nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2021‒03‒29
sixteen papers chosen by

  1. How many (more) lost decades? The great productivity slowdown in Japan By Betts, Caroline
  2. The Impact of COVID on Potential Output By John G. Fernald; Huiyu Li
  3. Regularized Conditional Estimators of Unit Inefficiency in Stochastic Frontier Analysis, with Application to Electricity Distribution Market By Zeebari, Zangin; Månsson, Kristofer; Sjölander, Pär; Söderberg, Magnus
  4. Inequality in Productivity: Geography and Finance of Leaders and Laggards in Italy By Giorgio Barba Navaretti; Anna Rosso
  5. Incentive Spillovers in the Workplace: Evidence from Two Field Experiments By Erwin Bulte; John List; Daan van Soest
  6. Industrial Relatedness in MNE Spillovers over Geographical Space By Nicola Cortinovis; Zhiling Wang; Hengky Kurniawan
  7. Firm Productivity, Wages, and Sorting By Benjamin Lochner; Bastian Schulz
  8. Productivity and the Welfare of Nations By Susanto Basu; Luigi Pascali; Fabio Schiantarelli; Luis Serven
  9. Does the Legal Form Matter for Firm Performance in the MENA Region? By Ahmad, Issam Abdo; Fakih, Ali
  10. A study on productivity & empowerment of women intensive sericulture sector of West Bengal By Roy, Chandan; Roy Mukherjee, Sanchari
  11. Smart Specialisation Strategies and Regional Productivity: A preliminary assessment in Portugal By Anabela Santos; John Edwards; Paulo Neto
  12. Regional Passenger Rail Efficiency: Measurement and Explanation in the case of France By Christian Desmaris; Guillaume Monchambert
  13. Multinationals and Domestic TFP: Market Shares, Agglomerations Gains and Foreign Ownership By Bournakis, Ioannis; Papanastassiou, Marina; Papaioannou, Sotiris
  14. Productivity-Enhancing Reallocation during the Great Recession:Evidence from Lithuania By Linas Tarasonis; Jose Garcia-Louzao
  15. The Economics of Urban Density By Gilles Duranton; Diego Puga
  16. Judicial efficiency and bank credit to firms By Giacomo Rodano

  1. By: Betts, Caroline
    Abstract: I document that, relative to the period 1971 to 1990, Japan has suffered almost three complete “lost” decades of slower growth from 1991 through 2018. The average growth rate of output per working age person, and of labor productivity–measured by both output per hour worked and output per employed person–substantially declined in the 1990s and never returned to pre-1991 values. The average growth rate of output per working age person from 2011–2018 partially recovered, to just 56 percent of its 1980s value. I find this partial recovery was due solely to an increase in hours worked per working age person–labor input growth–which cannot support sustained growth in living standards. By contrast, labor productivity growth–which can support sustained growth in living standards–declined further in the 2010s and averaged just 20 percent of its 1980s value. Growth accounting shows that a large and persistent decline in total factor productivity (TFP) growth was the source of Japan’s slowing labor productivity growth in the 1990s and 2000s, while a falling capital output ratio forced further slowing in the 2010s. Assuming a global trend growth rate of 2 percent per year, the average growth rate of output per working age person in the 20th century United States–commonly viewed as the technology-frontier country, I show that Japan’s TFP collapsed relative to trend in 1992 and has deviated increasingly below it. By contrast, since 1991, US TFP has fallen relative to trend only since 2016. Among the twenty richest OECD countries, in the post-2000 era–widely argued to have witnessed a widespread advanced economy productivity growth slowdown–Japan’s TFP factor was one of only seven to fall more than 15 percent below trend. Japan’s TFP collapse in 1992, and that of several OECD countries after 2000, is due not to slower US-TFP trend growth but to domestic institutions, polices, and practices that have reduced the efficiency of frontier-technology use. Policy reforms that directly address productivity deficits are needed to support faster growth in living standards that is also sustainable.
