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This paper aims to investigate whether empirical evidence for scale economies can be found across countries and if so, whether this evidence varies across the stage of development.
Abstract
Purpose
This paper aims to investigate whether empirical evidence for scale economies can be found across countries and if so, whether this evidence varies across the stage of development.
Design/methodology/approach
The paper uses statistical methods to make comparisons between countries.
Findings
The empirical results suggest overall evidence towards aggregate increasing returns across all samples. Within the Cobb‐Douglas framework, stronger evidence for aggregate increasing returns is found among samples depicting economies in the early stages of development. The CES framework in turn supports aggregate scale economies for advanced economies, while unitary elasticity of substitution cannot be rejected for less developed economies, giving further support for the Cobb‐Douglas estimates.
Research limitations/implications
Given that evidence for scale economies is found within different estimation frameworks for different groups of economies, comparative judgment is prevented. The results nevertheless provide evidence on the overall relevance of scale economies within and across groups of economies, while also giving a clear indication of the relevance of stage of development in economic growth and development analysis.
Originality/value
The most fundamental insight of the empirical results presented in this paper is that there is no reason to assume that the determinants of growth or the parameters guiding economies' adjustments towards their steady states or growth paths will be similar for economies at different stages of development, given their significant structural differences, whether in terms of production structures and characteristics or consumption patterns.
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Miguel A. León-Ledesma and Mathan Satchi
The famous Uzawa (1961) balanced growth theorem has exercised a tyranny of sorts over macroeconomics for decades. It is the prime reason why researchers use Cobb–Douglas production…
Abstract
The famous Uzawa (1961) balanced growth theorem has exercised a tyranny of sorts over macroeconomics for decades. It is the prime reason why researchers use Cobb–Douglas production functions and abstract from considering movements in factor shares. Others have had to recourse to complex explanations for long-run labor augmentation in technical progress. In this chapter, we discuss the issues arising from this problem and propose a way of achieving balanced growth with a short-run production function where the elasticity of factor substitution is less than one, and capital augmenting technology shocks can be permanent. We do so by allowing firms to choose the relative reliance on capital in the production technology and introducing a suitable modification of the production function. We also provide some model simulations in the context of a simple deterministic neoclassical growth model.
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Yat Hung Chiang and Eddie W.L. Cheng
– This paper aims to explore the use of the data envelopment analysis (DEA), Cobb-Douglas and translog production function methods in estimating contractors’ efficiency.
Abstract
Purpose
This paper aims to explore the use of the data envelopment analysis (DEA), Cobb-Douglas and translog production function methods in estimating contractors’ efficiency.
Design/methodology/approach
In this paper, the DEA, translog and Cobb-Douglas methods were used to estimate the technical efficiency of 23 contractors in Hong Kong from 2003 to 2009. For this research, four input and three output variables were identified.
Findings
The results suggest that the efficiency scores obtained from the DEA method were significantly different from those obtained from the translog and Cobb-Douglas methods, while the efficiency scores from the translog method were similar to those from the Cobb-Douglas method. The DEA method further reveals that the company had poor utilisation of its resources over the past few years. On the output side, the current ratio was too small, implying that the company suffered from excess current liabilities relative to its current assets.
Research limitations/implications
Application of efficiency measurement in the built environment is still in its infancy. The current research, therefore, calls for more research to be undertaken to establish the applied literature base for the construction industry.
Practical implications
The DEA method helps the inefficient company explore ways to improve the utilisation of the inputs as well as the process and to maximise the outputs.
Originality/value
Knowing the relative performance of contractors helps understand their competitiveness in the construction industry. By estimating their technical efficiency, contractors can improve the conditions for enhancing performance.
