nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2023‒02‒06
fourteen papers chosen by

  1. Identifying latent heterogeneity in productivity By Ruben Dewitte; Catherine Fuss; Angelos Theodorakopoulos
  2. The Role of Firm Dynamics in the Green Transition: Carbon Productivity Decomposition in Finnish Manufacturing By Kuosmanen, Natalia; Maczulskij, Terhi
  3. Distant but close in sight. Firm-level evidence on French-German productivity gaps in manufacturing By Thomas Grebel; Mauro Napoletano; Lionel Nesta
  4. Pay, productivity and management By Bloom, Nicholas; Ohlmacher, Scott W.; Tello-Trillo, Cristina J.; Wallskog, Melanie
  5. How Does GVCS Participation Influence Manufacturing Productivity? The Case of China By Ping Hua
  6. Sourcing of services and total factor productivity By Emmanuel Dhyne; Cédric Duprez
  7. The fallacy in productivity decomposition By Simon Bruhn; Thomas Grebel; Lionel Nesta
  8. TFP growth, embeddedness, and Covid-19: a novel production model that allows estimating trade elasticities By André Carrascal; Luis Orea
  9. The Dutch disease of the Euro Area peripheral member states By João Alcobia; Ricardo Cabral
  10. Job Ladders by Firm Wage and Productivity By Bertheau, Antoine; Vejlin, Rune Majlund
  11. The Effect of the Initial Distribution of Labor-Related Property Rights on the Allocative Efficiency of Labor Markets By Helmut Dietl; Markus Lang; Johannes Orlowski; Philipp Wegelin
  12. The Scope of Variable Inputs and Markup Estimates By Shuichiro Nishioka; Mari Tanaka
  13. Proprietorship Structure and Firm Performance in the Context of Tunneling: An Empirical Analysis of Non-Financial Firms in Pakistan By Sulehri, Fiaz Ahmad; Ali, Amjad
  14. Accelerating technical change through ICT: Evidence from a video-mediated extension experiment in Ethiopia By Gashaw T. Abate; Tanguy Bernard; Simrin Makhija; David J. Spielman

  1. By: Ruben Dewitte (: Ghent University); Catherine Fuss (Economics and Research Department); Angelos Theodorakopoulos (Aston Business Schoo)
    Abstract: Productivity is influenced by several firm-level factors, often latent. When unexplained, this latent heterogeneity can lead to the mismeasurement of productivity differences between groups of firms. We propose a flexible, semi-parametric extension of current production function estimation techniques using finite mixture models to control for latent firm-specific productivity determinants. We establish the performance of the proposed methodology through a Monte Carlo analysis and estimate export premia using firm-level data to demonstrate its empirical applicability. We apply our framework to assess export productivity premia and their robustness with respect to latent heterogeneity. Our results highlight that latent heterogeneity distorts export premia estimates and their contribution to aggregate productivity growth. The proposed approach delivers robust estimates of productivity differences between firm groups, regardless of the availability of productivity determinants in the data.
    Keywords: : finite mixture model, productivity estimation, productivity distribution, latent productivity determinants
    JEL: C13 C14 D24 L11
    Date: 2022–12
  2. By: Kuosmanen, Natalia (ETLA - The Research Institute of the Finnish Economy); Maczulskij, Terhi (ETLA - The Research Institute of the Finnish Economy)
    Abstract: This paper explores the importance of firm dynamics, including entry and exit and the allocation of carbon emissions across firms, on the green transition. Using the 2000–2019 firm-level register data on greenhouse gas emissions matched with the Financial Statement data in the Finnish manufacturing sector, we examine the sources of carbon-productivity growth and assess the relative contributions of structural change and firm dynamics. We find that continuing firms were the main drivers of carbon productivity growth whereas the contribution of entering and exiting firms was negative. In addition, the allocation of emissions across firms appeared to be inefficient, with a negative impact on carbon productivity growth over the study period. Our analysis also revealed a positive relationship between labor-intensive firms and carbon productivity, but firms with a larger market share tended to be less productive in terms of carbon use.
