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What Causes Cross-Industry Differences of Technical Efficiency?: An Empirical Investigation

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  • Michael Fritsch
  • Andreas Stephan

Abstract

Using micro-level panel data of about 35,000 firms from the German Cost Structure Census, we analyze the differences of technical efficiency across industries. Technical efficiency is estimated by firms' fixed effects. One striking result is that the distribution of technical efficiency across industries is positively skewed. This is because the efficiency distribution is truncated at the lower end due to the least efficient firms which exit the market. We investigate the causes of technical efficiency differences across industries. Our econometric analyses provide evidence that capital and human capital intensity, the degree of vertical specialization as well as new firm formation rate are important for explaining the average technical efficiency of an industry.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.42657.de/dp457.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 457.

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Length: 32 p.
Date of creation: 2004
Date of revision:
Handle: RePEc:diw:diwwpp:dp457

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Keywords: Technical efficiency; Cross-industry study; Efficiency distribution;

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References

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  1. Michael Fritsch & Andreas Stephan, 2004. "The Distribution and Heterogeneity of Technical Efficiency within Industries: An Empirical Assessment," Discussion Papers of DIW Berlin 453, DIW Berlin, German Institute for Economic Research.
  2. Michael Fritsch & Andreas Stephan, 2006. "Measuring performance heterogeneity within groups - a two-dimensional approach," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(1), pages 17-20.
  3. Richard B. Freeman & Lawrence F. Katz, 1995. "Introduction and Summary," NBER Chapters, National Bureau of Economic Research, Inc, in: Differences and Changes in Wage Structures, pages 1-22 National Bureau of Economic Research, Inc.
  4. Cubbin, John & Geroski, Paul A, 1987. "The Convergence of Profits in the Long Run: Inter-firm and Inter-industry Comparisons," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 35(4), pages 427-42, June.
  5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
  6. Albach, Horst, 1980. "Average and Best-Practice Production Functions in German Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 29(1), pages 55-70, September.
  7. Michael Fritsch & Oliver Falck, 2003. "New Firm Formation by Industry over Space and Time: A Multi-Level Analysis," Discussion Papers of DIW Berlin 322, DIW Berlin, German Institute for Economic Research.
  8. E. Roy Weintraub, 1992. "Introduction," History of Political Economy, Duke University Press, Duke University Press, vol. 24(5), pages 3-12, Supplemen.
  9. Bernd Görzig & Andreas Stephan, 2002. "Outsourcing and Firm-level Performance," Discussion Papers of DIW Berlin 309, DIW Berlin, German Institute for Economic Research.
  10. Winter, Sidney G., 1984. "Schumpeterian competition in alternative technological regimes," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 5(3-4), pages 287-320.
  11. Boozer, Michael A., 1997. "Econometric Analysis of Panel Data Badi H. Baltagi Wiley, 1995," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 13(05), pages 747-754, October.
  12. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 2(4), pages 367-74, October.
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Cited by:
  1. Joachim Wagner, 2006. "Politikrelevante Folgerungen aus Analysen mit wirtschaftsstatistischen Einzeldaten der Amtlichen Statistik," Working Paper Series in Economics, University of Lüneburg, Institute of Economics 16, University of Lüneburg, Institute of Economics.
  2. Oleg Badunenko & Michael Fritsch & Andreas Stephan, 2006. "Allocative Efficiency Measurement Revisited: Do We Really Need Input Prices?," Discussion Papers of DIW Berlin 591, DIW Berlin, German Institute for Economic Research.
  3. Jedrzej Bialkowski & Katrin Gottschalk & Tomasz Piotr Wisniewski, 2007. "Political orientation of government and stock market returns," Applied Financial Economics Letters, Taylor and Francis Journals, Taylor and Francis Journals, vol. 3(4), pages 269-273.
  4. Roman Kozhan, 2006. "Multiple Priors and No-Transaction Region," Working Papers, Warwick Business School, Finance Group wp06-24, Warwick Business School, Finance Group.
  5. Vigenina, Denotes & Kritikos, Alexander S., 2004. "The individual micro-lending contract: is it a better design than joint-liability?: Evidence from Georgia," Economic Systems, Elsevier, Elsevier, vol. 28(2), pages 155-176, June.
  6. Oleg Badunenko & Michael Fritsch & Andreas Stephan, 2006. "What Determines the Technical Efficiency of a Firm? The Importance of Industry, Location, and Size," Jenaer Schriften zur Wirtschaftswissenschaft, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät 33/2006, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät.

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