Technical Change and Productive Inefficiency Change in Norwegian Salmon Farming: The Influence of Regional Agglomeration Externalities

This paper analyses the factors explaining productivity and efficiency differences across salmon aquaculture farms, with an emphasis on agglomeration externalities. We specify a stochastic frontier production model with agglomeration indexes included in both the frontier production function and the technical inefficiency model. The frontier model is estimated on a rich panel data set with 2,738 observations on 577 farms. Our results confirm the importance of agglomeration externalities for the productivity and technical inefficiency of salmon farms. Both frontier output and technical efficiency increase with increasing regional industry size. There is a negative relationship between overall productivity and regional farm density, suggesting the presence of negative biological congestion externalities. These results have implications for the Norwegian government’s regulation of the industry, since the government, to a large extent, has determined the spatial distribution of salmon production through a licence system

Industry agglomeration, sub-national institutions and the profitability of foreign subsidiaries

This study investigates the impact of agglomeration and its interaction with subnational institutions on the profitability of multinational enterprises (MNEs) subsidiaries operating in an emerging economy. We argue that in an emerging economy like China, competition in product and factor markets is more intense between foreign firms than between foreign and domestic firms owing to market segmentation. Consequently, agglomerating with other foreign firms has negative impact on the profitability of foreign subsidiaries. In contrast, foreign firms agglomerating with domestic firms may reap gains owing to less competition and improved access to local resources and knowledge. We find that these effects are more pronounced to domestic-market-oriented foreign firms. Furthermore, sub-national institutions moderate the above relationships. Our arguments are supported by the empirical analysis based on a comprehensive dataset of foreign firms operating in China over the period of 1999-2005

AGGLOMERATION EXTERNALITIES, PRODUCTIVITY, AND TECHNICAL INEFFICIENCY

Agglomeration externalities can have positive effects on both the production possibility frontier and technical inefficiency of firms. Increased levels of localized knowledge spillovers and substitution of internal inputs with external inputs may lead to fewer errors in decision-making and execution of production tasks, thus causing firms to become technically more efficient relative to the production frontier. When we estimate a stochastic frontier production model on a large panel of salmon aquaculture farms, we find econometric support for positive agglomeration externalities on both the production frontier and technical inefficiency. Copyright Blackwell Publishing, Inc. 2006

Cost Structure and Vertical Integration between Farming and Processing

In several food-producing sectors, we observe vertical integration between the farming and processing stages. The salmon industry, which has motivated this paper, has seen a rise in large vertically integrated companies over the last decade, with direct ownership of production activities including hatcheries, fish processing and exporting. Both the farming and processing stages have become more capital intensive, which has led to a steeper U-shaped average cost (AC) curve. In this paper we present a theoretical link between this technological shift and vertical integration: in a repeated game model of relational contracting, we show that when the AC curve is sufficiently steep, then processors and farmers are more likely to vertically integrate. The reason is that steep AC curves make it costly to deviate from the optimal production scale, which in turn makes processors more vulnerable to hold-up and opportunistic behaviours from its suppliers. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 The Agricultural Economics Society.