    Keywords: Aggregate Productivity, Capital-Output Ratio, Economic Growth, Neoclassical Growth Model, Output Growth, Technological Change, Total Factor Productivity, Japan, United States, G-7, OECD.
    JEL: O41 O47 O50
    Date: 2021–03–05
  2. By: John G. Fernald; Huiyu Li
    Abstract: The level of potential output is likely to be subdued post-COVID relative to its previous estimates. Most clearly, capital input and full-employment labor will both be lower than they previously were. Quantitatively, however, these effects appear relatively modest. In the long run, labor scarring could lead to lower levels of employment, but the slow pre-recession pace of GDP growth is unlikely to be substantially affected.
    Keywords: Growth accounting; productivity; potential output; covid-19
    JEL: E01 E23 E24 O47
    Date: 2021–02–28
  3. By: Zeebari, Zangin (Jönköping University); Månsson, Kristofer (Jönköping University); Sjölander, Pär (Jönköping University); Söderberg, Magnus (The Ratio Institute)
    Abstract: The practical value of Stochastic Frontier Analysis (SFA) is positively related to the level of accuracy at which it estimates unit-specific inefficiencies. Conventional SFA unit inefficiency estimation is based on the mean/mode of the inefficiency, conditioned on the estimated composite error. This approach shrinks the inefficiency towards its mean/mode, which generates a distribution that is different from the distribution of the unconditional inefficiency; thus, the accuracy of the estimated inefficiency is negatively correlated with the distance the inefficiency is located from its mean/mode. We propose a regularized estimator based on Bayesian risk (expected loss) that restricts the unit inefficiency to satisfy the underlying theoretical mean and variation assumptions. We analytically investigate some properties of the maximum a posteriori probability estimator under mild assumptions and derive a regularized conditional mode estimator for three different inefficiency densities commonly used in SFA applications. Extensive simulations show that, under common empirical situations, e.g., regarding sample size and signal-to-noise ratio, the regularized estimator outperforms the conventional (unregularized) approach when the inefficiency is greater than its mean/mode. With real data from electricity distribution sector in Sweden, we demonstrate that the conventional conditional estimators and our regularized conditional estimators give substantially different results for highly inefficient companies.
    Keywords: Electricity Distribution; Productivity; Regularized Posterior Likelihood; Stochastic Frontier Analysis
    JEL: C21 D24 L94
    Date: 2021–03–24
  4. By: Giorgio Barba Navaretti (University of Milan); Anna Rosso (University of Milan)
    Abstract: We examine the geography of productivity leaders and laggards in the population of Italian joint stock manufacturing companies between 2007 and 2017 and analyse how far such patterns can be related to their financial structure and the provision of financial services in the Italian provinces. To do so we exploit the reform of the Italian banking system in the mid-Nineties as an exogenous shock on the structure of local banking markets and examine whether this shock affects productivity patterns at the firm level. We find a robust descriptive evidence of a widening of the leader-laggard gaps, with a very sizeable productivity divide between the North and the South of the country. Leaders are concentrated in the North. Leaders, especially in the North are also more likely to have access to capital markets. Firms in the South, instead, also those at the frontier, are more reliant on bank lending. The liberalization of the banking market in the mid 90s and the growth of joint stock banks at the provincial level positively affected firms’ productivity outcomes, possibly through an improvement of firms’ financial structure. We also use a firm specific measure of core-periphery based on distance from airport hubs and find that the likelihood of activating a virtuous capital market productivity link declines with distance from core areas.
    Keywords: Productivity, Bank Liberalization, Core-periphery Dynamics
    JEL: R1 O4 G21
    Date: 2021–03–19
  5. By: Erwin Bulte; John List; Daan van Soest
    Abstract: Incomplete contracts are the rule rather than the exception, and any incentive scheme faces the risk of improving performance on incented aspects of a task at the detriment of performance on non-incented aspects. Recent research documents the effect of loss-framed versus gain-framed incentives on incentivized behavior, but how do such incentives affect overall performance? We explore potential trade-offs by conducting field experiments in an artificial "workplace". We explore two types of incentive spillovers: those contemporaneous to the incented task and those subsequent to the incented task. We report three main results. First, consonant with the extant literature, a loss aversion incentive induces greater effort on the incented task. Second, offsetting this productivity gain, we find that the quality of work decreases if quality is not specified in the incentive contract. Third, we find no evidence of harmful spillover effects to subsequent tasks; if anything, the loss aversion incentive induces more effort in subsequent tasks. Taken together, our results highlight that measuring and accounting for incentive spillovers are important when considering their overall impact.
