Negative Total Factor Productivity Research Articles

Technical Efficiency and Total Factor Productivity Growth of Indonesian Manufacturing Industry: Does Openness Matter?

In this paper, we examine the contribution of openness variables such as import, export, absorptive capacity and foreign-shared capital to Indonesian firms’ technical efficiency and total factor productivity (TFP) growth. We use the most recent firm-level panel data of 23 subsectors in the manufacturing industry over the period from 2008 to 2015. We employ time-varying stochastic production frontier to examine factors affecting technical efficiency and to decompose the components of TFP growth. The results reveal that export and absorptive capacity alone contribute to the efficiency improvement of the firms under study. To speak specifically of foreign firms, they contribute to improving efficiency if they interact with absorptive capacity and imported raw material intensity. We identify that, on an average, the manufacturing industry in Indonesia experienced positive TFP growth. However, among 23 subsectors, there are only few subsectors that benefitted from the openness variables. In 2014, 15 out of 23 subsectors experienced negative TFP growth. This implies that, in 2014, there were some macroeconomic issues regarding the contracted policy, for example, the subsidy removal and the basic electricity tariff. JEL Classifications: C23, D24, F23, O14

Total factor productivity change in Indonesia’s provincial economies for 1990–2015: Malmquist productivity index approach

This study employs the Malmquist productivity index based on data envelopment analysis to measure and decompose total factor productivity (TFP) change into efficiency and technological change by province. Using annual observations of gross regional domestic product and factor inputs (labor, physical, and human capital) for 26 contiguous provinces, we find that over a quarter of them experienced negative TFP growth over 1990–2015 due to technological regress, which was barely offset by efficiency improvements. Three on-Java provinces—Jakarta, West Java, and East Java—contributed to national technological progress with full utilization and optimal allocation of resources at least once over the study period, except during 1995–2005, when Indonesia experienced a financial crisis and subsequent slow recoveries. Jakarta and West Java contributed in all other periods. Considering the high spatial density of urban economic activities in these three provinces, we conclude that urban agglomeration is influential for further regional technological growth in Indonesia.

Assessing Total Factor Productivity for Soybean Production in China Based on DEA-Malmquist Index: 2005-2017

The low and slowly increasing soybean yield restricts the development of soybean production. Accurate measures of total factor productivity (TFP) for soybean production can be helpful in identifying conditions, institutions or policies that promote soybean production development in China. In this paper, TFP growth for soybean production was estimated for a panel data of 10 major soybean producing provinces from 2005 to 2017. Results reveal that TFP grew at an average rate of 1.3% over the whole period, with technical progress contributing 2.3% and efficiency change providing the other -1.0%. The change of TFP for soybean production over that time, whether increase or decline, was mainly derived by technical change except in three years (2005-2007). Positive TFP growth in the provinces of Liaoning and Inner Mongolia, and negative TFP growth in Hebei and Anhui were mainly driven by efficiency change, specifically scale efficiency change except pure technical efficiency in Liaoning.

Productivity Analysis of Coal-fired Thermal Power Plants in India Using Malmquist Index Approach

The sustainable socio-economic growth of any country depends on the availability of adequate and reliable power at reasonable rates. This is even true in case of a rapidly developing country like India where coal-based power plants account for the majority of electricity generation. Making use of data envelopment analysis (DEA) and Malmquist productivity index (MPI), this study analyses the productivity change of coal-fired power plants during 2002–2012. Productivity change is further decomposed into technical efficiency change (EFFCH), technological change (TECHCH), scale efficiency change (SECH), pure technical change (PECH) and total factor productivity change (TFPCH). The study revealed that 0.70 per cent of average annual total factor productivity (TFP) growth was witnessed from 2002–2003 to 2011–2012 indicating overall progress. The contribution of TECHCH in TFP growth is positive, that is, 1.3 per cent per annum. It demonstrates that expansion of the efficient frontier. However, there was a decrease in technical EFFCH of −0.6 per cent per year, indicating the adverse sign of progress. Plants in the central sector achieved maximum growth of 4.6 per cent annually. A total of 54.05 per cent of plants have recorded negative TFP growth. Power plants between 500 and 999 MW achieved the highest operational performances in all indices except SECH.

