nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2023‒04‒24
eighteen papers chosen by

  1. Breakthrough Innovations and Productivity: An International Perspective By Kuusi, Tero; Nevavuo, Jenni
  2. Revisiting Productivity Dynamics in Europe: A New Measure of Utilization-Adjusted TFP Growth By Diego Comin; Javier Quintana; Tom Schmitz; Antonella Trigari
  3. Misallocation and Productivity Growth: a Meta-analysis By Maurice Bun; Theoplasti Kolaiti; Tolga Özden
  4. Sectoral total factor productivity and its determinants: Firm-level evidence from Kazakhstan By Zarina Adilkhanova
  5. Measuring Total Factor Productivity in the South African Agricultural Sector Using a Growth Accounting Framework By Khumbuzile C. Mosoma; Renee van Eyden; Heinrich R. Bohlmann
  6. Empirical estimates of the elasticity of substitution of a KLEM production function without nesting constraints: The case of the Variable Output Elasticity-Cobb Douglas By Malliet, Paul; Reynès, Frédéric G.
  7. The Impact of Relative CEO Pay on Employee Productivity By Afzali, Aaron; Oxelheim, Lars; Randøy, Trond; Paulo Vieito, João
  8. Agricultural R&D investments in Brazil: global responses and local spillovers By Zanetti de Lima, Cicero; Martha, Geraldo; Barioni, Luis G.; Baldos, Uris Lantz; Hertel, Thomas
  9. Banking on Snow: Bank Capital, Risk, and Employment By Simon Baumgartner; Alex Stomper; Thomas Schober; Rudolf Winter-Ebmer
  10. Digitalization During the COVID-19 Crisis: Implications for Productivity and Labor Markets in Advanced Economies By Mr. Ippei Shibata; Carlo Pizzinelli; Marina M. Tavares; Andrea Medici; Longji Li; Myrto Oikonomou; Jiaming Soh; Ms. Florence Jaumotte
  11. Strapped for Cash: The Role of Financial Constraints for Innovating Firms By Esther Ann Bøler; Andreas Moxnes; Karen Helene Ulltveit-Moe
  12. Are Public Sector Banks in India a Government Failure? A Comparative Empirical Analysis of Public Sector and Private Sector Banks By Sahil CHOPRA
  13. Estimating Energy Substitution Parameters in GTAP-E By O'Reilly, Rohan; Humphreys, Lee; Prendiville, Siobhan
  14. CSR and Firm Survival: Evidence from the Climate and Pandemic Crises By Thomas J. Chemmanur; Dimitrios Gounopoulos; Panagiotis Koutroumpis; Yu Zhang
  15. How “one-size-fits-all” public works contract does it better? An assessment of infrastructure provision in Italy By Finocchiaro Castro, Massimo; Guccio, Calogero; Rizzo, Ilde
  16. Understanding and improving the firm-level revenue measures from the Business Register (BR) files By Chen Yeh; Claudia Macaluso
  17. Corporate diversification, investment efficiency and the business cycle By Yolanda Yulong Wang
  18. Potential Growth: A Global Database By Sinem Kilic Celik; M. Ayhan Kose; Franziska Ohnsorge; F. Ulrich Ruch

  1. By: Kuusi, Tero; Nevavuo, Jenni
    Abstract: Abstract In this paper, we shed new light on the productivity impact of breakthrough patents, as well as their role in the variability of productivity across countries. We use text analysis and machine learning–based estimates of the number of breakthrough patents and show that there was a significant drop in quantity in the early 2000s. According to our econometric analysis, the slowdown in innovation activity has a clear temporal connection with the later slowdown in productivity in the 2010s. Breakthrough patents increased productivity on a large scale until the beginning of the 2010s, in particular in industrial information and communications technology (ICT) industries. In sectors other than ICT, productivity growth was more differentiated so that productivity growth is observed in industries that invested significantly in R&D after the emergence of breakthrough patents. We also identify large differences across countries in the link between productivity and breakthrough patents.
