nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2023‒01‒23
thirteen papers chosen by

  1. Productivity Slowdown and Tax Havens: Where Is Measured Value Creation? By Jean-Charles Bricongne; Samuel Delpeuch; Margarita Lopez Forero
  2. Firm-Embedded Productivity and Cross-Country Income Differences By Alviarez, Vanessa; Cravino, Javier; Ramondo, Natalia
  3. The Production Function for Housing: Evidence from France By Pierre-Philippe Combes; Gilles Duranton; Laurent Gobillon
  4. The Productivity-Welfare Linkage: A Decomposition By Nicholas Oulton
  5. Profitability, Productivity and Growth By Marek Ignaszak; Petr Sedlacek
  6. Chaebols and Firm Dynamics in Korea By Philippe Aghion; Sergei Guriev; Kangchul Jo
  7. Does Hometown Tax Donation System as Interjurisdictional Competition Affect Local Government Efficiency? Evidence from Japanese Municipality level Data By Ogawa, Akinobu; Kondoh, Haruo
  8. Development of Artificial Intelligence and Potential Impact of Its Applications in Agriculture on Labor Use and Productivity By Figiel, Szczepan
  9. Theory for Extending Single-Product Production Function Estimation to Multi-Product Settings By Emmanuel Dhyne; Amil Petrin; Valerie Smeets; Frederic Warzynski
  10. Productivity gains from migration: Evidence from inventors By Gabriele Pellegrino; Orion Penner; Etienne Piguet; Gaetan de Rassenfosse
  11. The Hitchhiker’s Guide to Markup Estimation By Maarten De Ridder; Basile Grassi; Giovanni Morzenti
  12. Sensitivity of capital and MFP measurement to asset depreciation patterns and initial capital stock estimates By Pierre-Alain Pionnier; María Belén Zinni; Kéa Baret
  13. The Divisia approach to measuring output and productivity: with an application to the BEA-BLS integrated industry-level production account, 1987-2020 By Nicholas Oulton

  1. By: Jean-Charles Bricongne (Centre de recherche de la Banque de France - Banque de France); Samuel Delpeuch (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Margarita Lopez Forero (Université Paris-Saclay)
    Abstract: Based on French firm-level data over 15 years we evaluate the contribution of the microlevel profit-shifting-through tax haven foreign direct investments to the aggregate productivity slowdown measured in France. We show that firm measured productivity in France declines over the immediate years following the establishment in a tax haven, with an average estimated around 3.5% in labor apparent productivity. To isolate the contribution of multinationals' tax optimization to this decline of apparent productivity, we then exploit the 2006 Cadbury-Schweppes decision of the European Court of Justice limiting the extent to which member States can counter European MNEs' tax planning strategies. We find that multinational groups benefiting from that loosening of the legal constraints do exhibit lower apparent productivity in France following that ruling. Our results moreover suggest that this bias is bigger when firms rely more intensively on intangible capital. Finally, given these firms' weight in the economy, our results imply an annual loss of 9.7% in terms of the aggregate annual labor productivity growth.
    Keywords: Profit-shifting FDI, Productivity slowdown, Productivity mismeasurement, Intangible capital, Tax Havens
    Date: 2022–04–15
  2. By: Alviarez, Vanessa; Cravino, Javier; Ramondo, Natalia
    Abstract: We measure the contribution of firm-embedded productivity to cross-country income differences. By firm-embedded productivity we refer to the components of productivity that differ across firms and that can be transferred internationally, such as blueprints, management practices, and intangible capital. Our approach relies on micro-level data on the cross-border operations of multinational enterprises (MNEs). We compare the market shares of the exact same MNE in different countries and document that they are about four times larger in developing than in high-income coun-tries. This finding indicates that MNEs face less competition in less-developed coun-tries, suggesting that firm-embedded productivity in those countries is scarce. We propose and implement a new measure of firm-embedded productivity based on this observation. We find a strong positive correlation between our measure and output per worker across countries. In our sample, differences in firm-embedded productivity account for roughly a third of the cross-country variance in output per worker.
