Nonparametric Frontier Research Articles

Malmquist Indexes of Productivity Change in Tunisian Manufacturing Industries

This research aims to investigate the extent and nature of productivity growth in manufacturing industries using nonparametric frontier techniques. In order to decompose the total factor productivity (TFP) into technical efficiency change and technological change we use the output-oriented Malmquist productivity index method for 34 Tunisian manufacturing industries over the period 2002–2016. The results indicated that TFP has witnessed an average growth of two percent over the period 2002–2016. The productivity growth identified was attributed to the improvements in the technology (or frontier-shift) rather than improvements or changes in the efficiency.

Estimation of additive frontier functions with shape constraints

ABSTRACTProduction frontier is an important concept in modern economics and has been widely used to measure production efficiency. Existing nonparametric frontier models often only allow one or low-dimensional input variables due to ‘curse-of-dimensionality’. In this paper we propose a flexible additive frontier model which quantifies the effects of multiple input variables on the maximum output. In addition, we consider the estimation of the nonparametric frontier functions with shape restrictions. Economic theory often imposes shape constraints on production frontier, such as, monotonicity and concavity. A two-step constrained polynomial spline method is proposed to give smooth estimates that automatically satisfy such shape constraints. The proposed method is not only easy to compute, but also more robust to outliers. In theory, we established uniform consistency of the proposed method. We illustrate the proposed method by both simulation studies and an application to the Norwegian farm data. The numerical studies suggest that the proposed method has superior performance by incorporating shape constraints.

Untapped regional integration potential: A global frontier analysis

ABSTRACT This paper proposes a novel approach to estimate untapped regional integration potential across geographical subregions of the world. We first construct an empirical production possibility frontier for regional integration outcomes based on two composite indices capturing enabling factors and achieved levels of regional integration outcomes across various domains. We then use non-parametric frontier analysis to rate the performance of subregions in terms of integration relative to their estimated potential. The obtained efficiency scores allow us to quantify and compare the empirical magnitudes of untapped integration potential across individual subregions. Our results suggest that, globally, subregional integration levels are currently at 60 percent of the estimated potential on average. Furthermore, there is large variation in integration outcomes, and subregions with large untapped integration potential are spread across all parts of the world. We also demonstrate how, from a policy perspective, the proposed method can be used for assessing achievements in targeting subregions with certain needs and characteristics, and guiding decisions about types of interventions that future programs aimed at fostering higher integration should prioritize in each subregion.

Efficiency of university education: A partial frontier analysis

This article investigates the efficiency of the university education using two linked databases (Saber Pro and Saber 11) from the Colombian Institute for Evaluation of Education (ICFES) corresponding to 2014. We use a non-parametric frontier approach that combines the “order m” technique with the concept of a meta-frontier to disaggregate students’ total efficiency in generic skills in quantitative reasoning, critical reading, and written communication, into the parts attributable to the students themselves and the university. The analysis is performed by academic programme and by education sector (public vs. private). Results indicate that most of the inefficiency of students in the assessment of generic skills in higher education is attributable to the students themselves and a significant number of students could improve their performance in the assessment in each of the academic programmes if they performed as efficiently as those located on the frontier. Furthermore, the inefficiency share of students varies between academic programmes and university sectors, with students in the private sector more inefficient than those in the public sector in some and less inefficient in others. This research constitutes the first application of the technique of “order m” with the approach of the meta-frontier for the analysis of educational efficiency using data at the student and university levels.

How bank regulations impact efficiency and performance?

