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


  • Oleg Badunenko
  • Michael Fritsch
  • Andreas Stephan


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.

Suggested Citation

  • Oleg Badunenko & Michael Fritsch & Andreas Stephan, 2008. "What Drives the Productive Efficiency of a Firm?: The Importance of Industry, Location, R&D, and Size," Discussion Papers of DIW Berlin 775, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp775

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    References listed on IDEAS

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    Cited by:

    1. Chia-Lin Chang & Stéphane Robin, 2012. "Knowledge sourcing and firm performance in an industrializing economy: the case of Taiwan (1992–2003)," Empirical Economics, Springer, vol. 42(3), pages 947-986, June.
    2. Anselm Komla Abots, 2015. "Foreign Ownership of Firms and Corruption in Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 647-655.
    3. Andreas Stephan, 2011. "Locational conditions and firm performance: introduction to the special issue," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 46(3), pages 487-494, June.

    More about this item


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

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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