    Keywords: Development Accounting;TFP;Multinational Enterprises
    Date: 2021–02
  3. By: Pierre-Philippe Combes (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Gilles Duranton (University of Pennsylvania [Philadelphia]); Laurent Gobillon (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We propose a new nonparametric approach to estimate the production function for housing. Our estimation treats output as a latent variable and relies on a first-order condition for profit maximization combined with a zero-profit condition. More desirable locations command higher land prices and, in turn, more capital to build houses. For parcels of a given size, we compute housing production by summing across the marginal products of capital. For newly built single-family homes in France, the production function for housing is close to constant returns and is well, though not perfectly, approximated by a Cobb-Douglas function with a capital elasticity of 0.65.
    Keywords: Housing, Production function
    Date: 2021–10–01
  4. By: Nicholas Oulton (Centre for Macroeconomics (CFM); National Institute of Economic and Social Research (NIESR))
    Abstract: According to Paul Krugman (1994, chapter 1), “Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” But productivity and the standard of living are different concepts and are measured in different ways, so the question is, what is the linkage between them? Productivity is typically measured by GDP per hour. The standard of living has potentially many aspects such as health, longevity, personal security, and relationships. But here I take a narrower view and stick to the national accounts. So the standard of living is measured by the household disposable income of the median individual. I use the median rather than the mean so that inequality is taken into account. I develop a decomposition of the growth of median household income which relates it to the growth of productivity via eight additional factors, one of which is inequality; four other factors are measures of labour market performance. I apply this decomposition to the UK over the period 1977 to 2019. I find that productivity growth was far and away the most important factor in accounting for the growth of living standards which was substantial up to 2007; rising inequality prior to 2007 retarded the growth of living standards but not by much. Since 2007 productivity growth has collapsed as has also the growth of living standards. The fall in the latter has been mitigated a bit by a fall in inequality.
    Keywords: Productivity, standard of living, welfare, inequality
    JEL: D31 I31 O47 E01
    Date: 2022–03
  5. By: Marek Ignaszak (Goethe University Frankfurt); Petr Sedlacek (University of Oxford; Centre for Economic Policy Research (CEPR))
    Abstract: Recent empirical evidence suggests that firm selection and growth are largely demand-driven. We incorporate this feature into a model of endogenous growth in which heterogeneous firms innovate and survive based on profitability, rather than productivity alone. We show analytically that firm-level demand variation impacts aggregate growth by changing firms’ incentives to innovate. Estimating our model on U.S. Census firm data, we quantify that 20% of aggregate growth is demand-driven and that the macroeconomic impact of growth policies is fundamentally different compared to a model driven by productivity variation alone. We find empirical support for our model mechanism in firm-level data.
    Date: 2021–05
  6. By: Philippe Aghion (LSE - London School of Economics and Political Science, Chaire Economie des institutions, de l'innovation et de la croissance - CdF (institution) - Collège de France); Sergei Guriev (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Kangchul Jo (BOK ERI - Bank of Korea Economic Research Institute)
    Abstract: We study firm dynamics in Korea before and after the 1997/8 Asian crisis and pro-competitive reforms that reduced the dominance of chaebols. We find that in industries that were dominated by chaebols before the crisis, labour productivity and total factor productivity of non-chaebol firms increased markedly after the reforms (relative to other industries). Furthermore, entry of non-chaebol firms increased significantly in all industries after the reform. After the crisis, the non-chaebol firms also dramatically increased their patenting activity. Finally, markups of chaebol firms declined substantially, especially within industries dominated by chaebols before the crisis. These results suggest that the crisis had the virtue of helping Korea move from catching-up growth based on investment in existing technologies to innovation-based growth.
