Regional variation in productivity: a study of the Danish economy

We develop a model of labor productivity as a combination of capital-labour ratio, vintage of capital stock, regional externalities, and total factor productivity (TFP). The skewness of TFP distribution is related to different growth theories. While negative skewness is consistent with the neo-Schumpeterian idea of catching up with leaders, zero skewness supports the neoclassical view that deviations from the frontier reflect only idiosyncratic productivity shocks. We argue that positive skewness is consistent with an economy where exogenous technology is combined with non-transferable knowledge accumulated in specific sectors and regions. This argument provides the framework for an empirical model based on stochastic frontier analysis. The model is used to analyse regional and sectoral inequalities in Denmark.

Debreu’s coefficient of resource utilization, the Solow residual, and TFP: the connection by Leontief preferences

Debreu’s coefficient of resource utilization is freed from individual data requirements. The procedure is shown to be equivalent to the imposition of Leontief preferences. The rate of growth of the modified Debreu coefficient and the Solow residual are shown to add up to TFP growth. This decomposition is the neoclassical counterpart to the frontier analytic decomposition of productivity growth into technical change and efficiency change. The terms can now be broken down by sector as well as by factor input.

Exact decomposition of the Fisher ideal total factor productivity index

Decompositions of total factor productivity (TFP) shed light on the driving factors behind productivity change. We develop the first exact decomposition of the Fisher ideal TFP index which contains no debatable mixed-period components or residuals. We systematically isolate five effects of (1) technical change, (2) technical efficiency, (3) scale efficiency, (4) allocative efficiency, and (5) price effect. The three efficiency components (2–4) represent the efficiency of achieving a given target point. Components (1) and (5) capture the changes of the target point. While the technical change component is well-established, changes in the relative input–output prices can have real effects on the scale and scope of the target. Such changes are captured by the new price effect component (5). The new decomposition is compared with existing decompositions both in theory and by means of an empirical application to a panel data of 459 Finnish farms in years 1992–2000.

Stochastic productivity measurement

Stochastic productivity indicators are defined, and superlative measures of these indicators are derived. It is shown that, in the presence of complete markets or a common-expectations equilibrium, differences in the market values of firms are superlative indicators of cross-sectional productivity differences. Exactness results are used to decompose nonstochastic productivity indicators into a measure of true productivity change and a measure of ‘luck’. The decomposition is illustrated empirically.

The aggregation of capital over vintages in a model of embodied technical progress

The paper considers how to measure capital in a model where technical progress is embodied in new units of capital. This embodiment model also assumes that once new units of capital are installed, it cannot be “unbolted” and sold on the second hand market. A significant difference between this Solow–Harper model and the traditional capital services model due to Jorgenson and his coworkers is that rising real wage rates will generally induce early retirement of assets; i.e., this model can provide an explanation for obsolescence. The paper studies how to aggregate over vintages and how to measure depreciation in the context of this embodiment model. These problems are more complicated than the corresponding problems in the traditional capital services model because the age of retirement of an asset is endogenous in the embodiment model. The paper uses duality theory to simplify the exposition.

Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s

Hayashi and Prescott (Rev Econ Dyn 5(1):206–235, 2002) argue that the ‘lost decade’ of the 1990s in Japan is explained by the slowdown in exogenous TFP growth rates. At the same time, other research suggests that Japanese banks’ support for inefficient firms prolonged recessions by reducing productivity through misallocation of resources. Using the data on large manufacturing firms between 1969 and 1996, the paper attempts to disentangle the factors behind the slowdown in productivity growth during the 1990s. The main results show that there was a significant drop in within-firm productivity, the component that is not affected by reallocation of input and output shares across firms over time, during the 1990s. Although we find that misallocation among large continuing firms represents a substantial drag to overall TFP growth for these firms throughout the sample period, the negative impact of misallocation was least visible during the 1990s. The significant reduction in within-firm productivity growth suggests that, as the Japanese economy has matured, a policy which fosters technological innovations via greater competition, R&D, and fast technological adoption may have become increasingly important in promoting economic growth.

The contributions of productivity, price changes and firm size to profitability

Sources of profit change for Telstra, Australia’s largest telecommunications firm, are examined. A new method allows for changes, in a firm’s profits to be broken down into separate effects due to productivity change, price changes, and growth in the firm’s size. This in turn allows us to calculate the distribution of the benefits of productivity improvements between consumers, labor, and shareholders. The results show that around half the benefits from Telstra’s productivity improvements from 1984 to 1994 were passed on to consumers in the form of real price reductions.