    Date: 2021
  6. By: Nicola Cortinovis; Zhiling Wang; Hengky Kurniawan
    Abstract: In this paper, we explore how spillovers from multinational enterprises (MNEs) spread and impact domestic firms through different channels and at various spatial scales. Taking a firm-level approach, we test whether industrial relatedness mediates spillover effects from MNEs over and above horizontal and vertical linkages traditionally identified by the literature. Thanks to fine- grained geographical information, we further investigate the spatial reach of the spillovers and how they are associated with domestic firms’ characteristics such as absorptive capacity and technological sophistication. Our hypotheses are tested on a panel data set of Indonesian manufacturing firms census between 2002 to 2009. We find that domestic firms have higher total factor productivity when being exposed to a higher share of output from multinational firms in related industries, on top of the widely acknowledged horizontal and vertical MNE spillovers. We also show that MNE spillovers are sensitive to distance, with relatedness-mediated ones being detected between 30 and 60 km from the municipality of the MNE. Regarding heterogeneity, large firms benefit from productivity-enhancing relatedness spillovers at a wider spatial distance (up to 90km), and firms in less-advanced industries benefit from relatedness mediated effects as much as those in more advanced industries.
    Keywords: Multinational enterprises, spillovers, industrial relatedness, spatial effects.
    JEL: D24 F23 O33 R10
    Date: 2021–03
  7. By: Benjamin Lochner (University of Erlangen-Nuremberg and Institute for Employment Research (IAB)); Bastian Schulz (Department of Economics and Business Economics, the Dale T. Mortensen Centre, Aarhus University and CESifo)
    Abstract: We study the link between firms’ productivity and the wages firms pay. Guided by labor market sorting theory, we infer firm productivity from estimating firm-level production functions, taking into account that worker ability and firm productivity may interact at the match level. Using German data, we find that high wages are not necessarily a reflection of high firm productivity. Observed worker transitions towards higher wages are sometimes directed downwards on the firm-productivity ladder. Worker sorting into high-productivity firms is thus less pronounced than sorting into high-wage firms. Consequently, an implication of increasing wage sorting could be decreasing allocative efficiency.
    Keywords: Assortative Matching, Labor Market Sorting, Wage Inequality, Job Mobility, Unobserved Heterogeneity, Firm Productivity, Production Function Estimation
    JEL: J24 J31 J40 J62 J64 L25
    Date: 2021–03–15
  8. By: Susanto Basu (Boston College); Luigi Pascali (Universitat Pompeu Fabra and University of Warwick); Fabio Schiantarelli (Boston College); Luis Serven (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We show that the welfare of a country's infinitely-lived representative consumer is summarized, to a first order, by total factor productivity (TFP), appropriately defined, and by the capital stock per capita. The result holds for both closed and open economies, regardless of the type of production technology and the degree of product market competition. Welfare-relevant TFP needs to be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates. We use these results to calculate welfare gaps and growth rates in a sample of advanced countries with high-quality data on output, hours worked, and capital. We also present evidence for a broader sample that includes both advanced and developing countries.
    Keywords: Productivity, welfare, TFP, Solow residual.
    JEL: D24 D90 E20 O47
    Date: 2020–06
  9. By: Ahmad, Issam Abdo (Lebanese American University); Fakih, Ali (Lebanese American University)
    Abstract: This paper attempts to study the relationship between firm legal form and firm performance in the Middle East and North Africa Region (MENA) using the World Bank Enterprise Survey (WBES) database. Our analysis shows that open shareholding, closed shareholding, partnership, and limited partnership companies demonstrate an advantage in terms of annual sales and annual productivity growth rates over sole proprietorship firms, and that medium-sized and large-sized firms also demonstrate an advantage over small ones. Our analysis also shows that foreign ownership, exporting activities, the usage of the web in communication with clients and suppliers, and the presence of full-time workers positively affect firm performance. These findings are robust when running the analysis for firms with female participation in ownership. This paper provides directions for strategists targeting at improving the performance of firms.