    Date: 2021–10–01
  7. By: Ogawa, Akinobu; Kondoh, Haruo
    Abstract: This study analyzes the impact of Hometown Tax Donation (HTD), a unique local fiscal system in Japan, on local government efficiency. It allows residents to make donations to local governments of their choice, receiving deductions on payment of local and national taxes, equivalent to the amount donated, except for small self-paid amounts (JPY2, 000, US$15). Moreover, donors can receive gifts from the recipient government in return, depending on the amount donated. Therefore, tax revenue will outflow from the donor residents’ municipalities to other regions, whereas it will inflow to recipient municipalities from other regions. This makes local governments compete to receive donations under the HTD system by trying to enhance their efficiency. On the other hand, HTD may cause misperception of tax prices, thereby leading to inefficient provision of local public services. This study uses stochastic frontier analysis to quantitatively analyze the impact of HTD on the inefficiency of local governments. The findings reveal that municipalities whose revenues are more dependent on HTD tend to be more inefficient. Moreover, greater dependence on intergovernmental grants and local corporate taxation results in inefficiency, thus, providing implications for local public finance on the importance of decentralization. The results also highlight that competition for income through HTD is a zero-sum game, therefore, more fiscal autonomy is needed to ensure healthy competition, thereby, providing new evidence on the relationship between interjurisdictional competition and local government efficiency.
    Keywords: Hometown Tax Donation (HTD), Local public finance, Local government’s efficiency, Stochastic frontier analysis (SFA), Intergovernmental competition
    JEL: H27 H71
    Date: 2022–12–22
  8. By: Figiel, Szczepan
    Abstract: Artificial intelligence (AI) is one of the most striking recent technology developments. Potentially, it can significantly affect all areas of economic activities including agriculture. The paper addresses two issues such as the actual essence of AI and its most important current and expected future applications in agriculture and their potential impact on labor use and productivity of this sector. The research methods applied in the paper are critical analysis of selected literature sources and deductive reasoning regarding the likely influence of AI applications on labor use in agriculture and its total factor productivity. It was found out that applications of AI in agriculture are numerous and very diverse both in terms of technological solutions and managed processes. Moreover, the market for AI applications in agriculture is expected to grow quite rapidly due to an increasing tendency to automatize agricultural production and marketing processes. This inevitably leads to substitution of physical labor with sophisticated machinery and robots. Also, it generates demand for new labor competencies needed to manage increasingly capital intensive agricultural production and related processes driven by the use of AI. Based on mainly theoretical considerations, it can be surmised that widespread use of AI in agriculture should positively contribute to the growth in the total factor productivity (TFP) of the sector. Consequently, countries where agricultural producers adopt AI solutions faster can gain competitive advantage in food production.
    Keywords: Labor and Human Capital, Research and Development/Tech Change/Emerging Technologies
    Date: 2022–12–22
  9. By: Emmanuel Dhyne; Amil Petrin; Valerie Smeets; Frederic Warzynski
    Abstract: We introduce a new methodology for estimating multi-product production functions. It embeds the seminal contributions of Diewert (1973) and Lau (1976) in our extended version of the semi-parametric econometric framework of Olley and Pakes (1996), where we address the simultaneity of inputs and outputs by allowing for the possibility of a possible vector of unobserved ”productivities, ” all of which may be freely correlated with inputs and outputs. We show how to use the multi-product production function to recover estimates of firm-product marginal costs using the input and output elasticities by extending Hall’s (1988) single-product result to our multi-product setting using McFadden (1978). We focus on six 6-digit Belgian ”industries” that produce two products, finding all but five of the forty-eight input coefficients are positive and thirty eight are strongly significant. We find outputs are substitutes as the coefficients on ”other good output” is always negative and highly significant. 100% of marginal cost estimates are positive and close to 80% of markups are estimated to be greater than 1. We find very similar results when we move to 4-digit industries, when we use similar multi-product data from France, and when we use the trans-log approximation.
    JEL: L0
    Date: 2022–12
  10. By: Gabriele Pellegrino (Università Cattolica del Sacro Cuore); Orion Penner (Ecole polytechnique federale de Lausanne); Etienne Piguet (University of Neuchatel); Gaetan de Rassenfosse (Ecole polytechnique federale de Lausanne)
    Abstract: This paper studies the relationship between migration and the productivity of high-skilled workers, as captured by inventors listed in patent applications. Using machine learning techniques to identify inventors across patents uniquely, we are able to track the worldwide migration patterns of nearly one million individual inventors. Migrant inventors account for more than ten percent of inventors worldwide. The econometric analysis seeks to explain the recurring finding in the literature that migrant inventors are more productive than non-migrant inventors. We find that migrant inventors become about thirty-percent more productive after having migrated. The disambiguated inventor data are openly available.