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Zhichao Wang and Valentin Zelenyuk
Estimation of (in)efficiency became a popular practice that witnessed applications in virtually any sector of the economy over the last few decades. Many different models were…
Abstract
Estimation of (in)efficiency became a popular practice that witnessed applications in virtually any sector of the economy over the last few decades. Many different models were deployed for such endeavors, with Stochastic Frontier Analysis (SFA) models dominating the econometric literature. Among the most popular variants of SFA are Aigner, Lovell, and Schmidt (1977), which launched the literature, and Kumbhakar, Ghosh, and McGuckin (1991), which pioneered the branch taking account of the (in)efficiency term via the so-called environmental variables or determinants of inefficiency. Focusing on these two prominent approaches in SFA, the goal of this chapter is to try to understand the production inefficiency of public hospitals in Queensland. While doing so, a recognized yet often overlooked phenomenon emerges where possible dramatic differences (and consequently very different policy implications) can be derived from different models, even within one paradigm of SFA models. This emphasizes the importance of exploring many alternative models, and scrutinizing their assumptions, before drawing policy implications, especially when such implications may substantially affect people’s lives, as is the case in the hospital sector.
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An aggregate production function has been used in macroeconomic analysis for a long time, even though it seems that it is conceptually confusing and problematic. The purpose of…
Abstract
Purpose
An aggregate production function has been used in macroeconomic analysis for a long time, even though it seems that it is conceptually confusing and problematic. The purpose of this paper is to argue that the measurement problem related to the heterogenous capital input that exists in macroeconomics is also relevant to microeconomic market situations.
Design/methodology/approach
The author constructed a microeconomic market model to address both the problems of the measurement of the physical capital and of substitutability between labor and capital in the short run using two types of technologies: labor neutral and labor reducing. The author proposed that labor and physical capital inputs are complementary in the short run and can become substitutes only in the long run when the technology advances.
Findings
The author found that even if the technology improves at a fast rate over time, there are then diminishing returns of profits to technology and an upper limit to profits. Moreover, the author showed that under the labor-reducing technology, labor class earns more initially as technology improves, but their incomes start declining after some threshold level of passage of time.
Originality/value
The author cautioned the applied researcher that the estimated labor and capital coefficients of generalized Cobb–Douglas and constant elasticity of substitution of types of production functions could not be interpreted as partial elasticities of labor and capital if in reality the data come from fixed-proportions types of processes.
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Pirjo Ståhle, Sten Ståhle and Carol Y.Y. Lin
The purpose of this paper is to examine to what extent national intangible capital (NIC) explains GDP growth and to assess its impact on GDP formation in different countries. The…
Abstract
Purpose
The purpose of this paper is to examine to what extent national intangible capital (NIC) explains GDP growth and to assess its impact on GDP formation in different countries. The paper brings a new perspective to explaining hidden economic drivers.
Design/methodology/approach
The paper introduces a new theoretically and computationally justified method, so-called ELSS model that is based on expansion and augmentation of the Cobb-Douglas production function with a wide range of NIC indicators. The method is applied by using the database that contains NIC indices for 48 countries covering the period from 2001 to 2011.
Findings
The results show that intangible capital accounts for 45 per cent of world GDP. The figure for the USA is 70.3 per cent and for the European Union 51.6 per cent. The Nordic countries stand out with a higher figure at 64.7 per cent, with NIC contributing to 72.5 per cent of GDP in Sweden, 69.7 per cent in Finland and 67.6 per cent in Denmark.
Research limitations/implications
The expanded Cobb-Douglas production function is sensitive to valuations of capital inputs and sensitive to estimates of production shares for various augmenting and expanding inputs. Therefore further work is needed to develop and test methodologies for the assessment of all of these.
Practical implications
ELSS production function helps to give a realistic picture of the value and impact of NIC and accordingly gives evidence for accurate investment decisions for the future.
Social implications
The method will help policy makers figure out what steps are needed to reduce the cross-country NIC differences.
Originality/value
The authors have uncovered the value of NIC beyond monetary inputs, and at the same time taken account of country specifics. The ELSS formula is comprehensive yet not too complicated to replicate. The approach significantly contributes to the development of the current research tradition into intangibles.
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Mohammad Zakir Hossain and Khalid Said Al‐Amri
The main purpose of this paper is to select the most suitable production model for measuring the production process of some major manufacturing industries in Oman.