Environmental regulation and productivity: testing the porter hypothesis

Abstract  This paper provides an empirical analysis of the relationship between the stringency of environmental regulation and total factor productivity (TFP) growth in the Quebec manufacturing sector. This allows us to investigate more fully the Porter hypothesis in three directions. First, the dynamic aspect of the hypothesis is captured through the use of lagged regulatory variables. Second, we argue that the hypothesis is more relevant for more polluting sectors. Third, we argue that the hypothesis is more relevant for sectors which are more exposed to international competition. Our empirical results suggest that: (1) the contemporaneous impact of environmental regulation on productivity is negative; (2) the opposite result is observed with lagged regulatory variables, which is consistent with Michel Porter’s conjecture; and (3) this effect is stronger in a subgroup of industries which are more exposed to international competition.

The productivity performance of Irish dairy farms 1984–2000: a multiple output distance function approach

This study measures productivity growth on Irish dairy farms over the period 1984–2000. A total factor productivity index is constructed for the dairy system and is decomposed into technical change, efficiency change, and changes in scale efficiency. This is achieved by estimating a stochastic output distance function model of the production technology in use on Irish dairy farms. Overall, productivity on Irish dairy farms grew by 1.2% per annum over the sample period.

Efficiency analysis of East European electricity distribution in transition: legacy of the past?

This paper provides a cross-country efficiency analysis of electricity distribution companies in the East European transition countries of Poland, the Czech Republic, Slovakia and Hungary. We use common nonparametric efficiency measurement such as Data Envelopment Analysis (DEA) and Free Disposal Hull (FDH) under different assumptions and apply recent developments of statistical inference in nonparametric frontier models to test our hypotheses. We discuss the empirical problems of cross-country benchmarking approaches, in particular the comparability of different structures of electricity distribution companies. Our results suggest that Poland’s distribution companies are still inefficiently small; the Czech Republic features the highest efficiency; and Slovakia and Hungary occupy the middle range. We also note that privatization has had a positive effect on technical efficiency in the four countries. We use the phrase “legacy of the past” to describe the four countries in comparison to the efficiency of electricity distribution companies we studied in Germany.

Productivity and efficiency of state-owned enterprises in China

The purpose of this paper is to evaluate the variations in SOE efficiency and productivity from the perspectives of macroeconomic fluctuations and systematic reform in China during 1986–2003. We use Data Envelopment Analysis to measure SOE efficiency. Subsequently, we use the Malmquist Index of Productivity change to measure productivity growth. The empirical results show that SOE efficiency and productivity exhibited obvious improvements during periods of strong systematic reform and a prosperous economy. The systematic reform after 1998 had a clear-cut impact on SOE performance.

The dynamics of efficiency and productivity growth in U.S. electric utilities

This study recognizes explicitly the efficiency gain or loss as a source in explaining the growth. A theoretically consistent method to estimate the decomposition of dynamic total factor productivity growth (TFP) in the presence of inefficiency is developed which is constructed from an extension of the dynamic TFP growth, adjusted for deviations from the long-run equilibrium within an adjustment-cost framework. The empirical case study is to U.S. electric utilities, which provides a measure to evaluate how different electric utilities participate in the deregulation of electricity generation. TFP grew by 2.26% per annum with growth attributed to the combined scale effects of 0.34%, the combined efficiency effects of 0.69%, and the technical change effect of 1.22%. The dynamic TFP grew by 1.66% per annum for electric utilities located within states with the deregulation plan and 3.30% per annum for those located outside. Electric utilities located within states with the deregulation plan increased the outputs by improving technical and input allocative efficiencies more than those located outside of states with deregulation plans.

Output and productivity growth in the education sector: comparisons for the US and UK

This paper considers the measurement of performance in public service provision in an international context by examining outcome-based measures for the education sector. It first sets out the measurement issues in general terms. The paper then applies these methods to comparing the UK experience with that in the US over the period 1979–2002. The results show higher labour productivity growth in the UK education sector than in the US over this time period, so that the UK eliminated the productivity gap with the US by the end of the Century.

Firms and universities—do spillovers enhance firm’s performance?