    Keywords: carbon productivity, decomposition analysis, firm dynamics, firm-level data, manufacturing sector
    JEL: D24 L60 Q54
    Date: 2023–01
  3. By: Thomas Grebel; Mauro Napoletano (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po); Lionel Nesta (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: We study the productivity level distributions of manufacturing firms in France and Germany, and how these distributions evolved across the Great Recession. We show the presence of a systematic productivity advantage of German firms over French ones in the decade 2003-2013, but the gap has narrowed down after the Great Recession. Convergence is explained by the better growth performance of French firms in the post-recession period, especially of those located in the top percentiles of the productivity distribution. We also highlight the role of sectoral growth, firm size and export intensity in explaining the above convergence. In contrast, the contribution of allocative efficiency was small.
    Keywords: international productivity gaps, productivity distributions, firm level comparisons
    Date: 2021–01–01
  4. By: Bloom, Nicholas; Ohlmacher, Scott W.; Tello-Trillo, Cristina J.; Wallskog, Melanie
    Abstract: Using confidential Census matched employer-employee earnings data we find that employees at more productive firms, and firms with more structured management practices, have substantially higher pay, both on average and across every percentile of the pay distribution. This pay-performance relationship is particularly strong amongst higher paid employees, with a doubling of firm productivity associated with 11% more pay for the highest-paid employee (likely the CEO) compared to 4.7% for the median worker. This pay-performance link holds in public and private firms, although it is almost twice as strong in public firms for the highest-paid employees. Top pay volatility is also strongly related to productivity and structured management, suggesting this performance-pay relationship arises from more aggressive monitoring and incentive practices for top earners.
    Keywords: management
    JEL: J00 L00
    Date: 2022–04–07
  5. By: Ping Hua (ECONOMIX)
    Abstract: The theoretical and empirical studies argue ambiguous effects of GVCs participation of developing countries on productivity. By using panel data of 15 Chinese manufacturing industries over the 2005-2014 period, we find that China's GVCs backward and forward linkages contributed to labor productivity growth of 6.41% and 1.97% per year on average respectively, via drawing out from low value added low labor cost backward linkages sectors, optimizing resource allocation towards more efficiency manufacturing sectors (rarely studied) and developing higher value added forward linkages. The resulting structural transformation along to the rise of labor costs diminished the risk for Chinese manufacturing industry to be trapped in low-profitability low productivity GVCs activities. However, the productivity contribution of moving out from backward linkages 3 times higher than that of forward linkages suggest that the future positive impact of GVCs on productivity may be much more difficult to realize in particular in a less favorable context (trade war between China and USA, reindustrialization of developed countries and trade protection related to Covid-19 etc.) than the studied period.
    Date: 2022–05–30
  6. By: Emmanuel Dhyne (: Economics and Research Department, NBB and UMons); Cédric Duprez (Economics and Research Department, NBB)
    Abstract: This paper studies how outsourcing of services activities affects TFP at the firm level. Using the universe of buyer-supplier relationships in Belgium, we first document several new empirical facts about how firms engage in the outsourcing of supporting activities. We show that virtually all firms source from at least one services supplier, but there is substantial heterogeneity in the services sourcing of firms. Geographic proximity plays a key role for the matching of services suppliers and customers as firms mostly connect with services suppliers at a distance of no more than 35 km. Finally, the extensive margin goes a long way to explaining both the aggregate trend and the firmlevel fluctuations in services outsourcing growth. Based on these findings, we develop a model with endogenous choice of the set of tasks produced in-house. Consistent with the model, we estimate the probability of a supplier-buyer relationship and how this affects the productivity of the buyer. We find that productivity gains from outsourcing of services activities may be substantial. Reducing local trade costs might lead to significant productivity gains. Reductions of variable trade costs by 10 or 50% lead respectively to average productivity gains of 3% and 7%. On the other hand, a 25% reduction in the probability of a transaction, due for example to a permanent increase in unconditional fixed costs, would lead to an average 1.3% TFP decline at the firm level. Reducing the costs associated with the sourcing of services can be achieved in many ways, ranging from digitalization to reducing congestion or removing cultural barriers that may bring local discontinuities in the organisation of the production network. This is true for Belgium but also in the European Single Market context.