Total Factor Productivity of Agricultural Firms in Vietnam and Its Relevant Determinants

In Vietnam, agriculture is a key sector that promotes economic growth and poverty reduction. Therefore, improving productivity in agriculture is indispensable to the sustainability of the country. This research examined productivity and its determinants from 420 enterprises operating in agriculture. Productivity was measured as the total factor productivity (TFP) obtained from fixed and random effects models. The determinants of TFP including size and age, share of state and foreign ownership, export, accessibility to Internet and bank loan of firms, controlled for year fixed effects, were analyzed. It was shown that 74.6% companies in the agricultural sector were small in size (< 10 < 200 employees). Although the number of large firms (>300 employees) explained 10.6%, they had a remarkable and positive TFP (38.8%, p < 0.01), while both small and very small (<10, and <200 employees, respectively) had strikingly negative TFP values (−71.3% and −32.1%, respectively, p < 0.01), as compared to the medium sizes (< 200 < 300 employees). It was also revealed that although foreign ownership was only 3.8% on average, it had a notably positive effect on TFP (55.0%, p < 0.01). In contrast, state ownership accounted for 30.7%, but it had a negative influence on TFP (−7.5%). The export contributed a negligible and statistically significant effect to TFP (2.6%), which might be attributed to a limited number of firms (4.5%) having mobility in agricultural export. 73% received a bank loan, and only 18.2% had access to the Internet, but both of them yielded remarkable TFP values (18.5%, p < 0.01 and 3.4%, p < 0.05 respectively). The Hausman test indicated that the fixed effects (FE) model was more effective than the random effects (RE) model to estimate the TFP. The findings of this study suggested that reform efforts should focus on improving the productivity of small agricultural enterprises. In addition, foreign investment, effective use of bank loan and Internet accessibility should be further enhanced. The results of this study may provide insights for policymakers who aim to improve the productivity in agricultural enterprises and thereby contribute to the sustainable growth of the country.

Improving Efficiency and TFP of Lowland Paddy Rice Farmers in Kwara State of Nigeria

Purpose: The pressure on land for agricultural purposes is on the rise and sustainable agriculture remains the panacea for herdsmen attack on arable crop farmers in the study area. The present research empirically measured and identified the factors that influenced efficiency and Total Factor Productivity (TFP) of lowland paddy rice farmers in Kwara State of Nigeria.Research Methodology: The study made use of cross-sectional data collected from 200 active farmers during the 2016 cropping season via Multi-stage sampling technique. Instrument used to elicit information from the active farmers was structured questionnaire complemented with interview schedule and the collected data were analyzed using descriptive and inferential statistics.Findings: The results proved that majority of the farmers were not smart farmers which is responsible for negative TFP in most of the Decision making units (DMUs) as evident from poor robust increase in output index. However, the study inferred that there remained more untapped potentials in paddy rice production in the studied area.Limitations: The scope of the research is limited to lowland rice farmers in Kwara State of Nigeria.Originality/Value: Therefore, it was recommended that Government and non-governmental organisations should formulate supportive policies targeting sustainability of rice production viz. proper allocation of farm resources and also welfare improvement of the resource poor farmers for cultivating rice crops in the studied area.

A bootstrapped Malmquist index applied to Swedish district courts

This study measures the total factor productivity (TFP) of the Swedish district courts by applying data envelopment analysis to calculate the Malmquist productivity index (MPI) of 48 Swedish district courts from 2012 to 2015. In contrast to the limited international literature on court productivity, this study uses a fully decomposed MPI. A bootstrapping approach is further applied to compute confidence intervals for each decomposed factor of TFP. The findings show a 1.7% average decline of TFP, annually. However, a substantial variation between years can be observed in the number of statistically significant courts below and above unity. The averages of the components show that the negative impact is mainly driven by negative technical change. Large variations are also observed over time where the small courts have the largest volatility. Two recommendations are: (1) that district courts with negative TFP growth could learn from those with positive TFP growth; and (2) that the back-up labour force could be developed to enhance flexibility.