PurposeThis study aims to examine the impact of regulation and other micro- and macro-economic factors on banks’ productivity growth. It investigates the impact of different regulatory reforms on banks’ performance of total factor productivity (TFP) and its component efficiencies, along with their association with bank-specific variables of profitability and equity, and with macro-level variables of economy and freedom. That is, through analysing the influence of regulatory and supervisory policies related to Basel accords pillars of capital and market discipline through private monitoring; restrictions on bank activities; and economic and financial freedoms on TFP growth and year-end performance in banking.Design/methodology/approachThe authors examine TFP for commercial banks in response to regulatory reforms on an international scale. To estimate the TFP, the authors use a non-parametric frontier technique by calculating the Malmquist output-oriented index, following Delis et al. (2011) and Worthington (1999). The components of the Malmquist index are ratios of distance functions making its estimation a straightforward technique using activity analysis or data envelopment analysis methods. This allows controlling for efficiency changes depending on the reallocation of production frontiers signalling the technical change and the technical efficiency at once.FindingsResults show that high capital requirements enhance productivity growth in North and Latin American banks, but not in European African or Asian banks. Supervisory powers drive bank productivity growth in all regions except Europe and Central Asia. Restrictions on real estate, insurance and securities activities impede productivity change in all income level groups but not in high-income economies. The results also show that market volatility and Z-score drive technological change and scale efficiency growth, but negatively impact pure technical efficiency.Originality/valueThis paper contributes to the literature by examining the relationship between the implementation of regulatory standards and the performance of the banking sector following a structural model of the banking firm and the concept of optimisation. An additional contribution of this study is that it examines economies with different levels of income based on the gross national income per capita. The study summarises bank-specific data used to synthesise the banks’ productivity (inputs and outputs) and country-specific economic and regulatory compliance data over 19 years (1999-2017). The extent of this data set coverage makes it most recent and most conclusive of variables to provide a significant contribution to the literature on bank regulation and efficiency effect.

Rank dynamics and club convergence of sustainable development for countries around the world

Assessment of country-level sustainable development is a critical research topic entrenched in the global battle against climate change. This study employs the frontier approach, combined with convergence analysis, to assess the sustainable development for a set of 121 countries over 1990–2014, focusing on analyzing the countries’ rank dynamics and convergence behavior. The levels of the countries’ sustainable development are captured by data envelopment analysis, a nonparametric frontier approach that can jointly assess a country’s economic and environmental performance. Reflecting the divergent views on the importance of economic and environmental objectives in the pursuit of sustainability, the proposed approach generates the countries’ sustainability scores by prioritizing either economic or environmental criterion. This study finds that developed countries have significantly outperformed developing countries if environmental criterion takes precedence over economic criterion in performance assessment. Moreover, regardless of the model employed, there is strong evidence of club convergence, i.e., convergence in subgroups of countries to different steady states rather than convergence in full sample. We analyze the pattern of convergence paths and discuss policy implications obtained from our empirical findings.

Technological change, technological catch-up and export orientation: evidence from Latin American Countries

The paper examines in a nonparametric frontier framework the effect of exports on Latin American countries’ technological change and technological catch-up levels over the period 1950–2014. Based on the probabilistic approach of nonparametric production efficiency measurement, we apply time-dependent conditional full and partial efficiency estimators to evaluate countries’ export orientation policies over the examined period. The results reveal that the effect of countries’ export activity on their technological change and technological catch-up levels is nonlinear. Overall our findings suggest that up to a certain point, lower export shares enhance countries’ technological catch-up levels. The results also reveal that higher export shares affect positively their technological change levels. Finally, in a second stage analysis we apply a location-scale regression model in order to estimate the idiosyncratic part of the estimated production efficiencies. This measure is a proxy of Solow’s residual accounting for aggregate effects of other factors not included in our estimation.

Technical Efficiency of Construction Companies: A Stochastic Frontier Model with Dependent Error

There are several problems with using the Standard Stochastic Frontier (SF) model to produce a company’s technical efficiencies. One of the problem is the hypothesis of independence between the error components, known as, statistical noise and inefficiency term. Recent studies have used the SFA-copula model where the copula element captures the joint distribution of the two error components thus assuming that the errors are dependent. This research seeks to use the Cobb-Douglas Stochastic Frontier production model (standard model), SFA-copula models and DEA models (DEA-CCR and DEA-BCC) to compare the technical efficiencies of 12 publicly listed construction companies in Malaysia. The latter models are non-parametric frontier models which will be used as a base to determine the best SF model. The four copulas considered in this study are Clayton, Gumbel, A12 and Product copulas. The main findings of this study are the SFA-copula models showed consistency in terms efficiency scores and rankings of companies as compared to DEA models. The results further raise the question of the reliability of standard SF model especially when SFA-product copula was chosen as the best model for measuring efficiency performance. Therefore, it is obvious that it is not possible to ignore the reliance between the noise and inefficiency term

