nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2020‒11‒09
nine papers chosen by

  1. Essays on Energy Efficiency, Environmental Regulation and Labor Demand in Swedish Industry By Amjadi, Golnaz
  2. Productivity Drivers: Empirical Evidence on the Role of Digital Capital, FDI and Integration By Amat Adarov; David Klenert; Robert Marschinski; Robert Stehrer
  3. Misallocation and Capital Market Integration: Evidence From India By Natalie Bau; Adrien Matray
  4. Incentivized Mergers and Cost Effciency: Evidence from the Electricity Distribution Industry By Robert Clark; Mario Samano
  5. Do Data Policy Restrictions Impact the Productivity Performance of Firms and Industries? By Martina Francesca Ferracane; Janez Kren; Erik van der Mare
  6. Accounting for Growth in Spain, 1850-2019 By Leandro Prados de la Escosura; Joan R. Rosés
  7. Manufacturing Output and Extreme Temperature: Evidence from Canada By Philippe Kabore; Nicholas Rivers
  8. Potential output in Canada: 2020 reassessment By Dany Brouillette; Julien Champagne; Julien McDonald-Guimond
  9. The Elasticity of Substitution between Clean and Dirty Energy with Technological Bias By Ara Jo

  1. By: Amjadi, Golnaz (Department of Economics, Umeå University)
    Abstract: Paper [I] Energy efficiency improvement (EEI) benefits the climate and matters for energy security. The potential emission and energy savings due to EEI may however not fully materialize due to the rebound effect. In this study, we measure the size of the rebound effect for fuel and electricity within the four most energy intensive sectors in Sweden: Pulp and paper, Basic iron and steel, Chemical, and Mining. We use a detailed firm-level panel data set for 2000–2008 and apply a stochastic frontier analysis (SFA) for measuring the rebound effect. We find that neither fuel nor electricity rebound effects fully offset the potential energy and emission savings. Among the determinants, we find the CO2 intensity and the fuel/electricity shares to be useful indicators for identifying firms with higher or lower rebound effects within each sector. Paper [II] Energy efficiency improvement (EEI) is generally known to be a cost-effective measure for meeting energy, climate and sustainable growth targets. Unfortunately, behavioral responses to such improvements (called energy rebound effects) may reduce the expected savings in emissions and energy from EEI. Hence, the size of this effect should be considered to help set realistic energy and climate targets. Currently there are significant differences in approaches for measuring rebound effect. Here, we used a two-step procedure to measure both short- and long-term energy rebound effects in the Swedish manufacturing industry. In the first step, we used data envelopment analysis (DEA) to obtain energy efficiency scores. In the second step, we estimated energy rebound effects using a dynamic panel regression model. This approach was applied to a firm-level panel dataset covering all 14 sectors in the Swedish manufacturing industry over the period 1997–2008. We showed that, in the short run, partial rebound effects exist within most of manufacturing sectors, meaning that the rebound effect decreased, but did not totally offset, the energy and emission savings expected from EEI. The long-term rebound effect was smaller than the short-term effect, implying that within each sector, energy and emission savings due to EEI are larger in the long run compared to the short run. Paper [III] Energy inefficiency in production implies that the same level of goods and services could be produced using less energy. The potential energy inefficiency of a firm may be linked to long-term structural rigidities in the production process and/or systematic shortcomings in management (persistent inefficiency), or associated with temporary issues like misallocation of resources (transient inefficiency). Eliminating or mitigating different inefficiencies may require different policy measures. Studies measuring industrial energy inefficiency have mostly focused on overall inefficiencies and have paid little attention to distinctions between the types. The aim of this study was to assess whether energy inefficiency is transient and/or persistent in the Swedish manufacturing industry. I used a firm-level panel dataset covering fourteen industrial sectors from 1997–2008 and estimated a stochastic energy demand frontier model. The model included a four-component error term separating persistent and transient inefficiency from unobserved heterogeneity and random noise. I found that both transient and persistent energy inefficiencies exist in most sectors of the Swedish manufacturing industry. Overall, persistent energy inefficiency was larger than transient, but varied considerably in different manufacturing sectors. The results suggest that, generally, energy inefficiencies in the Swedish manufacturing industry were related to structural rigidities connected to technology and/or management practices. Paper [IV] The aim of this paper was to investigate whether the environment and employment compete with each other in Swedish manufacturing industry. The effect of a marginal increase in environmental expenditure and environmental investment costs on sector-level demand for labor (employment) was studied using a detailed firm-level panel dataset for the period 2001–2008. The results showed that the sign and magnitude of the net employment effects ultimately depend on the aggregate sector-level output demand elasticity. If the output demand is inelastic, these costs induce small net improvements in employment, while a more elastic output demand suggests negative, but in most sectors relatively small, net effects on demand for labor. Hence, the results did not generally indicate a substantial trade-off between jobs and the environment. The general policy recommendation that can be drawn from this study is that, in the absence of empirically estimated output demand elasticities, a careful attitude regarding national environmental initiatives for sectors exposed to world market competition should be adopted.