Causes and Consequences of Deindustrialization in the Euro Area

The post-industrial stage of development reached in developed countries is characterized by an increase in services' share and the progressive decline of the manufacturing share in their economies. The intensification of deindustrialization process heated up the discussion pertaining to its impact on the weakening of investment, technological progress, innovation, and a decline in labour productivity and GDP growth. The aim of the paper is to present the scale and consequences of deindustrialization in the euro area based on analysis of manufacturing and other sectors shares in the gross value added and employment in the euro area. The indicators used for the assessment of deindustrialization consequences are: labour productivity and total factor productivity (TFP) growth rates. As the outcome of conducted analysis, the author has drawn two main conclusions: 1) the decreasing importance of manufacturing limits the possibility of carrying out research projects and creating technological progress, 2) the negative TFP growth rate, declining of labour productivity growth rate in 2008-2015 and the decrease of GDP testifies to the threat of secular stagnation in the euro area.

Generation and distribution of the total factor productivity gains in US industries

ABSTRACTThis study estimates productivity gains and their distribution among inputs and outputs for 63 American industries over the period 1987–2012. Using the traditional surplus accounting method, the Total Factor Productivity (TFP) growth rates are divided into their price change components in order to determine the stakeholders who do or do not receive price advantages.An initial analysis showed that TFP of US industries increased at an average trend of 0.8% and established that remunerations to employees and firms’ profitability constituted 49% and 39%, respectively, of the accumulated economic surplus from the productivity gains. Suppliers of intermediate inputs retained 12.1% of the surplus. Finally, customers, equipment and structure providers were the losers in the distribution of economic surplus via, respectively, a significant growth of relative final demand prices and a substantial price decrease of these assets.A second step analysis underlined that industries with high TFP growth rates mainly benefited customers and firms via output price decreases and profitability improvements while industries with low or negative TFP changes hurt customers through significant output price increases. The sectoral level analysis also showed that employees’ remunerations depend only slightly on productivity gains produced within their industrial sectors.

The Rise and Fall of Exceptional Australian Incomes Since 1800

We gauge how productivity and factor endowments shaped the rise and fall of Australia's exceptional incomes using new measures of total factor productivity (TFP), which include natural resource inputs, in an accounting of income growth. Further, we explore the drivers of TFP growth. Pastoralism and mining had negative TFP externalities, and we incorporate these findings into a unified accounting of incomes, which distinguishes the roles of endowments and productivity. Nevertheless, TFP growth played an important role in promoting exceptional incomes between 1842 and 1890. Our findings favour a more balanced interpretation of Australian growth that has roles for natural resources, labour participation, and productivity.

Does Freer Trade Really Lead to Productivity Growth? Evidence from Africa

Summary Theory predicts that trade liberalization should raise average total factor productivity (TFP) among manufacturing firms. However, this is a generic prediction and depends on maintained assumptions about industries, factor markets, and trade patterns that may not fit well for developing countries. Using firm-level data from Ghana, Kenya, and Tanzania during the 1990s, a period of fairly rapid trade policy liberalization, we estimate productivity effects of trade. Our analysis confirms the well-known association between export intensity and higher productivity of the firm; however, the evidence for “learning by exporting,” or an increase in productivity associated with greater exports, is mixed, with several instances of negative average TFP growth among exporters. Our analysis indicates that such declines are likely attributable to the effects of lower external tariffs, because the firm-level productivity margin below which exporting is unprofitable moves down as the external tariff rate is reduced. We also find that sales to the rest of the world and sales to other African economies have differential effects on productivity growth rates, and that for country-specific reasons, these effects are not uniform. Controlling for initial productivity and the destination of exports (within or outside Africa) helps us understand why in some cases, export participation is associated with negative rates of TFP growth.

A Comparative Analysis of Productivity among Organic and Non-Organic farms in the West Mamprusi District of Ghana

The study was conducted in organic and conventional crop farms in the West Mamprusi District of the Northern Region of Ghana. The key issue the study sought to determine was whether there are productivity differences among organic and conventional crop farms and what factors account for these differences. The results indeed revealed that there are productivity differences among organic and conventional crop farms. However, both had negative total factor productivity growth, largely accounted for by a negative technical change over the period considered. The technical efficiency change, however, was positive for both but much higher for organic farms than conventional farms. More importantly, the study revealed that the type of agriculture practiced by farmers is not the most critical problem confronting farmers as indicated by the negative total productivity growth for both. Major constraints confronting farmers that need to be addressed include better organization on the farmers’ front, improved access to extension and improved access to farm inputs. These challenges notwithstanding, the study revealed that organic agriculture has the potential, in the long run, to achieve much more progress in total factor productivity, compared to conventional agriculture, if the right conditions exist for its uptake and optimal application.

