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What Drives the Productive Efficiency of a Firm?: The Importance of Industry, Location, R&D, and Size

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  • Oleg Badunenko
  • Michael Fritsch
  • Andreas Stephan

Abstract

This paper investigates the factors that explain the level and dynamics of manufacturing firm productive efficiency. In our empirical analysis, we use a unique sample of about 39,000 firms in 256 industries from the German Cost Structure Census over the years 1992-2005. We estimate the efficiencies of the firms and relate them to firm-specific and environmental factors. We find that (1) about half the model's explanatory power is due to industry effects, (2) firm size accounts for another 20 percent, and (3) location of headquarters explains approximately 15 percent. Interestingly, most other firm characteristics, such as R&D intensity, outsourcing activities, or the number of owners, have extremely little explanatory power. Surprisingly, our findings suggest that higher R&D intensity is associated with being less efficient, though higher R&D spending increases a firm's efficiency over time.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.81440.de/dp775.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 775.

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Length: 29 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwwpp:dp775

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Related research

Keywords: Frontier analysis; determinants of efficiency; firm performance; industry effects; regional effects; firm size;

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Cited by:
  1. Chang, Chia-Lin & Robin, Stéphane, 2010. "Knowledge sourcing and firm performance in an industrializing economy: The case of Taiwan (1992-2003)," MPRA Paper 27913, University Library of Munich, Germany.
  2. Andreas Stephan, 2011. "Locational conditions and firm performance: introduction to the special issue," The Annals of Regional Science, Springer, Springer, vol. 46(3), pages 487-494, June.

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