    Keywords: legal form, firm performance, MENA region
    JEL: C10 G30 L25
    Date: 2021–03
  10. By: Roy, Chandan; Roy Mukherjee, Sanchari
    Abstract: Sericulture is a women intensive sector where 60% of the workers are either family workers or hired female workers. Productive skill makes the presence of women invincible both in pre and post cocoon sectors. This larger participation is expected to raise their level of empowerment too. Higher level of empowerment is expected to induce the woman to usher improved productive technology. However field survey in Malda districts of West Bengal reveals a complete bleak picture. Neither productivity level, nor the empowerment level have reached the desired level, which calls for an immediate intervention and revision of policies.
    Keywords: Sericulture, Productivity, Empowerment, Malda, West Bengal.; Sericulture, Productivity, Empowerment, Malda, West Bengal.
    JEL: I15 J16 J24 O13
    Date: 2020–07–14
  11. By: Anabela Santos (European Commission - JRC); John Edwards (Policy Experimentation and Evaluation Platform); Paulo Neto
    Abstract: Smart Specialisation is a place-based approach to innovation policy that underpins a significant amount of EU funding. The origins of the concept lie in the transatlantic productivity gap and a concern that previous investments in Research and Innovation (R&I) had failed to deliver commercial benefits. Following more than five years of implementation, this report contributes to the evaluation of the smart specialisation approach through quantitative analysis. As part of the Stairway to Excellence project, it is one of the first to assess its impact on regional productivity, based on the case of Portugal. This is done using the country’s main instrument to support corporate Research and Development (R&D) that was launched in 2007 and adapted to accommodate smart specialisation in 2014. An analysis of project characteristics reveals that during the programming period 2014-2020, financial support to corporate R&D investment aligned with S3 priorities has been more concentrated on cooperation between regions and sectors. A higher diversification of R&D and Innovation funds across sectors, regions and beneficiaries, in comparison with 2007-2013, is also observed. As more cooperation and diversification are two important features of smart specialisation, these findings suggest improved investment choices in the programming period 2014-2020. Furthermore, after controlling for the existence of potential geographical spillover effects by applying a spatial econometric analysis, the results display a positive effect on regional productivity from the R&D and Innovation subsidies over the last two programming periods. Furthermore, a higher rate of return of RDI subsidy in the second period is also observed, which suggests that smart specialisation was able to generate an additional effect in comparison with a situation without this place-based policy. Nevertheless, we also found that – in the case of Portugal - smart specialisation has only been able to generate this additional effect in regional productivity when the R&D funding instrument is combined with other types of innovation subsidies. This finding provides additional weight to the argument for broader and more integrated smart specialization policy mixes in the new programming period.
    Keywords: Productivity, Innovation, Smart Specialisation Strategies, Portugal
    JEL: O31 R11 H71
    Date: 2021–03
  12. By: Christian Desmaris (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique, IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon - Université de Lyon); Guillaume Monchambert (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper investigates the productive efficiency of French regional rail operators. Benefiting from unique databases (2012-2016), we use a panel stochastic frontier model to measure and explain the productive efficiency. We consider the regional monopoly nature of these operators by introducing specific contract-related variables into the model. The technical efficiency level of regional operators ranges from 59 to 98 per cent, revealing a high degree of heterogeneity in productive performance between regional operators. Factors related to the societal environment (density and delinquency rate), the characteristics of the rail system (network length and number of stations) and contractual design are significantly correlated with the technical efficiency. The policy implications of these results are substantial for both public authorities and rail operators.