    Keywords: Productivity, Innovation, Breakthroughs, Patents
    JEL: D24 O31 O33
    Date: 2023–03–31
  2. By: Diego Comin; Javier Quintana; Tom Schmitz; Antonella Trigari
    Abstract: We compute new estimates for Total Factor Productivity (TFP) growth in five European countries and in the United States. Departing from standard methods, we account for positive profits and use firm surveys to proxy for unobserved changes in factor utilization. These novelties have a major impact in Europe, where our estimated TFP growth series are less volatile and less cyclical than the ones obtained with standard methods. Based on our approach, we provide annual industry-level and aggregate TFP series, as well as the first estimates of utilization-adjusted quarterly TFP growth in Europe. JEL Codes: E01, E30, O30, O40
    Date: 2023
  3. By: Maurice Bun; Theoplasti Kolaiti; Tolga Özden
    Abstract: We use a meta-analysis to quantify the impact of misallocation of production factors on aggregate productivity. A key estimate in empirical studies on misallocation is the implied aggregate total factor productivity (TFP) loss due to the sub-optimal allocation of resources across firms. In our meta-analysis, we correlate this effect size with various study characteristics. First, we find that the TFP growth effect size is smaller than the level effect size. Second, we make a distinction between studies following a direct or indirect approach, where the former relates misallocation to one or more specific factors while the latter quantifies the overall effect of all possible sources. We find that studies following a direct approach generally report a smaller TFP loss than those using an indirect approach. Third, we find that the extent of misallocation and the corresponding productivity loss depends on the country of analysis. In particular, there is a negative correlation between TFP loss and the level of income.
    Keywords: meta-analysis; misallocation; productivity
    JEL: C40 D24 O47
    Date: 2023–04
  4. By: Zarina Adilkhanova (NAC Analytica, Nazarbayev University)
    Abstract: This paper analyzes total factor productivity and domestic competition among firms in Kazakhstan. We show that the total factor productivity in many industries falls significantly from 2009 to 2017. At the same time, 3 to 10 of the largest firms occupy a significant market share in most industries, demonstrating the elements of oligopolistic competition. The lack of market competition and the monopolization of markets prove to be barriers to productivity growth within sectors. We also estimate the impact of various financial indicators and variables such as subsidies, R&D, and transportation costs on firm-level TFP in Kazakhstan. The results demonstrate that increased investments, profits, wages, subsidies, and the presence of employees aged under 30 or with higher education have a significant positive effect on TFP. Moreover, the uneven distribution of subsidies among firms also contributes to the development of a monopoly in the market. Almost the same firms receive subsidies every year, which aggravates the market power of these firms. Statistics show that 5 companies in the market receive up to 80% of subsidies in manufacturing and agriculture.
    Keywords: Total Factor Productivity (TFP); Sectoral analysis, HHI, Concentration ratio
    JEL: D24 G30 O16
    Date: 2022–06
  5. By: Khumbuzile C. Mosoma (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Renee van Eyden (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa); Heinrich R. Bohlmann (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)
    Abstract: In this study, we measure the total factor productivity (TFP) in the South African agricultural sector using annual time series data from 1980 to 2019. First, a Cobb-Douglas production function is estimated recursively to determine the time-varying factor contributions of labour, capital and land to agricultural output. Second, a growth accounting framework is used to measure TFP growth, which is then converted to a measure for TFP. The results show that TFP growth recorded an average growth of 2.2 percent between 1980 and 1989, followed by a decline to 0.04 percent between 1990 and 1999, a period characterised by major policy reforms and economic structural changes in the agricultural sector, such as the removal of agricultural subsidies and the introduction of competition with the deregulation of markets in 1996. A recovery in TFP with a growth rate of 2.3 percent was recorded between 2000 and 2009, attributed to the precipitation of new technology and skills improvement underpinned by export growth fuelled by foreign-demand induced agricultural production growth in industries like fruits, wine, cotton and grains. The TFP growth was slow between 2010 and 2019 compared to the previous period, attributed to stagnation in policy reforms and rising incidence of drought, labour challenges and increasing cost of production. The study recommends a carefully designed policy mix of land and water reform, complemented by a comprehensive farmer support programme that addresses skills, markets, drought-resistant varieties and affordable production loans to enhance TFP.
    Keywords: Total factor productivity, growth accounting framework, South African agriculture
    JEL: Q10 D24 C51
    Date: 2023–03
  6. By: Malliet, Paul; Reynès, Frédéric G.
    Abstract: The outcome of Computable General Equilibrium models applied to climate crucially rely on the estimation of elasticities of substitution. We use a generalized production function that overcomes the restriction imposed by a nesting structure of the Constant Elasticity of Substitution (CES) production function assumed in most CGE models. Constructing a panel of 44 countries and 14 periods from the World Input-Output Database (WIOD) tables, we estimate the production functions for 54 sectors using a \textit{Seemingly Unrelated Regression} model. We compare these results to two standard KLEM nesting structures used in CES specification and find direct implications on the estimation results, especially for Capital-Energy substitutability. The more general form of the CES production function on which we rely, the Variable Output Elasticity-Cobb Douglas (VOE-CB) supports substitution between these two inputs.