Economic Reforms and Sources of Productivity Growth in Selected Organised Manufacturing Labour Intensive and Capital Intensive Industries in India - A Comparative Study

This study uses the non parametric data envelopment technique to investigate the impact of economic reforms on Total Factor Productivity Growth in Selected 20 Indian Organised Manufacturing Industries by classifying them into Labour Intensive and Capital Intensive industries; by using non parametric DEA technique to four-digit panel data for the period 1990 to 2011. The study reveals that the Labour Intensive Industries have negative Total Factor Productivity Growth as -6.1% deteriorated mainly due to Technological Change which is -4%. Meanwhile, the Capital Intensive Industries have positive Total Factor Productivity Growth of 6.7%, mainly contributed by Efficiency Change of 1.6% and Technological Change of 5.0%. Eight out of ten Organised Manufacturing Capital Intensive Industries have shown positive Total Factor Productivity Growth during the economic reform period, whereas seven out of ten Organised Manufacturing Labour Intensive Industries showed negative Total Factor Productivity Growth due to lack of technological change.

Does Freer Trade Really Lead to Productivity Growth? Evidence from Africa

Theory predicts that trade liberalization should raise average total factor productivity (TFP) among manufacturing firms. However, this is a generic prediction and depends on maintained assumptions about industries, factor markets, and trade patterns that may not fit well for developing countries. Using firm-level data from Ghana, Kenya, and Tanzania during the 1990s, a period of fairly rapid trade policy liberalization, we estimate productivity effects of trade. Our analysis confirms the well-known association between export intensity and higher productivity of the firm; however, the evidence for “learning by exporting,” or an increase in productivity associated with greater exports, is mixed, with several instances of negative average TFP growth among exporters. Our analysis indicates that such declines are likely attributable to the effects of lower external tariffs, because the firm-level productivity margin below which exporting is unprofitable moves down as the external tariff rate is reduced. We also find that sales to the rest of the world and sales to other African economies have differential effects on productivity growth rates, and that for country-specific reasons, these effects are not uniform. Controlling for initial productivity and the destination of exports (within or outside Africa) helps us understand why in some cases, export participation is associated with negative rates of TFP growth.

Efficiency and productivity in the Thai non-life insurance industry

This paper estimates a stochastic cost frontier for a sample of the non-life insurance industry in Thailand from 2000 to 2007. Our model explicitly considers the heteroscedasticity in the variances of the noise and inefficiency components that could affect the position of the cost frontier as well as the measurement of efficiency. Tests for double heteroscedasticity and appropriate specification for the cost frontier are performed. The chosen model is used to examine whether economies of scale and a change in technology exist. In addition, this paper calculates total factor productivity (TFP) change and decomposes it into scale effect, cost efficiency effect, technology effect, output effect, price effect, and environmental effect. Our results reveal that, on average, Thai non-life insurance firms are between 74 and 79 % efficient, that economies of scale exist, and that regress in technology shifts the cost frontier upward by 2.2 %. The regress in technology is the dominant contributor to a negative TFP growth of 1.15 %. The restructuring of the industry following the 1997 Asian financial crisis finally paid off when the industry experienced technology progress in 2005 and beyond. Between 2005 and 2007, technology progress and productivity growth occurred at a little over 2 % a year. In-depth analysis of the most and the least efficient firms reveals that most efficient firms tend to strategically select types of insurance services and underwrite average and small size sum insured per policy to diversify their risks. In addition, they tend to be savvy investors. The opposite holds for the least efficient firms which concentrate in providing labor-intensive, small sum automobile insurance policies or underwrite large coverage policies for fewer policyholders. Balancing the mix of insurance types, spreading risk across insurance types or across number of policyholders, investing in high yield assets, or developing a market niche may prove beneficial for improving cost efficiency.