    Keywords: Energy efficiency improvement; rebound effect; stochastic frontier analysis; data envelopment analysis; stochastic energy demand frontier model; persistent and transient energy inefficiency; energy inefficiency; environmental expenditure and environmental investment costs; output demand elasticity
    JEL: C02 C33 C50 D22 J23 K32 L60 Q40 Q50
    Date: 2020–10–30
  2. By: Amat Adarov (The Vienna Institute for International Economic Studies (wiiw)); David Klenert (European Commission - JRC); Robert Marschinski (European Commission - JRC); Robert Stehrer (The Vienna Institute for International Economic Studies (wiiw))
    Abstract: There are marked differences in productivity dynamics between countries as well as industries, often leading to substantial performance gaps, such as the gap in labour productivity between the EU and the US. In this article, we use the 2019 release of the EU KLEMS database to look into the drivers of productivity. In particular, we analyse how different types of capital (including intangible capital), foreign direct investment, integration into global value chains and EU integration affect labour productivity. Key findings are that intangible Information and Communication Technology (ICT) capital is a strong driver of productivity both at sectoral and aggregate levels, even more so than tangible ICT capital. Furthermore, backward global value chain integration and EU integration are positively associated with labour productivity. Contrary to expectations, we do not find evidence of a productivity-enhancing effect of foreign direct investment. Finally, we estimate by how much the productivity gap between the EU and the US could be reduced through different ICT investment policies.
    Keywords: productivity, productivity gap, digitalisation, ICT capital, FDI, global value chains, intangible capital
    Date: 2020–10
  3. By: Natalie Bau; Adrien Matray
    Abstract: We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity in India. The staggered liberalization of access to foreign capital across disaggregated industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK), liberalization increases revenues by 25%, physical capital by 57%, wage bills by 27%, and reduces MRPK by 35% relative to low MRPK firms. There are no effects on low MRPK firms. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign capital partially substitutes for an efficient banking sector. Finally, we develop a novel method to use natural experiments to bound the effect of changes in misallocation on treated industries' aggregate productivity. Treated industries' Solow residual increases by 4-17%.
    JEL: F21 F38 F6 O1 O11 O12 O4
    Date: 2020–10
  4. By: Robert Clark (Queen's University); Mario Samano (HEC Montreal)
    Abstract: In an effort to lower costs of provision, authorities have encouraged the consolidation of providers for a number of services such as electricity distributors, school boards, hospitals, and municipalities. In this paper we propose an endogenous merger process to evaluate the impact of government-provided incentives on consolidation patterns,and to evaluate the resulting outcomes. The process takes as input estimates from a stochastic frontier cost model, which yields an average cost curve for the industry. Policy parameters are used to simulate final configurations using offers that are the output of a Nash Bargaining problem. The efficiency of candidate merged entities is determined by a relative-influence function that measures the degree to which the combination of the involved firms' levels of efficiency results in cost-increasing amalgamations, and an interconnection cost that measures the impact of the size of the conglomerate that is formed. We calibrate parameters by applying the merger process to replicate the observed industry reconfiguration and then use these parameters to simulate the consolidation patterns that would have resulted from different policy incentives. We apply the method to the case of Ontario, where past mergers of local electricity distribution companies were incentivized by transfer tax reductions and a further round of mergers was recently proposed. Our findings suggest that the proposed tax incentive would have no impact on efficiency levels and consolidation patterns, and that even a substantial subsidy would still leave about five times as many LDCs as desired by policy makers.
    Date: 2020–07
  5. By: Martina Francesca Ferracane; Janez Kren; Erik van der Mare
    Abstract: This paper examines how policies regulating the cross-border movement and domestic use of electronic data on the internet impact the productivity of firms in sectors relying on electronic data. In doing so, we collect regulatory information on a group of developed economies and create an index that measures the regulatory restrictiveness of each country’s data policies. The index is based on observable policy measures that explicitly inhibit the cross-border movement and domestic use of data. Using cross-country firm-level and industry-level data, we analyse econometrically the extent to which these data regulations over time impact the productivity performance of downstream firms and industries respectively. We show that stricter data policies have a negative and significant impact on the performance of downstream firms in sectors reliant on electronic data. This adverse effect is stronger for countries with strong technology networks, for servicified firms, and holds for several robustness checks.
