effects have the second largest explanatory power. However, contrary to previous studies, we
find that on average smaller firms are more efficient than larger ones. Moreover, our results
support the view that size is not important in explaining the development of efficiency. Fourth,
location is an important factor which influences productive efficiency. Fifth, the explanatory
power of other firm characteristics, such as R&D intensity, outsourcing activity, and legal form,
is relatively small. Most remarkably, we find a negative effect of R&D intensity on efficiency,
albeit with very low explanatory power. However, R&D appears to positively affect the de-
velopment of efficiency over time. Furthermore, some types of outsourcing activities have a
positive impact on productive efficiency but, again, with rather low explanatory power. Finally,
although the results show that the efficiency of many firms increases or decreases over time,
the average efficiency of all firms taken together does not change over time, since positive and
negative efficiency changes across firms appear to cancel each other out.
Overall, our findings provide a number of novel insights into the factors that determine the
productive efficiency of a firm. In particular, they indicate the relative importance of different
influences. Given the heterogeneity of firms in a certain industry, it is quite surprising that
industry affiliation explains such a large share of the efficiency differences while many of the
firm-specific factors turn out to be relatively unimportant. This could mean that the internal
factors are, indeed, comparatively unimportant, but it could also be regarded as an indication
that the variables of our relatively rich dataset do not adequately reflect the management deci-
sions that are relevant to a firm’s productive efficiency. The effects of factors such as industry
affiliation, size, and location deserve further investigation in order to discover the mechanisms
behind these effects, which will require additional in-depth micro-level analyses. The influence
of R&D effort on efficiency is in particular need of further analysis.
References
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Alvarez, Roberto, and Gustavo Crespi (2003) ‘Determinants of technical efficiency in small
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