Technical Efficiency, Input Reallocation and Productivity Growth: Panel Data Evidence
Is the effect of labour reallocation on aggregate labour productivity growth less than the effect of real productivity?
Abstract
Is the effect of labour reallocation on aggregate labour productivity growth less than the effect of real productivity? A robust finding in meta-analyses by Bartelsman et al. (2004) and Paǵes et al. (2008) is affirmative. These studies rely on productivity decompositions to produce such patterns of growth. In this paper, the question is answered using Baily et al. (1992)/Foster et al. (2001) on the Eswatini manufacturing micro panel dataset covering a trade liberalization period of 1994-2003. The influence of technical efficiency (-4.88%) is subordinate to the Baily et al. (1992) labour reallocation effect (0.38%) and to the Foster et al. (2001) labour reallocation effect (3.53%). These results are invariant to value-added deflation choices. It is therefore concluded that the sector experienced dominance of the labour reallocation on aggregate labour productivity growth relative to technical efficiency during trade reforms and this policy implications. Policy options for the central planner may include firstly to reduce resource misallocation to leverage on the selection effect thereby allowing for an increased pace of exit by low-productivity firms. Secondly, to offer size-dependent and profitability-linked tax incentives to high-productivity firms that show continuous improvement in technological change, management practices and productivity growth. Thirdly, to promote both producer diversification into new product lines and quality improvement of existing product varieties to increase aggregate labour productivity growth. Lastly, to enhance the country‟s macroeconomic conditions and ease-of-doing-business fundamentals to attract at least medium-sized, high-productivity firms.
This work is part of the Private Enterprise Development in Low Income Countries (PEDL) programme
Citation
Mhlanga, S. “Technical Efficiency, Input Reallocation and Productivity Growth: Panel Data Evidence” Working Paper
Link
Technical Efficiency, Input Reallocation and Productivity Growth: Panel Data Evidence