    Keywords: International Relations/Trade, Research and Development/Tech Change/Emerging Technologies
    Date: 2022
  7. By: Afzali, Aaron (Hanken School of Economics); Oxelheim, Lars (School of Business and Law, University of Agder, Norway); Randøy, Trond (School of Business and Law, University of Agder, Norway); Paulo Vieito, João (Polytechnic Institute of Viana do Castelo, School of Business Studies, Portugal)
    Abstract: In this study, we examine the relationship between within-firm pay inequality and employee productivity. We use hand-collected data on a sample of S&P 1500 companies from 2018-2022 and find a concave relationship between the relative CEO pay and employee productivity. Consistent with tournament theory, we show that the pay gap between the CEO and the Vice Presidents initially positively affects employee productivity. However, this positive effect only works up to a certain level, at which - as expressed by the CEO-employee pay ratio - employee discontent initiates a fall in firm-level productivity. We identify this tipping point as the point at which CEO pay exceeds the median worker’s pay by a factor of 40. The average CEO-employee pay ratio in our sample is 193:1, suggesting that most firms could have avoided a fall in productivity by reducing their CEO-employee pay ratio. Our results remain robust after controlling for endogeneity. From a public policy perspective, our findings pave the way for corporate self-regulation of CEO pay to avoid politically imposed hard laws.
    Keywords: CEO pay; CEO pay-employee ratio; Employee productivity; Tournament incentives
    JEL: G18 G32 G34 J24 J33 M12
    Date: 2023–04–05
  8. By: Zanetti de Lima, Cicero; Martha, Geraldo; Barioni, Luis G.; Baldos, Uris Lantz; Hertel, Thomas
    Abstract: Brazil has made significant investments in public agricultural research and development (R&D) over the past 50 years. This policy priority has allowed the country to achieve high levels of total factor productivity (TFP) growth, especially in the past two decades1, 2. These investments have benefitted consumers, both in Brazil and worldwide. Brazil had not fully recovered from a recent economic recession (mid-2014 to 2016) when the COVID-19 pandemic hit the global economy. Before COVID-19 public agricultural R&D expenditures in Brazil had already declined compared to its 2000-2017 levels2. The fiscal deterioration in the wake of this pandemic could further jeopardize Brazil’s capacity to invest in agricultural R&D. This paper explores the potential consequences of such a slowdown in public agricultural R&D expenditures in Brazil, and hence on productivity growth rates, land use, agricultural output, yields, and food prices at both the national and global levels over the 2017–2050 horizon.
    Keywords: International Relations/Trade, Food Security and Poverty
    Date: 2022
  9. By: Simon Baumgartner (Humboldt University Berlin); Alex Stomper (Humboldt University Berlin); Thomas Schober (NZ Work Research Institute, Auckland University of Technology); Rudolf Winter-Ebmer (Johannes Kepler University Linz)
    Abstract: How does small-firm employment respond to exogenous labour productivity risk? We find that this depends on the capitalization of firms’ local banks. The evidence comes from firms employing workers whose productivity depends on the weather. Weather- induced labour productivity risk reduces this employment, and this effect is stronger in regions where the regional banks have less equity capital. Bank capitalization also proxies for the extent to which the regional banks’ borrowers can obtain liquidity when the regions are hit by weather shocks. We argue that, as liquidity providers, well- capitalized banks support economic adaptation to climate change.
    Date: 2023–03
  10. By: Mr. Ippei Shibata; Carlo Pizzinelli; Marina M. Tavares; Andrea Medici; Longji Li; Myrto Oikonomou; Jiaming Soh; Ms. Florence Jaumotte
    Abstract: Digitalization induced by the pandemic was seen both as a possible silver-lining from the crisis that could increase longer-term productivity and a risk for further labor market inequality between digital and non-digital workers. The note shows that the pandemic accelerated digitalization and triggered a partial catch-up by less digitalized entities in advanced economies. Higher digitalization levels shielded substantially productivity and hours worked during the crisis. However, the extent to which the pandemic-induced digitalization led to structural change in the economy is less clear. Less digitalized sectors have rebounded more strongly, albeit after stronger declines, and while workers in digital occupations were more shielded from the crisis, there does not appear to be a structural change in the composition of labor demand. Meanwhile, shifts in labor supply are more likely to be permanent, driven by the increase in working from home.