    Keywords: Outsourcing, Services, Productivity.
    JEL: D22 D23 L14 L23 L25
    Date: 2022–11
  7. By: Simon Bruhn; Thomas Grebel; Lionel Nesta (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)
    Abstract: This paper argues that the typical practice of performing growth decompositions based on log-transformed productivity values induces fallacious conclusions: using logs may lead to an inaccurate aggregate growth rate, an inaccurate description of the microsources of aggregate growth, or both. We identify the mathematical sources of this log-induced fallacy in decomposition and analytically demonstrate the questionable reliability of log results. Using firm-level data from the French manufacturing sector during the 2009-2018 period, we empirically show that the magnitude of the log-induced distortions is substantial. Depending on the definition of accurate log measures, we find that around 60-80% of four-digit industry results are prone to mismeasurement. We further find significant correlations of this mismeasurement with commonly deployed industry characteristics, indicating, among other things, that less competitive industries are more prone to log distortions. Evidently, these correlations also affect the validity of studies that investigate the role of industry characteristics in productivity growth.
    Keywords: productivity decomposition, growth, log approximation, geometric mean, arithmetic mean
    Date: 2021–01–01
  8. By: André Carrascal; Luis Orea
    Abstract: The main contribution of this paper is the proposal of a new method to estimate trade elasticities based on a production model where trade elasticities and technological parameters are estimated simultaneously. Our empirical model, inspired by the theoretical framework introduced by Caliendo et al (2018) to study the propagation of productivity shocks, also permits assessing whether their central equation aimed at understanding the sources of productivity change, is supported by the data. Furthermore, using econometric techniques, our paper examines trade-related productivity effects that have rarely been examined in the literature on productivity growth decomposition. The proposed model provides a common analytical framework for an empirical examination of several issues that both traditionally and more recently have attracted the interest of many academics and policy/makers, namely TFP growth, embeddedness, and Covid-19. We use the World Input-Output Database (WIOD) for the period 2000-2014 to compute most of the relevant variables employed in these applications.
    Keywords: Total factor productivity, embeddedness, trade elasticities, Covid-19.
    JEL: F47 O47 C68
  9. By: João Alcobia; Ricardo Cabral
    Abstract: This paper analyzes explanations identified in the literature for the subpar economic performance of the so-called peripheral member states of the Euro Area since the mid-1990s. It argues that a key factor was a Dutch disease-like transmission mechanism, as the adoption of the euro led to a capital inflow shock. This resulted in a structural shift in the productive structure of the peripheral economies away from technologically advanced manufactured goods, which are characterized by higher productivity growth. As a consequence, the peripheral member states specialized in non-tradable sectors, and in low-technology and labor-intensive tradable goods sectors, which largely explains the peripherals’ low economic growth, low productivity growth, and growing macroeconomic imbalances.
    Keywords: Financial Dutch disease; peripheral member states of the Euro Area; non-price competitiveness; Euro Area architecture
    JEL: O11 O14 O20 O41 O52 E12 F15
    Date: 2023–01
  10. By: Bertheau, Antoine (University of Copenhagen); Vejlin, Rune Majlund (Aarhus University)
    Abstract: We investigate whether workers reallocate up firm productivity and wage job ladders, and the cyclicality of this process. We document that productivity is a better measure of the job ladder than the average wage, since high productivity firms relative to low poach more workers than high wage firms relative to low. Employment cyclicality over the business cycle differs between the firm wage and productivity ladders. In recessions, employment decreases more in low than in high productivity firms. Low productivity firms fire more workers in recessions and stop hiring unemployed workers. Thus, there is a cleansing effect of recessions from the point of view of productivity reallocation. Oppositely, employment decreases more in high than in low wage firms, and the poaching channel of employment growth explains the difference. In recessions separations to other firms slow down more in low wage firms relative high wage firms and thus reallocation up the wage job ladder breaks down - a sullying effect of recessions. Thus recessions speed up productivity-enhancing reallocation but impede progression on the wage ladder.