REGIONAL GOVERNMENT SPENDING EFFICIENCY ON HEALTH AND EDUCATION IN DECENTRALIZATION ERA : EVIDENCE FROM INDONESIA

The purpose of this paper is to assess spending efficiency of regional governments in Indonesia on health and education during the fiscal decentralization period year of 2010-2017. Relying on a sample of 33 provinces as regional government, this paper compute efficiency scores adopting nonparametric frontier that estimated by Data Envelopment Analysis (DEA) to study spending inefficiency. Results of the paper show that in west regions, Bali, Bangka Belitung, DI Yogyakarta, Jawa Tengah, and Kep. Riau relatively most efficient in public spending both on health and education in period of study. DKI Jakarta and Jawa Barat have efficient score on health, and Bengkulu has efficient score on education. On the other hand, in east regions, Gorontalo, Kalimantan Tengah, Kalimantan Timur and Sulawesi Utara were also most efficient in public spending on health and education services. Maluku and Sulawesi Tenggara have efficient score on health, and Kalimantan Selatan, Maluku Utara, Nusa Tenggara Barat, and Sulawesi Barat have efficient score on education. The results show that provinces in east regions of Indonesia were relatively more efficient in public spending both on health and education for promoting equal distribution of income

Evaluating fiscal effort in heterogeneous contexts using a conditional nonparametric frontier approach

ABSTRACTThe aim of this paper is the estimation of a measure of the fiscal effort made by certain countries taking into account the heterogeneous contexts in which they operate over a ten-year period (2002–2011). To do this, we adopt a conditional efficiency approach that allows for accounting for those different environments in the estimation efficiency measures that we interpret as relative measures of fiscal effort. The results show that many countries labelled as inefficient in an initial analysis without considering their context become efficient when contextual variables are taken into account. There is a rather pronounced upward trend in the evolution of the conditional efficiency scores over time, especially during the later years of the analysed period. Among contextual variables considered in our evaluation, the transparency index, the income equality index and the importance of taxable income derived from natural resources are the main factors affecting fiscal effort of countries.

Does corporate social responsibility impact firms' innovation capacity? The indirect link between environmental & social governance implementation and innovation performance

Firms' choices on corporate social responsibility (CSR) and environmental, social and governance (ESG) implementation strategies can arguably have a positive impact on their value and performance. This “doing well by doing good” view remains debated in the literature. Our study contributes to this debate by investigating the impact of firms' engagement in ESG policies on their innovation capacity levels. More specifically, we apply a nonparametric frontier analysis framework to a sample of 320 Japanese firms over the period 2008–2016. Our study provides evidence of a nonlinear relationship between ESG policy adoption and firms' innovation capacity. In other words, our findings are consistent with a process of “indirect value-creation” under which firms' CSR/ESG policy adoption initially enhances their ability to pursue innovation activities and, then, eventually affects positively their value creation and financial/operational performance.

A comparison of different full and partial non-parametric frontier models for measuring technical efficiency: With an application to Iran’s cotton producing provinces

A comparison of different full and partial non-parametric frontier models for measuring technical efficiency: With an application to Iran’s cotton producing provinces

Efficiency, firm-specific and corporate governance factors of the Takaful insurance