    Keywords: Digitalization; COVID-19; labor market; productivity; productivity regression analysis; digitalization level; longer-term productivity; pandemic-induced digitalization; labor market tightness; Labor productivity; Labor markets; Total factor productivity; Europe
    Date: 2023–03–13
  11. By: Esther Ann Bøler; Andreas Moxnes; Karen Helene Ulltveit-Moe
    Abstract: This paper makes use of a reform that allowed firms to use patents as stand-alone collateral, to estimate the magnitude of collateral constraints and to quantify the aggregate impact of these constraints on misallocation and productivity. Using matched firm-bank data for Norway, we find that bank borrowing increased for firms affected by the reform relative to the control group. We also find an increase in the capital stock, employment and innovation as well as equity funding. We interpret the results through the lens of a model of monopolistic competition with potentially collateral constrained heterogeneous firms. Parameterizing the model using well-identified moments from the reduced form exercise, we find quantitatively large gains in output per worker in the sectors in the economy dominated by constrained (and intangible-intensive) firms. The gains are primarily driven by capital deepening, whereas within-industry misallocation plays a smaller role.
    Keywords: intangible capital, patents, credit constraints, misallocation, productivity
    JEL: D25 G32 L25 L26 O34 O47
    Date: 2023
  12. By: Sahil CHOPRA (CEPN - Centre d'Economie de l'Université Paris Nord - LABEX ICCA - UP13 - Université Paris 13 - Université Sorbonne Nouvelle - Paris 3 - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité - Université Sorbonne Paris Nord - CNRS - Centre National de la Recherche Scientifique - Université Sorbonne Paris Nord)
    Abstract: This paper seeks to examine the relation between banks' profitability and ownership in India. The justification to measure the impact of ownership comes from the theory of government failure. An independently constructed dataset containing all commercial public and private sector banks in India as of April 2020 is used. The data ranges from 2004 to 2020. Banks' characteristics are collected from respective banks' websites, and the hypotheses are tested by estimating an econometric model, i.e., the pooled OLS mod- el. In conclusion, the government owned banks' performance is inferior compared to pri- vate banks. This can be accredited to the huge amount of loans sanctioned in priority sec- tors and fraudulent cases due to the presence of interest groups, corruption, and ineffi- ciency of employees in public sectors.
    Abstract: Ce document cherche à examiner la relation entre la rentabilité des banques et la propriété en Inde. La justification pour mesurer l'impact de la propriété provient de la théorie de l'échec du gouvernement. Un ensemble de données construit de manière indépendante et contenant toutes les banques commerciales du secteur public et privé en Inde en avril 2020 est utilisé. Les données vont de 2004 à 2020. Les caractéristiques des banques sont collectées à partir des sites Internet des banques respectives, et les hypothèses sont testées en estimant un modèle économétrique, c'est-à-dire le modèle MCO groupé. En conclusion, les performances des banques publiques sont inférieures à celles des banques privées. Cela peut être attribué à l'énorme quantité de prêts sanctionnés dans les secteurs prioritaires et aux cas frauduleux dus à la présence de groupes d'intérêt, à la corruption et à l'inefficacité des employés dans les secteurs publics.
    Keywords: government failure, empirical analysis, public sector banks, panel data, pooled OLS model
    Date: 2022–12–29
  13. By: O'Reilly, Rohan; Humphreys, Lee; Prendiville, Siobhan
    Abstract: The production structure of GTAP-E includes an energy and capital composite alongside other factors of production. Both the elasticity of substitution between capital and energy and the elasticities of substitution between different fuel sources are therefore highly important to the output of the model. However, they are by default set to the same value across all sectors and countries. This paper uses OECD panel data from 2005-2016 to estimate elasticities for capital-energy substitution and substitution between the fuel commodities included in the GTAP-E 7 database. Estimates are produced over 32 countries, and for capital-energy substitution over 16 sectors. These estimated parameters are then used in an FTA model, and the results are compared with both the default GTAP-E parameters and less specific estimated values from existing literature. This allows us to determine the magnitude of impact on model output from using statistically estimated parameters, and from using parameters disaggregated by country and sector.
    Keywords: Environmental Economics and Policy, Research and Development/Tech Change/Emerging Technologies
    Date: 2022
  14. By: Thomas J. Chemmanur (Carroll School of Management); Dimitrios Gounopoulos (University of Bath); Panagiotis Koutroumpis (Queen Mary University of London); Yu Zhang (School of Economics, University College Dublin)
    Abstract: We analyse the relationship between the extent of a firm’s corporate social responsibility (CSR) and its long-term survival probability. We conjecture that a better CSR rating is associated with a lower probability of corporate failure and a longer survival period. Consistent with this, we document that four CSR dimensions (environment, community, employee relations, and product) out of six are positively related to firms’ survival probability. The positive association between CSR ratings and firm survival is stronger for firms operating in more competitive industries and those with weaker governance. We find that a firm’s engagement in CSR activities is particularly crucial for firm survival during pandemics and under adverse climate conditions. We establish causality in the relation between a firm’s CSR activities and its survival probability using instrumental variable (IV) and Heckman twostep analyses. Finally, we find that better financial performance, less stringent financial constraints, greater managerial discipline, and enhanced labor productivity are some of the channels through which firms engaging in more CSR activity achieve longer survival times.