    Keywords: job creation rate, firm heterogeneity, employment fluctuations
    JEL: E24 E32
    Date: 2023–01
  11. By: Helmut Dietl (Department of Business Administration, University of Zurich); Markus Lang (Institute of Sport Sciences, University of Lausanne); Johannes Orlowski (Department of Business Administration, University of Zurich); Philipp Wegelin (Lucerne University of Applied Sciences and Arts, Lucerne School of Business)
    Abstract: We conduct an empirical study to examine the impact of the initial distribution of labor-related property rights on the allocative efficiency of labor markets for skilled workers in a highly competitive labor market (professional basketball). Specifically, we compare a regime where employers can trade workers to other employers without the worker's consent to one where workers have the right to negotiate freely with other employers and move without their employer's consent. Our results indicate that contrary to the predictions of the Coase Theorem, allocative efficiency decreases when workers have the initial right to negotiate freely and move to another employer.
    Keywords: Coase theorem, labor market, allocative efficiency, productivity, sports as a lab
    JEL: E24 J01 J21 L83
    Date: 2023–01
  12. By: Shuichiro Nishioka (West Virginia University, Department of Economics); Mari Tanaka (Hitotsubashi University)
    Abstract: This paper builds an empirically tractable framework for the analysis of marginal costs in markup estimates from the production approach and examines how markups differ by the scope of variable inputs. Using plant-product matched data from Japan, we show that changes in markups can capture price and marginal cost dynamics, irrespective of the scope of variable inputs. Markups, however, are negatively and conditionally correlated with real output when only the most flexible intermediate inputs are selected as variable inputs. We find that the properties of markups depend on how variable inputs are selected and how underlying marginal costs are specified.
    Keywords: Markups, Variable inputs, Marginal costs, Plant-product matched data, Japanese manufacturing
    JEL: D22 D24 L11
    Date: 2022–04
  13. By: Sulehri, Fiaz Ahmad; Ali, Amjad
    Abstract: This study has investigated the majority shareholder's practice to use minority shareholders’ wealth without their consent which influence the performance of firms in Pakistan from 2009 to 2020. The firm performance has been taken as an explained variable, whereas ownership concentration, inside ownership, firm size, leverage, and investment growth are considered explanatory variables. Descriptive statistics, correlation matrix, Hausman test, and random effect model have been used for empirical analysis. The study used a sample of 24 firms with a total of 288 observations to look at how ownership concentration, inside ownership, leverage, and sales growth affect firm performance. The ownership concentration, firm size, and investment growth have a positive and significant impact on firm performance, whereas inside ownership and leverage have a negative and significant influence on the performance of selected non-financial firms. The larger the gap between ownership and control, the more likely it is that company resources will be tunneled. So, it has been suggested to the securities and exchange commission of Pakistan to frame strict rules and regulations to stop the role of inside ownership because it influences firm performance adversely.
    Keywords: firm performance, insider ownership, tunneling
    JEL: D73 L25
    Date: 2022–12
  14. By: Gashaw T. Abate; Tanguy Bernard (BSE - Bordeaux Sciences Economiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Simrin Makhija; David J. Spielman
    Abstract: Despite enthusiasm around applications of information and communications technologies (ICTs) to smallholder agriculture in many lower-income countries, there are still many questions on the effectiveness of ICT-based approaches. This study assesses the impacts of video-mediated agricultural extension service provision on farmers' adoption of improved agricultural technologies and practices in Ethiopia using data from a two-year randomized experiment. Our results show that the video-mediated extension approach significantly increases uptake of recommended technologies and practices by improving extension access and farmer knowledge. Specifically, we find that video-mediated extension reaches a wider audience than the government's conventional extension approach and leads to higher levels of farmer understanding and uptake of the subject technologies in those locations randomly assigned to the program. While our results also point to greater extension access and greater knowledge among female spouses in locations where both male and female spouses were targeted by the program, we do not find clear evidence that a more inclusive approach translates into higher uptake of the subject technologies. Finally, we find that the video-mediated approach becomes less costly as the scale of operation increases.
    Keywords: Agricultural extension, ICT, Video-based extension, Crop management, Ethiopia
    Date: 2023–01–01

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