    Keywords: Cross-border data flow, regulatory policies, firm-level productivity, Total Factor Productivity (TFP)
    Date: 2019–04
  6. By: Leandro Prados de la Escosura (Universidad Carlos III and CEPR); Joan R. Rosés (LSE and CEPR)
    Abstract: The current productivity slowdown has stimulated research on the causes of growth. We investigate here the proximate determinants of long-term growth in Spain. Over the last 170 years output per hour worked raised nearly 24-fold dominating GDP growth, while hours worked per person shrank by one-fourth and population trebled. Half of labour productivity growth resulted from capital deepening, one-third from total factor productivity, and labour quality contributed the rest. In phases of acceleration (the 1920s and 1954-85), TFP was labour productivity’s main driver complemented by capital deepening. Since Spain’s accession to the European Union (1985), labour productivity has sharply decelerated as capital deepening slowed down and TFP stagnated. Up to the Global Financial Crisis (2008) GDP growth mainly resulted from an increase in hours worked per person and, to a less extent, from sluggish labour productivity coming mostly from weak capital deepening. Institutional constraints help explain the labour productivity slowdown.
    Keywords: Growth, Labour Productivity, Capital Deepening, Labour Quality, Total Factor Productivity, Spain
    JEL: D24 E01 O47 N13 N14
    Date: 2020–10
  7. By: Philippe Kabore (Department of Economics, University of Ottawa); Nicholas Rivers (Graduate School of Public and International Affairs and Institute of the Environment, University of Ottawa)
    Abstract: This paper analyzes the effects of extreme temperature on manufacturing output using a dataset covering the universe of manufacturing establishments in Canada from 2004 to 2012. Extreme temperature can affect manufacturing activity by affecting separately or jointly labour productivity and labour inputs. Using a panel fixed effects method, our results suggest a non-linear relationship between outdoor extreme temperature and manufacturing output. Each day where outdoor mean temperatures are below -18°C or above 24°C reduces annual manufacturing output by 0.18% and 0.11%, respectively, relative to a day with a mean temperature between 12 to 18°C. In a typical year, extreme temperatures, as measured by the number of days below -18°C or above 24°C, reduce annual manufacturing output by 2.2%, with extremely hot temperatures contributing the most to this impact. Given the predicted change in climate for the mid and end of the century, we predict annual manufacturing output losses to range between 2.8 to 3.7% in mid-century and 3.7 to 7.2% in the end of the century.
    Keywords: Climate change, Temperature, Manufacturing, Canada, Employment.
    JEL: L60 Q56 Q54 O14 O44
    Date: 2020
  8. By: Dany Brouillette; Julien Champagne; Julien McDonald-Guimond
    Abstract: After COVID-19, we expect potential output growth to stabilize around 1.2 percent. This is lower than the 2010–18 average growth of 1.8 percent. Relative to the April 2019 reassessment, the growth profile is revised down. Given the unknown course of the pandemic, uncertainty around these estimates is higher than in previous years.
    Keywords: Labour markets; Potential output; Productivity
    JEL: E00 E2 E23 E24 E37 E6
    Date: 2020–10
  9. By: Ara Jo (Center of Economic Research, ETH Zürich, Zürichbergstrasse 18, 8089 Zürich, Switzerland.)
    Abstract: The elasticity of substitution between clean and dirty energy and the direction of technological change are central parameters in discussing one of the most challenging questions today, climate change. Despite their importance, there are few studies that empirically estimate these key parameters. In this paper, I estimate the elasticity of substitution between clean and dirty energy from micro data, jointly with technological parameters that reflect the direction of technological change within the energy aggregate. I find estimates of the elasticity of substitution ranging between 2 and 3. The largely dirty-energy-biased technological change observed in the data validates the framework of directed technological change, given the historical movement of relative energy prices and the estimated elasticity of substitution above unity. However, I also find suggestive evidence that clean-energy-augmenting technology is growing faster than dirty-energy-augmenting technology in recent years with changes in relative energy prices and higher subsidies for clean energy.
    Keywords: Elasticity of substitution, directed technical change, climate change
    JEL: Q40 Q55 Q54 O33
    Date: 2020–10

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