    Keywords: Corporate Social Responsibility, Climate Change, Pandemic Uncertainty, Firm Survival, Corporate Governance
    JEL: G30 G41 M14
    Date: 2022–01–28
  15. By: Finocchiaro Castro, Massimo; Guccio, Calogero; Rizzo, Ilde
    Abstract: Public infrastructure procurement is crucial as a prerequisite for public and private investments and for economic and social capital growth. However, low performance in execution severely hinders infrastructure provision and benefits delivery. One of the most sensitive phases in public infrastructure procurement is the design because of the strategic relationship that it potentially creates between procurers and contractors in the execution stage, affecting the costs and the duration of the contract. In this paper, using recent developments in non-parametric frontiers and propensity score matching, we evaluate the performance in the execution of public works in Italy. The analysis provides robust evidence of significant improvement of performance where procurers opt for design and build contracts, which lead to lower transaction costs, allowing contractors to better accommodate the project in the execution. Our findings bear considerable policy implications.
    Keywords: Infrastructure provision, Transaction costs economics, propensity score matching, non-parametric frontiers, public works procurement, performance, design and build contracts
    JEL: H57 D73 O18 C14
    Date: 2023
  16. By: Chen Yeh; Claudia Macaluso
    Abstract: In this technical report, we construct and analyze measures of firm-level revenues for 1997-2017. Our analysis consists of four parts. First, we start by understanding the sample characteristics of the firm-level revised LBD (version 2019) that can be merged with the Business Register (BR) revenue files as constructed by Haltiwanger et al. (2020). In particular, we characterize which types of firms are most likely to have missing revenues (in terms of size and industry). Second, we characterize the sample characteristics of the establishment-level revised LBD (version 2019) that can be merged with a variety of Economic Censuses that include revenues. Third, we analyze whether firm-level revenue measures from the BR files can be improved upon by constructing revenue measures from the Economic Censuses and the Service Annual Survey files. Fourth and last, we compare firm-level revenues that are obtained from the BR files and the Economic Censuses.
    Date: 2023–03
  17. By: Yolanda Yulong Wang (SAFTI - Shenzhen Audencia Financial Technology Institute)
    Abstract: I document the time-varying investment efficiency of conglomerates compared with singlesegment firms. I find that, during recessions, conglomerates have higher Q-sensitivity of investment than do stand-alone firms, in contrast to the relationship during expansion periods. I also find that conglomerates, with the benefits from internal capital markets, exhibit increased dependence of investment on internal capital during recessionary periods, while stand-alone firms significantly increase cash retention and deviate their investment from its optimal level more severely. I examine the effect of the degree of diversification and find consistent evidence on investment efficiency and deployment of internal capital. I also provide evidence that conglomerates with stronger governance do not improve investment efficiency during recession, which suggests that agency costs cannot fully explain the changes in investment of conglomerates.
    Keywords: Corporate diversification Internal capital markets Capital allocation Business cycle Time-varying agency costs Corporate governance
    Date: 2023–02
  18. By: Sinem Kilic Celik (IMF); M. Ayhan Kose (Prospects Group, World Bank; Brookings Institution; CEPR; CAMA); Franziska Ohnsorge (Prospects Group, World Bank; CEPR; CAMA); F. Ulrich Ruch (Prospects Group, World Bank)
    Abstract: Potential growth—the rate of expansion an economy can sustain at full capacity and employment—is a critical driver of development progress. It is also a major input in the formulation of fiscal and monetary policies over the business cycle. This paper introduces the most comprehensive database to date, covering the nine most commonly used measures of potential growth for up to 173 countries over 1981-2021. Based on this database, the paper presents three findings. First, all measures of global potential growth show a steady and widespread decline over the past decade, with all the fundamental drivers of growth losing momentum over time. In 2011-21, potential growth was below its 2000-10 average in nearly all advanced economies and roughly 60 percent of emerging market and developing economies. Second, adverse events, such as the global financial crisis and the COVID-19 pandemic, contributed to the decline. At the country-level also, national recessions lowered potential growth even five years after their onset. Third, the persistent impact of recessions on potential growth operated through weaker growth of investment, employment, and productivity.
    Keywords: Production function; filters; growth expectations; developing economies.
    JEL: E30 E32 E37 O20
    Date: 2023–04

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