PurposeMalaysia is recognised as an emerging country with a large Muslim population, making the Malaysian Takaful industry the largest Takaful market in the Southeast Asia region and, notably, one of the fastest growing markets globally. Malaysia is also the first country globally to implement a risk-based capital framework for Takaful. Therefore, the purpose of this paper is to identify the factors that influence the efficiency level (cost efficiency and technical efficiency) of the Takaful industry and to examine the effects of Takaful insurance firms’ specific factors and corporate governance factors that influence the efficiency of Takaful insurance in Malaysia.Design/methodology/approachIn this paper, the efficiency level of the Malaysian Takaful industry was examined between 2011 and 2015. The sample consisted of 11 family Takaful and 8 general Takaful operators. Two-stage Data Envelopment Analysis (DEA) was used by first, conducting non-parametric frontier data envelopment analysis to obtain a DEA score for each operator. This was followed by panel regression with the DEA scores as the dependent variable and the insurance firms’ specific factors and corporate governance factors as the independent variables.FindingsThe results of DEA indicate that Takaful operators in general have allocative inefficiency but family Takaful is more cost efficient than general Takaful. Results of panel data analysis reveal that corporate governance factors do influence the cost efficiency but find no evidence on the firm-specific factors towards the cost efficiency and technical efficiency on Takaful operators. Board size and the proportion of non-executive directors impose a negative and significant relationship with cost efficiency, while proportion of Muslim directors in the board is not significant.Research limitations/implicationsThis paper focused solely on Malaysia which uses strict regulations governing the Takaful insurance market. Due diligence was also performed to minimise any limitation in the paper. It is proposed that future studies should examine this issue in greater detail by incorporating more data from other Muslim countries.Practical implicationsThe findings of this paper have significant implications for policymakers to understand the efficiency condition in the Takaful market. Takaful operators should maintain a small board size with a higher proportion of executive directors, given they could improve the level of effective decision-making to enhance the cost efficiency. As corporate governance factors are significant, Takaful operators in Malaysia should also undertake transparent disclosure practice and reporting such as providing adequate and relevant information related to Shariah compliance and principles to provide a robust foundation as the Takaful market leader regarding Takaful regulations globally.Social implicationsThe consumer is able to make a better decision when choosing Takaful insurance company to protect their interests.Originality/valueNo similar paper has been undertaken to the best of the researcher’s knowledge using similar research design and scope to investigate the efficiency of Takaful insurance as in this paper. Takaful insurance is a rapidly growing industry in Malaysia, setting a prime example to other countries globally. Malaysia was selected for this study, as it is the only nation that has implemented the most extreme regulation in the Takaful insurance market.

Sustainability performance of countries matters: A non-parametric index

Tracking consumers' expectation, researchers' concentration, practitioners' competition, and governments’ legislation, we observe increasing interests in incorporating sustainability initiatives into managerial decision-making. Sustainability development centers on how to achieve balance among economic, environmental, and social objectives of involved stakeholders in the process of value creation. This paper focuses on the macro-level performance measurement of countries through a sustainability-conscious lens. Our methodological objective is to develop a non-parametric frontier model in the presence of undesirable integer-valued indicators which constructs a nationwide sustainability composite index. Particularly, a super-efficiency formulation is investigated which enables us to differentiate between equally efficient entities. From an empirical perspective, we apply the proposed model to a case study assessing the sustainability productivity of 133 countries. Our computational results demonstrate that conventional metrics commonly used globally to reflect the sustainability performance of governments may mislead decision makers. We, however, design a more comprehensive platform to benchmark the country-level productivity against all triple aspect of sustainability development. Accordingly, the proposed index permits valid inference by accounting for environmental measures and social aspects.

Análise da sustentabilidade de empresas: uma aplicação da análise envoltória de dados

Essa pesquisa apresenta uma análise da eficiência no tocante à sustentabilidade de oito empresas, denominadas por A, B, C, D, E, F, G e H, de diversos segmentos, por meio da metodologia Análise Envoltória de Dados (DEA) tendo em vista os parâmetros: faturamento, número de funcionários, dimensões – geral, econômica, social e ambiental, elucidados pela Revista Exame – Guia Exame Sustentabilidade para os períodos de 2012 a 2014. A metodologia DEA faz uso de programação matemática e de uma fronteira não-paramétrica de eficiência. O objetivo é verificar se a eficiência das empresas selecionadas se mantém ao longo dos anos 2012, 2013 e 2014, segundo os parâmetros considerados. Para a aplicação da DEA foram definidos o input como número de funcionários e os outputs dimensões geral, econômica, social, ambiental e faturamento. Os resultados mostraram que apenas as empresas C, do ramo de serviços e E, do segmento de material de construção, preservaram as suas eficiências ao longo desses períodos, dentre as empresas avaliadas neste estudo.