    Keywords: inventor; productivity; skilled migration
    JEL: F22 J61 O30
    Date: 2023–01
  11. By: Maarten De Ridder (London School of Economics (LSE); Centre for Macroeconomics (CFM)); Basile Grassi (Bocconi University; Centre for Economic Policy Research (CEPR); Innocenzo Gasparini Institute for Economic Research (IGIER)); Giovanni Morzenti (Bocconi University)
    Abstract: Is it feasible to estimate firm-level markups with commonly available datasets? Common methods to measure markups hinge on a production function estimation, but most datasets do not contain data on the quantity that firms produce. We use a tractable analytical framework, simulation from a quantitative model, and firm-level administrative production and pricing data to study the biases in markup estimates that may arise as a result. While the level of markup estimates from revenue data is biased, these estimates do correlate highly with true markups. They also display similar correlations with variables such as profitability and market share in our data. Finally, we show that imposing a Cobb-Douglas production function or simplifying the production function estimation may reduce the informativeness of markup estimates.
    Keywords: Macroeconomics, Production Functions, Markups, Competition
    Date: 2022–07
  12. By: Pierre-Alain Pionnier; María Belén Zinni; Kéa Baret
    Abstract: This paper discusses the sensitivity of capital and multifactor productivity (MFP) measurement to asset depreciation patterns and initial capital stock estimates. Applying the same depreciation rates in the US as in other G7 countries would reduce the US net investment rate and net capital stock by up to one third and increase US GDP by up to 0.5%. Capital and MFP growth would be less affected. Estimating initial capital stocks often involves assuming constant investment growth, but this leads to unreliable results. Relying on average K/Y ratios across countries works well for the US, but this might not be the case for other countries due to the international dispersion in K/Y ratios. Two main recommendations for statistical agencies emerge from this analysis. First, they should regularly review asset depreciation patterns to ensure that measured differences across countries are well justified. Second, they should backcast investment series as much as possible before relying on stationarity assumptions to estimate initial capital stocks.
    Keywords: asset depreciation, capital services, capital stock, multifactor productivity, national accounts
    JEL: E01 E22 E23 O47
    Date: 2023–01–09
  13. By: Nicholas Oulton (Centre for Macroeconomics (CFM); National Institute of Economic and Social Research (NIESR); Economic Statistics Centre of Excellence (ESCoE))
    Abstract: This paper analyses and illustrates the Divisia approach to measuring output and productivity. It argues that Divisia index numbers are the ideal to which real world index numbers should aspire. Divisia index numbers are consistent with production theory and have a number of desirable properties, principally value consistency and aggregation consistency. But they are defined in continuous time and so must be approximated in practice by discrete index numbers, such as the traditional Laspeyres or Paasche or one of the superlative index numbers introduced by Diewert (1976). The alternative approach is to ignore Divisia and start with discrete index numbers. The issues involved here are illustrated by examining data from the BEA/BLS industry-level integrated production account, 1987-2020. Estimates of superlative and other index numbers are presented for this dataset. The sensitivity of real GDP growth to the value of the crucial parameter in a superlative index number is tested. The extent to which value consistency and aggregation consistency are satisfied for different superlative index numbers are analysed. Chaining is a natural consequence of the Divisia approach but does not follow so automatically from the use of superlative indices. So I also compare chained and unchained versions of these same index numbers. Finally, Europe uses a different approach to output measurement to the US, chained Laspeyres versus chained Fisher. I look at how different US estimates would be if they employed European methodology.
    Keywords: Index numbers, Divisia, chaining, GDP
    JEL: E01 C43 O47 O51
    Date: 2022–10

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