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Transaction Costs and Profitability in UK Manufacturing

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  • Michael Dietrich

    () (Department of Economics, The University of Sheffield Author-Person=pdi94)

Abstract

This paper explores the impact of transaction costs on performance at firm and industry levels using a sample of 7350 UK manufacturing firms. This is achieved by estimating a profit function with estimated transaction costs as a right hand side variable. The discussion has two specific objectives. (1) To show how firm and average industry transaction costs can be estimated using a stochastic frontier method. (2) To examine a central claim of transaction cost theory that links these costs to performance. In addition the different impacts of static and dynamic transaction costs are emphasised, with the different impacts being respectively negative and positive on profitability. Broadly speaking it is shown that such costs do impact on performance in a way consistent with both static and dynamic costs, in different industries, and that the impacts hold after a series of robustness checks. In addition it is shown that the impacts can depend on monopoly power, firm scale, and firm growth.

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File URL: http://www.shef.ac.uk/content/1/c6/09/77/76/SERP2009011.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2009011.

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Length: 35 pages
Date of creation: Jun 2009
Date of revision: Jun 2009
Handle: RePEc:shf:wpaper:2009011

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Related research

Keywords: Transaction costs; Stochastic frontier analysis; profitability analysis; UK manufacturing;

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