This paper aims to assess if geographic proximity from universities enhances small firms’ performance, by means of knowledge spillovers. A sample of micro data is used on 390 manufacturing firms and 11 public universities in Portugal. Performance is measured by labour productivity. The estimation was made using OLS as well as Quantile Regression. Results seem to confirm that both domains of knowledge do produce distinct effects, but there is no evidence that a firm’s performance improves with the proximity to a university. Likewise, the quality of universities does not seem to influence the labour productivity of firms.

Decomposing productivity patterns in a conditional convergence framework

In this study we examine regional data on per worker GDP, disaggregated at sectoral level, by focusing our interest on the role of differences in the sectoral composition of activities, and in productivity gaps that are uniform across sectors, in explaining the catching-up process, which is realized through physical and human capital as well as technological knowledge accumulation. Our objective is to investigate how much of the interregional inequality in aggregate productivity per worker is imputable to each component. A methodology for identifying and analyzing sources of inequality from a decomposed perspective is developed in the growth framework by combining a shift-share based technique and a SUR model specification for the conditional-convergence analysis. The proposed approach is employed to analyze aggregate interregional inequality of per worker productivity levels in Italy over the period 1970–2000. With respect to the existing empirical results, our approach provides a more comprehensive and detailed examination of the contribution of each identified component in explaining the regional productivity gaps in Italy. It is argued that region-specific productivity differentials, uniform across sectors, explain a quite large share of differences in productivity per worker. However, sectoral composition plays a non negligible role, although decreasing since the end of 1980s, and very different productivity patterns emerge within geographical areas.

Opening the black box: Finding the source of cost inefficiency

Parametric and nonparametric procedures are used to identify the apparent source of cost inefficiency in banking. Inefficiencies of 20–25% from earlier studies are reduced to 1–5% when, in addition to commonly specified cost function influences, variables reflecting banks’ external business environment and industry indicators of “productivity” are added. These productivity indicators explain most of the reduction in bank operating cost over 1992–2001 and was 5 times the reduction in the dispersion of inefficiency. Inefficiency appears stable over time because it is small relative to industry-wide cost changes occurring concurrently and because technology dispersion is imperfect.

Accounting for growth in retail trade: an international productivity comparison

In this paper we argue that the standard approach for measuring output and productivity in the trade sector has become obsolete. The key problem is that changes in prices of goods purchased for resale are not accounted for. We outline a consistent accounting framework for measuring trade productivity and provide new estimates, taking into account purchase prices of goods sold in a double deflation procedure. We find strong productivity improvements in the UK and US compared to France, Germany and The Netherlands since the mid-1990s. This finding is robust for various productivity measurement models.

The cost implications of waste reduction: factor demand, competitiveness and policy implications

Manufacturing produces both good and “bad” outputs, such as waste, which have negative environmental effects. Economic (e.g., tax) and non-economic (e.g., reputation) incentives encourage firms to reduce waste. However, such practices are costly because decreases in output produced or increases in inputs used may accompany waste reduction. We employ a cost function approach to evaluate patterns of output and waste production and capital, labor, and materials use, for UK manufacturing plants. We find that costs of waste reduction generally imply increasing materials use and capital and labor input saving, but vary by county, region, and industry.

The Feldstein–Horioka puzzle in Latin American and Caribbean countries: a panel cointegration analysis

In this paper, the recently developed panel unit root and the Pedroni cointegration tests are applied to empirically examine the validity of the Feldstein–Horioka puzzle (F–H puzzle) for a heterogeneous panel of 14 Latin American and five Caribbean countries over the period, 1960–2002. The findings indicate that in these countries, the long-run solvency condition is maintained. Finally, employing the Pedroni panel group FM-OLS estimator (2000, 2001), it is found that the statistically significant estimated savings-retention coefficient for the panel is relatively small indicating that the F–H Puzzle is not valid and thus implying the prevalence of a moderate degree of capital mobility.

The impacts of education spending and finance reform on manufacturing property shadow values: a cost function approach

The effects of court-ordered education finance reform on property values and residential choice have received increasing attention in recent years (Fischel 2001). However, little attention has been focused on the effects of education finance reform on manufacturing sector property values within an optimizing framework. This is pursued here by modeling education expenditures and education finance reform as “free” variables to manufacturing firms in a cost function model together with input demand equations. This framework is applied to panel data on manufacturers’ capital (building and structures) stocks for the 48 continental US for 1982–1996 to estimate implicit (shadow) values to the manufacturing sector of education spending and school finance reform. On average, school finance reform lowers the implicit value of manufacturing firms’ stock of buildings and structures capital, while greater education spending lowers manufacturing variable costs.