Happiness Matters: Productivity Gains from Subjective Well-Being

This article studies the link between subjective well-being and productivity at the aggregate level, using a matched dataset from surveys and official statistics. Well-being and productivity are measured, respectively, by life satisfaction and total factor productivity. The analysis, which applies non-parametric frontier techniques in a production framework, finds that life satisfaction generates significant productivity gains in a sample of 20 European countries. These results confirm the evidence of a positive association between the variables of interest found at the individual and firm level, and support the view that promoting subjective well-being is not only desirable per se, but it is conducive to higher productivity and improved countries’ economic performances.

Competitive conditions and sectors’ productive efficiency: A conditional non-parametric frontier analysis

The scope of this paper is to build an appropriate nonparametric frontier framework by using time-dependent conditional efficiency estimators to investigate how competition and time affect the process of technological change and technological catch-up. Our empirical analysis utilizes a sample of 462 U.S. 6-digit manufacturing sectors over the period 1958–2009. Contrary to the existing studies, we apply the probabilistic approach of efficiency measurement to evaluate the dynamic effects alongside with the effects of competition on the sectors’ technological change and technological catch-up levels. Moreover, we estimate the sectors’ idiosyncratic efficiencies, which are an approximation of ‘Solow's residual’ representing the unexplained part of the time-dependent conditional measures. The empirical results shed new light on the topic and signify that the dynamic effect of competitive conditions has a nonlinear effect on the sectors’ estimated performance. Specifically, we unveil a “U-shaped” curve between market concentration and technological change implying that the sectors’ higher concentration levels enhance their technological change levels (e.g. innovation capacity) having however a downsize effect on their technological catch-up ability. Moreover, the relationship between the sectors’ market concentration and technological catch-up although non-linear exhibits an “N-shaped” curve with two turning points. Lastly, the above findings remain robust when we limit our analysis to the capital intensive sectors.

Модели непараметрических границ производственных возможностей: опыт применения в сельском хозяйстве

Модели непараметрических границ производственных возможностей: опыт применения в сельском хозяйстве

Evaluation the Branches of Iran Insurance Corporation based on Data Envelopment Analysis-Free Disposal Hull in the Presence of Weight Restrictions

This study reviews the concepts of performance evaluation in the insurance industry based on data envelopment analysis. In this study to deal with the problems that exists in conventional DEA model, a new DEA model is introduced and applied based on FDH and weight restrictions to evaluate Insurance Corporation' branches. In this study, non-parametric frontier technologies for data analysis are mainly discussed. It combines several models with non-parametric frontier technology to suggest a new model for analysing the data. This paper is based on a combination of the two frontier technology, DEA and free disposal hull. As it is mainly based on DEA and benchmarking based on DEA. The proposed method was successfully conducted in a case study about Iran Insurance Corporation; secondly, the paper depicts the insurance company evaluation process through a DEA model, while allowing for incorporating the preferences of decision maker. According to result, 26 branches are efficient and achieved efficiency score is equal to 1.

Assessing branch efficiency and managerial behaviour in a large Spanish commercial bank

ABSTRACTThis paper describes a two-stage procedure used to evaluate determinants of operational efficiency and profit dimensions, as an indication of the performance of branch managers in a large Spanish commercial bank, before and after the bailout of the Spanish banking system in 2012. This procedure is based on both the non-parametric and robust non-parametric frontier methods and on partial frontier-based outlier detection (following Daraio and Simar) which enables us to detect potential outliers in the data, after which a classical non-parametric efficiency analysis is performed. In the first stage, efficiencies are obtained from annual data supplied by bank branches regarding the period 2011–2014. High scores were obtained in operational and profit efficiencies for DEA (pure technical and scale efficiencies), FDH and order-α estimators. In general, the following hierarchies of scores were obtained: DEA<FDH<order-α. In the second stage of our analysis, a censored econometric model approach was applied (following Simar and Wilson) to identify the drivers of efficiency. Finally, the implications of this study for policymakers are discussed.