Abstract
This paper estimates technical efficiency in the Spanish construction sector before and after the start of the current financial crisis, and examines the impact of socio-economic factors on technical efficiency. Bias-corrected efficiency measures are obtained using Data Envelopment Analysis with bootstrap for a sample of medium-sized and large construction firms over the period 2000–2010. Next, bias-corrected efficiency scores are regressed on the variables explaining efficiency using bootstrap truncated regression. The results show that technical efficiency is very low and is significantly lower after the beginning of the financial crisis than before. Firms with the highest technical efficiency scores have the lowest input-ratio for material and employee costs to output and the highest for fixed assets. The examination of the determinants of technical efficiency indicates that efficiency is higher for firms that export, are highly leveraged, are integrated in the form of joint stock company, and are located in Spanish regions with higher GDP per capita, while firms with high stock relatively to turnover have lower technical efficiency. Technical efficiency increases with size for relatively small sized construction firms, but decreases beyond a critical firm size, while technical efficiency decreases with age for young firms, but eventually increases for older firms.
Highlights
The Spanish construction sector is the largest among EU countries (Eurostat 2012) and until recently, it enjoyed a period of constant growth, reaching a 10% share of national GDP in 2006, and employing 2.9 million persons (13% of the labor force)
This finding goes in line with You and Zi (2007) who, in the context of Korean crisis of 1997, show that efficiency of construction firms decreased after the economic crisis
This study contributes to the literature on construction industry, because no previous study has assessed the impact of the current economic crisis on the performance of Spanish construction firms
Summary
The Spanish construction sector is the largest among EU countries (Eurostat 2012) and until recently, it enjoyed a period of constant growth, reaching a 10% share of national GDP in 2006, and employing 2.9 million persons (13% of the labor force). The expansion of this industry was a driving force behind the Spanish economic growth. The housing boom was supported by economic expansion, strong employment growth, an immigration boom and low interest rates (International Monetary Fund 2009). In 2006, Spain was among the countries with highest home ownership rate and relatively undeveloped rental market The impact of the financial crisis on the Spanish construction sector is demonstrated in Figure 1 presenting the indices of production and employment between 2000 and 2010 (2000 = 100). The emerging crisis is clearly foretold during 2006 by Technical efficiency and its determinants in the Spanish construction sector pre- and post-financial crisis the beginning of decreasing trend of production volume as indicated by production index. The employment index is showing a similar decrease approximately one year thereafter, in 2007
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