The Analysis of Productivity Growth of Tuber Crops in Nigeria (1995-2006)

This study analyzed the productivity of Tuber crops in Nigeria from twenty states between the periods of 1995 -2006 using Data Envelopment Analysis (DEA) to estimate the total factor productivity (TFP) which was further decomposed to reveal the source of productivity growth over the reference period. Negative TFP growth was observed for all the tuber crops considered in the study on the average but an evidence of convergence in productivity level was observed when considering the starting TFP, majority of the states had low TFP (<0.6) but grew over the years by about 0.2 with Kaduna and Adamawa having the highest TFP for cocoyam and cassava respectively.

Unemployment and debt dynamics in a highly indebted small open economy

The paper analyzes the dynamic effects of a total factor productivity shock and an interest rate risk premium shock in a highly indebted open economy. In contrast to the standard open economy framework, search unemployment and wage bargaining are introduced. We find that a negative total factor productivity shock primarily has effects on the economy's production side and on welfare, but not on its stock of foreign debt and the country specific risk premium, and large part of the adjustment happens in the short-run. In contrast, a pure increase in the country specific risk premium causes substantial dynamics and a considerable reduction in foreign debt, allowing higher consumption in the long run and creating an intertemporal welfare gain, even though unemployment increases strongly in the short-run. A 50% haircut of foreign debt significantly reduces the initial response of the unemployment rate. In case of a temporary productivity shock, sticky wages imply smaller employment, but generate higher welfare than flexible wages.

ON THE EVOLUTION OF TOTAL FACTOR PRODUCTIVITY IN LATIN AMERICA

Because of several policy distortions, including import‐substitution industrialization, widespread government intervention, and both domestic and international competitive barriers, there has been a general presumption that Latin America has been much less productive than the leading economies in the last decades. In this paper we show, however, that until the late 1970s Latin American countries had high productivity levels relative to the United States. It is only after the late 1970s that we observe a fast decrease of relative total factor productivity (TFP) in Latin America. We also show that the inclusion of human capital in the production function makes a crucial difference in the TFP calculations for Latin America. (JEL O11, O47, O54)

Unemployment and Debt Dynamics in a Highly Indebted Small Open Economy

The paper analyzes the dynamic effects of a total factor productivity shock and an interest rate risk premium shock in a highly indebted open economy. In contrast to the standard open economy framework, search unemployment and wage bargaining are introduced. We find that a negative total factor productivity shock primarily has effects on the economy’s production side and on welfare, but not on its stock of foreign debt and the country specific risk premium, and large part of the adjustment happens in the short run. In contrast, a pure increase in the country specific risk premium causes substantial dynamics and a considerable reduction in foreign debt, allowing higher consumption in the long run and creating an intertemporal welfare gain, even though unemployment increases strongly in the short run. A 50% haircut of foreign debt significantly reduces the initial response of the unemployment rate. In case of a temporary productivity shock, sticky wages imply smaller employment, but generate higher welfare than flexible wages.

The Rise and Fall of German Productivity Software Investment as the Decisive Driver

Investments in Information and Communication Technology (ICT) are the source of the global growth resurgence that commenced in the mid-1990s. Most studies focus on broad ICT measures, or on computer hardware; here we examine the contributions of software-intensive industries to productivity growth. The price of prepackaged software has been falling exponentially since the 1960s, which has led to substitutions towards software investments, and to reductions in the total cost of ICT hardware investments. We use novel German ICT investment data to show that software-intensive industries have been the crucial determinant of German productivity growth since 1995. Not only did these industries contribute strongly to productivity growth, but they offset declining investments and productivities in other industries. Post 1995, other industries’ investments in new equipment per worker collapsed, while software-intensive industries’ capital investments rose steadily to generate over half of Germany's productivity growth by 2000–04. We document sharply diverging productivity paths for software-intensive and other (non-software-intensive) industries. Post 1991, total factor productivity (TFP) declined secularly in other industries to generate a −0.39 percent drag on German labor productivity by 2000–04, while TFP in software-intensive industries rose steadily to contribute 35 percent to German labor productivity growth by the same period. Overall, the results combine to paint a stark picture of rising capital per worker and TFP growth in software-intensive sectors, contrasting with falling capital per worker and increasingly negative TFP growth in other sectors. About two-thirds of the impact from software-intensive industries is generated by investments in prepackaged and purchased custom software. (JEL codes: O03, O04)