Making noisy data sing : a micro approach to measuring industrial efficiency

Technical, scale and allocative inefficiency are widely believed to plague the industrial sectors of developing countries. This paper presents a way to measure this inefficiency with imperfect data. There is great interest in documenting the patterns and magnitudes of inefficiency, so that appropriate corrective policies can be designed. This paper presents a new approach to analyzing plant efficiency that recognizes and deals with such data imperfections as measurement error, missing observations and selectivity bias. The author has developed full-information maximum-likelihood (FIML) estimators of production technologies that deal with missing data and measurement errors, making alternative assumptions about the missing data patterns and the timing of employment and decisions. These estimators yield indices of the returns to scale, means square deviation from the efficient frontier and - when labor is treated as endogenous - mean square deviation from efficient factor mixes. To gauge the performance of the alternative estimators, the author applies them to census data on Chilean industry, and compares the results with naive estimators that do not recognize data imperfections.Economic Theory&Research,Environmental Economics&Policies,Statistical&Mathematical Sciences,Information Technology,Banks&Banking Reform

Industrial portfolio responses to macroeconomic shocks : an econometric model for developing countries

This study identifies the macro conditions under which industrial growth and financial stability are most likely, and those conditions which are most prone to create disaster. The paper models interest rates, exchange rates, and aggregate demand conditions as affecting industrial growth and financial risk through two channels. First, because these variables affect firms'income, they affect firms net worth expansion. Second, because the link between macro variables and income depends upon the proportions in which firms hold fixed capital, inventories, financial assets, and debts, changes in macro variables also induce portfolio adjustments. The paper then develops an empirical model which allows one to calibrate the strength and timing of each effect. The paper is composed of two sections; one to develop the model, and one to report an application to Uruguayan data. There is also a brief summary section.Economic Theory&Research,Environmental Economics&Policies,International Terrorism&Counterterrorism,Banks&Banking Reform,Fiscal&Monetary Policy

Size rationalization and trade exposure in developing countries

Given the lack of direct evidence regarding industrial adjustment in response to trade liberalization, this paper tackles some very basic questions. Specifically, in LDCs, how is trade orientation correlated with the size distribution of plants and with plant-level labor productivity? It begins with a simple model that summarizes some effects of trade exposure on producer size and productive efficiency that have been stressed in the recent analytical and simulation literature. It then examines annual plant-level data from Chile and Colombia to determine whether these effects can be confirmed. The empirical results indicate that, over the long run, higher trade exposure is correlated with smaller plant sizes, controlling for industry and country effects. However, the mix of high versus low productivity plants is not strongly associated with trade exposure. Both of these findings cast doubt on the mechanisms linking trade, plant size, and productivity in a number of recent analytical and simulation studies.Economic Theory&Research,Environmental Economics&Policies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,Science Education

Estimating returns to scale with large imperfect panels

In this paper, the authors provide systematic panel-based econometric estimates of plant-level returns to scale for various 3-digit and 4-digit manufacturing industries, using panel data for Chilean plants. The paper attempts to answer two questions: 1) Do policies that promote"bigness"in manufacturing plants also promote greater productivity?; and 2) As plants grow, do they become more efficient? The paper is organized as follows. First, the author's assumptions regarding technology and behavior are presented. The following section discusses alternative estimators that deal with different aspects of the econometric problems they faced. Finally, applications of the alternative estimators to various 3-digit and 4-digit industries are reported and an attempt is made to determine which returns to scale estimates are the most reliable.Scientific Research&Science Parks,Science Education,Environmental Economics&Policies,Economic Theory&Research,Statistical&Mathematical Sciences

