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



What Drives the Productive Efficiency of a Firm?

The Importance of Industry, Location, R&D, and Size*

Oleg Badunenko

German Institute for Economic Research, DIW Berlin, 10108, Berlin, Germany
(e-mail:
[email protected])

Michael Fritsch

Friedrich Schiller University Jena, Max Planck Institute of Economics Jena and German Insti-
tute for Economic Research (DIW Berlin), Germany (e-mail:
[email protected])
Andreas Stephan

Jonkoping International Business School, CESIS Stockholm and German Institute for Eco-
nomic Research (DIW Berlin), Germany (e-mail:
[email protected])

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 es-
timate 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.

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

JEL classification: D24, L10, L25

*This paper is based on a cooperation project with the German Federal Statistical Office in Wiesbaden, which
enabled access to confidential firm-level micro data from the annual Cost Structure Census in Germany. We
are grateful to Gerald Gobel, Ottmar Hennchen, and Roland Sturm at the German Federal Statistical Office for
their support of this project. The paper benefited from comments by Johan Klaesson, Charlie Karlsson, Martin
Andersson, and seminar participants at the Jonkoping International Business School, the Royal Economic Society
Conference (2005) in Nottingham, the meeting of the Verein für Socialpolitik (2005) in Bonn, the International
Industrial Organization Conference (2006) in Atlanta, the Spring Meeting of Young Economists (2006) in Seville,
and the Efficiency and Productivity Analysis Workshop (HEPAW, 2006) in Brussels.



More intriguing information

1. The name is absent
2. Measuring and Testing Advertising-Induced Rotation in the Demand Curve
3. Types of Cost in Inductive Concept Learning
4. The name is absent
5. The name is absent
6. Dementia Care Mapping and Patient-Centred Care in Australian residential homes: An economic evaluation of the CARE Study, CHERE Working Paper 2008/4
7. The name is absent
8. The name is absent
9. The name is absent
10. The name is absent
11. Fiscal federalism and Fiscal Autonomy: Lessons for the UK from other Industrialised Countries
12. Non-causality in Bivariate Binary Panel Data
13. IMPROVING THE UNIVERSITY'S PERFORMANCE IN PUBLIC POLICY EDUCATION
14. The name is absent
15. MANAGEMENT PRACTICES ON VIRGINIA DAIRY FARMS
16. Female Empowerment: Impact of a Commitment Savings Product in the Philippines
17. Evidence-Based Professional Development of Science Teachers in Two Countries
18. Dual Inflation Under the Currency Board: The Challenges of Bulgarian EU Accession
19. The name is absent
20. The name is absent