector, which continues to represent a major challenge for the province. However, looking at the business sector excluding mining and oil and gas, productivity growth does fare better. The data can be split in two periods. Driven by the mining and oil and gas extraction sector, Newfoundland and Labrador’s overall productivity experienced impressive growth from 1997 to 2007, with real business sector productivity advancing at a compound annual rate of 6.0 per cent. The situation changed dramatically after 2007 when oil and gas productivity plummeted. Real business sector productivity in the province declined during the 2007-2018 period at a rate of 1.2 per cent per year
    Keywords: Productivity, Output, Labour input, Capital input, Newfoundland and Labrador, Oil and mining
    JEL: O4 J11 L71
    Date: 2019–09
  7. By: Gwendolen DeBoe (OECD)
    Abstract: This report reviews the literature on the effects of agri-environmental policies on environmental sustainability and economic performance in agriculture. Examining these twin impacts is essential for understanding the scope for “win-win” policies which improve both types of performance, and where trade-offs between economic and environmental objectives may arise. The review considers findings on several underlying questions: i) whether agri-environmental policy instruments successfully deliver on their objectives to improve the environmental performance of agriculture, and ii) whether agri-environmental policy instruments slow down productivity growth or if they contribute to stimulating productivity growth and improved environmental outcomes. As part of this latter question, this review considers the impacts of agri-environmental policies on innovation, economic performance and structural change in agriculture. It brings together literature from across a range of disciplines, including evidence from over 160 papers. As a whole, the reviewed literature identifies significant “room for improvement” in both the effectiveness of agri-environmental policies for improving agricultural sustainability and their economic efficiency, particularly in relation to hybrid instruments (e.g. cross-compliance) and voluntary agri-environmental schemes (AES).
    Keywords: AES, agri-environmental policy, economic performance, environmental sustainability, innovation, Porter Hypothesis
    JEL: Q15 Q18
    Date: 2020–02–04
  8. By: Miana Plesca (Department of Economics and Finance, University of Guelph, Canada; Rimini Centre for Economic Analysis); Fraser Summerfield (Department of Economics, St. Francis Xavier University, Canada; Rimini Centre for Economic Analysis)
    Abstract: This paper uses Canadian data to examine the link between worker-job mismatch and productivity. We measure mismatch by comparing worker education to occupational skill requirements in the Labour Force Survey (LFS) merged with industrial aggregates of a labor productivity index for the period 1997Q1-2014Q1. Economy-wide mismatch shares appear to have little importance for productivity. Instead, we show that the consequences of mismatch for aggregate productivity depend on precisely which type of workers and which types of jobs are mismatched. Productivity is dampened most when university educated workers are employed in occupations generally requiring community-college or high school education, thus leaving human capital idle.
    Keywords: productivity, mismatch, overeducation, skill
    Date: 2020–02
  9. By: Toma Lankauskiene (Vilnius Gediminas Technical University)
    Abstract: The article aims to apply the growth accounting methodology to the Baltic countries in order to obtain detailed productivity growth determinants in the aggregated market economy with a particular focus to capital input. To this end, a new database following the KLEMS methodology for tangible and intangible capital indicators is constructed. The paper analyses determinants’ genesis and growth tendencies in the context of more developed countries and uncovers the productivity gains associated with different types of capital assets. First, an overview of the economies during the period researched is presented. Second, a methodology is developed to derive new intangibles and EU KLEMS data for the Baltic countries. Third, statistical data are constructed for all economies and the growth accounting method is applied in order to obtain comparable results. Finally, economic analysis is conducted to detect certain aspects of the growth determinants for differently developed and structured economies.
    Keywords: productivity growth; KLEMS methodology; growth accounting; tangible capital; intangible capital; national accounts
    JEL: O47 E22
    Date: 2020–01
  10. By: Stewart, Chris (Kingston University London)
    Abstract: It is widely believed that attendance has a positive effect on student performance in terms of grades achieved. While the empirical evidence generally supports this belief, some studies do not, and the size of the effect varies across disciplines. Interestingly, Durden and Ellis (1995) find that attendance (absence) only has a positive (negative) and significant impact on student performance below (above) a certain threshold using intercept shift dummies. Gendron and Pieper (2005) as well as Westerman et al (2011) have confirmed a similar non-linear relationship using a quadratic function of attendance and logistic regressions based on 3 different quartiles of performance, respectively. We apply Threshold Regression (TR) to a level 5 quantitative economics module to consider an alternative non-linear specification. As far as we are aware there have only been a few papers considering non-linear effects of attendance on student performance and no previous applications of the TR form of non-linearity to model the relationship between attendance and student performance. Our TR method extends the literature by testing whether there are thresholds for continuous variables, such as attendance, that define values of the threshold variable where the model’s coefficients change. If there are thresholds, the method identifies how many and estimates the values where they occur. Our favoured model is a TR specification that has higher explanatory power (47.5%) than all linear and cubic models that we consider. This favoured TR model has one significant threshold, using attendance as the threshold variable, and includes the intercept and the prerequisite module’s grade as variables. Both these variables’ coefficients shift when the threshold level of attendance is 50%. Although there is some ambiguity over which TR model to favour in terms of model fit, our favoured model is the best fitting specification that does not make any impossible predictions of student grades.
    Keywords: student performance and attendance; threshold regression; cubic regressions; parameter constancy tests
    JEL: C21 C24 I23
    Date: 2020–01–28
  11. By: Jose Carreno
    Abstract: The United States has been experiencing a slowdown in productivity growth for more than a decade. I exploit geographic variation across U.S. Metropolitan Statistical Areas (MSAs) to investigate the link between the 2006-2012 decline in house prices (the housing bust) and the productivity slowdown. Instrumental variable estimates support a causal relationship between the housing bust and the productivity slowdown. The results imply that one standard deviation decline in house prices translates into an increment of the productivity gap -- i.e. how much an MSA would have to grow to catch up with the trend -- by 6.9p.p., where the average gap is 14.51%. Using a newly-constructed capital expenditures measure at the MSA level, I find that the long investment slump that came out of the Great Recession explains an important part of this effect. Next, I document that the housing bust led to the investment slump and, ultimately, the productivity slowdown, mostly through the collapse in consumption expenditures that followed the bust. Lastly, I construct a quantitative general equilibrium model that rationalizes these empirical findings, and find that the housing bust is behind roughly 50 percent of the productivity slowdown.
    Date: 2020–01
  12. By: Gwendolen DeBoe (OECD)
    Abstract: This report reviews the evidence base on how agricultural policies impact environmental sustainability and productivity of the agriculture sector, including the potentially contradictory signals policies may send. It considers impacts for specific policy types, classified according to the OECD’s Producer Support Estimate (PSE) classification for agricultural support. At the farm level, key pathways for environmental impacts identified in the literature are firstly incentivising a change in agricultural production at the intensive margin, extensive margin or entry-exit margin, and secondly the dynamic impacts of land use choice. Beyond this, policies can also affect agriculture’s environmental performance by stimulating (or stifling) the provision of environmental services. Environmental impacts from agricultural policy depend on several factors. Individual responses to economic incentives created by agricultural policies vary, producing variations in environmental impacts. Variation also occurs due to location-specific physical factors, including landscape characteristics, as well as the cumulative effects of decisions across actors and across time. Finally, impacts may differ across scales.
    JEL: Q15 Q18
    Date: 2020–02–05

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