An empirical model of sunk costs and the decision to export

Exports respond unpredictably to a change in real exchange rates, suggests evidence from the 1980s. Recent theoretical work explains this as a consequence of the sunk costs associated with breaking into foreign markets. Sunk costs include the cost of packaging, upgrading product quality, establishing marketing channels, and accumulating information on demand sources. The authors use micro panel data to estimate a dynamic discrete-choice model of participation in export markets, a model derived from the Krugman-Baldwin sunk-cost hysteresis framework. Applying the model to data on manufacturing plants in Colombia (1981-89), they test for the presence of sunk entry costs and quantify the importance of those costs in explaining export patterns. The econometric results reject the hypothesis that sunk costs are zero. The results, which control for both observed and unobserved sources of plant heterogeneity, indicate that prior export market experience has a substantial effect on the probability of exporting, but its effect depreciates fairly quickly. The reentry costs of plants that have been out of the export market for a year are substantially lower than the costs of a first-time exporter. After a year out of the export market, however, the reentry costs are not significantly different from the entry costs. Plant characteristics are also associated with export behavior: large old plants owned by corporations are more likely to export than other plants. Variations in plant-level cost and demand conditions have much less effect on the profitability of exporting than variations in macroeconomic conditions and sunk costs do. It appears especially difficult to break into foreign markets during periods of world recession.Economic Theory&Research,Markets and Market Access,Environmental Economics&Policies,Decentralization,Water Conservation,Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Markets and Market Access,Access to Markets

Researching the trade - productivity link : new directions

This paper is an effort to bring together diverse literatures on the measurement of productivity and its relation to trade regime, focussing on recently developed techniques and their applications. It provides a brief review of the theoretical arguments linking trade policy and productivity. Empirical work at the sector and macro level is discussed, as well as plant level empirical work. Applications of the different approaches are reported to a sample of semi-industralized countries that have recently been analyzed in the World Bank research project"Industrial Competition, Productivity, and their Relation to Trade Regimes."Economic Growth,Health Monitoring&Evaluation,Achieving Shared Growth,Economic Theory&Research,Environmental Economics&Policies

Market entry costs, producer heterogeneity and export dynamics

As the exchange rate, foreign demand, production costs and export promotion policies evolve, manufacturing firms are continually faced with two issues: whether to be an exporter, and if so, how much to export. we develop a dynamic structural model of export supply that characterizes these two decisions and estimate the model using plant-level panel data on Colombian chemical producers. The model embodies uncertainty, plant-level heterogeneity in export profits, and sunk entry costs for plants breaking into foreign markets. Our estimates, and the simulation exercises that they support, yield several implications. First, entry costs are typically large, but vary greatly across proucers. second, there is substantial cross-plant heterogeneity in gross expected export profit streams. Third, these large entry costs make expectations about future exporting conditions important for many producers, so changes in the exchange rate regime that are credible induce much more entry than those that are not. Fourth, however, most of the entry and exit takes place among marginal exporters who contribute little to aggregate export revenues. Finally, subsidies on export earnings have much large impact on export revenues(per dollar spent)than subsidies that reduce the entry costs faced by new exporters.

Market Entry Costs, Producer Heterogeneity, and Export Dynamics

As the exchange rate, foreign demand, production costs and export promotion policies evolve, manufacturing firms are continually faced with two issues: Whether to be an exporter, and if so, how much to export. We develop a dynamic structural model of export supply that characterizes these two decisions and estimate the model using plant-level panel data on Colombian chemical producers. The model embodies uncertainty, plant-level heterogeneity in export profits, and sunk entry costs for plants breaking into foreign markets. Our estimates, and the simulation exercises that they support, yield several implications. First, entry costs are typically large, but vary greatly across producers. Second, there is substantial cross-plant heterogeneity in gross expected export profit streams. Third, these large entry costs make expectations about future exporting conditions important for many producers, so changes in the exchange rate regime that are credible induce much more entry than those that are not. Fourth, however, most of the entry and exit takes place among marginal exporters who contribute little to aggregate export revenues. Finally, subsidies on export earnings have a much larger impact on export revenues (per dollar spent) than subsidies that reduce the entry costs faced by new exporters.

El racionamiento de crédito en Colombia : Un análisis a nivel de empresa

Las autoridades colombianas monetarias han diseñado un régimen para el control de la tasa de interés y para dirigir el crédito a sectores específicos. En el artículo se argumenta que esta política junto con otras distorsiones del mercado y el proceso inflacionario, pueden haber sesgado la distribución de créditos a favor de grandes firmas. Presenta los criterios seguidos por los intermediarios de los sectores formales para asignar los préstamos. Las grandes firmas son más atractivas para los acreedores que empresas pequeñas que presentan el mismo riesgo financiero. Finalmente confronta esta visión de asignación de créditos con una muestra de los balances de firmas manufactureras.Tasas de interés, crédito