    Keywords: TER,France,Stochastic frontiers,Regional rail passenger market,Rail regulation,Productive efficiency,Working Papers du LAET
    Date: 2021
  13. By: Bournakis, Ioannis; Papanastassiou, Marina; Papaioannou, Sotiris
    Abstract: We revisit the puzzle regarding the role of Multinational Enterprises (MNEs) on Total Factor Productivity (TFP) of domestic firms by drawing attention to foreign ownership structure. First, we differentiate between market share (MS) due to competition effects and knowledge agglomeration gains (AG). The former induces market pressure, due to foreign presence, and makes domestic firms to charge lower price mark-ups. Second, we investigate whether intra-industry (horizontal) and inter-industry (vertical) spillovers vary with the degree of foreign control. Using a sample of manufacturing firms from six European countries, we find that higher presence of MNEs in the domestic market makes domestic firms to charge lower mark-ups. Only majority and wholly-owned MNEs generate statistically significant horizontal spillovers. The economic size of these spillovers is low. We also detect backward spillovers from MNEs in downstream industries. However, forward spillovers from MNEs in upstream industries are negative. When we control for absorptive capacity, direct linkages with MNEs, scope of product differentiation and geographical proximity, the economic size of AG increases substantially.
    Keywords: MNEs, Foreign ownership, Spillovers, Market Share, Agglomeration Gains, Mark-up, Total Factor Productivity
    JEL: D23 D4 F14 F23
    Date: 2020–05–17
  14. By: Linas Tarasonis (Bank of Lithuania, Vilnius University); Jose Garcia-Louzao (Bank of Lithuania)
    Abstract: This paper studies the impact of the Great Recession on the relationship between reallocation and productivity dynamics in Lithuania. Using detailed microlevel data, we first document the aggregate contribution of firm exit and employment reallocation to productivity growth. Next, we estimate firm-level regressions to confirm the findings and to perform a heterogeneity analysis. This analysis shows that productivity shielded firms from exit, and that this relationship became stronger during the Great Recession. Moreover, we demonstrate that more productive firms experienced on average lower employment losses, and that this effect was even stronger during the economic slump. Taken together, our results suggest that reallocation was productivityenhancing during the Great Recession. However, the analysis also indicates that reallocation intensity varied with sector's dependence on external financing or international trade as well as market concentration.
    Keywords: firm dynamics, job reallocation, productivity, Great Recession
    JEL: E24 E32 L11 J23
    Date: 2021–03–19
  15. By: Gilles Duranton (University of Pennsylvania); Diego Puga (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: Urban density boosts productivity and innovation, improves access to goods and services, reduces typical travel distances, encourages energy-efficient construction and transport, and facilitates sharing scarce amenities. However, density is also synonymous with crowding, makes living and moving in cities more costly, and concentrates exposure to pollution and disease. We explore the appropriate measurement of density and describe how it is both a cause and a consequence of the evolution of cities. We then discuss whether and how policy should target density and why the trade-off between its pros and cons is unhappily resolved by market and political forces.
    Keywords: Density, agglomeration, urban costs.
    JEL: R12 R31 R32
    Date: 2020–06
  16. By: Giacomo Rodano (Bank of Italy)
    Abstract: This paper analyses empirically the effect of judicial efficiency on bank credit contractual terms for the universe of Italian corporations borrowing from the banking sector. Exploiting within-country variation in the length of bankruptcy proceedings across different jurisdictions, the paper uses a spatial regression discontinuity design that compares credit conditions applied to firms located in municipalities on different sides of jurisdiction borders, controlling for bank characteristics. The results show that judicial efficiency is associated with a reduction in the cost of credit as well as with an increase in its availability for firms, in particular for those at high risk of default. Judicial efficiency increases leverage and investment for high risk firms. All these results suggest that the banking system tilts credit conditions in favor of safe firms as court inefficiency increases. Finally, court efficiency is also associated with a reduction in both the stock and the flow of Non Performing Loans.
    Keywords: judicial efficiency, creditor rights, loan contractual terms, spatial discontinuity approach
    JEL: G21 G33 K12 K15
    Date: 2021–03

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