Abstract
Purpose
The main purpose of this paper is to select the most suitable production model for measuring the production process of some major manufacturing industries in Oman.
Design/methodology/approach
This empirical paper looks into an analytical justification to use Cobb‐Douglas (C‐D) production model in order to estimate and test the coefficients of the production inputs for each of the selected manufacturing industries using annual industrial statistical data over the period 1994 through 2007 published by Ministry of Commerce and Industry, Sultanate of Oman.
Findings
The results of the paper indicate that for most of the selected industries the C‐D function fits the data very well in terms of labor and capital elasticity, return to scale measurements, standard errors, economy of the industries, high value of R2 and reasonably good Durbin‐Watson statistics. The estimated results suggest that the manufacturing industries of Oman generally seem to indicate the case of increasing return to scale. Of the nine industries, seven exhibit increasing return to scale and only the rest two show decreasing return to scale. The paper finds no industry with constant return to scale.
Research limitations/implications
The paper could not consider a good number of manufacturing industries and a long period of time series data in the study because of lack of data availability.
Practical implications
Recently, businessmen as well as industrialists are very much concerned about the theory of firm in order to make correct decisions regarding what items, how much and how to produce them. All these decisions are directly related with the cost considerations and market situations where the firm is to be operated. In this regard, this paper should be helpful in suggesting the most suitable functional form of production process for the major manufacturing industries of developing countries like Oman.
Originality/value
The paper shows originality in substance and makes a unique contribution to the literature on industrial economics in Oman.
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Heinz‐Theo Wagner and Tim Weitzel
The goal of this paper is to identify core IT value drivers in firms and to model them as an IT production function to help disclose and measure the IT value creation process and…
Abstract
Purpose
The goal of this paper is to identify core IT value drivers in firms and to model them as an IT production function to help disclose and measure the IT value creation process and to guide managers in seeking adequate ways of employing the IT resource.
Design/methodology/approach
Based on a critical review of the literature on the resource‐based view, an IT value framework based on the constructs IT capability, resource, and routine is developed and then formalized as an IT production function.
Findings
Organizational routines are decisive for turning firm resources into an IT capability and in turn into better business process performance. Shows how the IT value creation process in general and routines in particular can be measured and formalized.
Practical implications
As the interaction between IT and business units is crucial for IT value generation, organizational routines provide for important knowledge flows that turn firm resources into value generating capabilities. Proposes a concrete method to measure and evaluate these routines and thereby contribute to making the IT resource controllable.
Originality/value
The main contribution is the identification and analytical formalization of the role of routines for IT value creation. Shows how insights from the resource‐based view, microeconomic theory (Cobb‐Douglas/CES production function), and Granovetter's strength of ties argument can be used to describe, measure, and guide IT value creation and to develop an IT production function.
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Cuong Le-Van and Binh Tran-Nam
The principal aim of this paper is to review three basic theoretical growth models, namely the Harrod-Domar model, the Solow model and the Ramsey model, and examine their…
Abstract
Purpose
The principal aim of this paper is to review three basic theoretical growth models, namely the Harrod-Domar model, the Solow model and the Ramsey model, and examine their implications for economic policies.
Design/methodology/approach
The paper utilizes a positivist research framework that emphasizes the causal relationships between the variables in each of the three models. Mathematical methods are employed to formulate and examine the three models under study. Since the paper is theoretical, it does not use any empirical data although numerical illustrations are provided whenever they are appropriate.
Findings
The Harrod-Domar model explains why countries with high rates of saving may also enjoy high rate of economic growth. Both the Solow and Ramsey models can be used to explain the medium-income trap. The paper examines the impact of Covid shocks on the macroeconomy. While the growth rate can be recovered, it may not always possible to recover the output level.
Research limitations/implications
For the Harrod-Domar model, the public spending decreases the private consumption at the period 1, but there is no change in the capital stock and hence the production in subsequent periods. For the Ramsey model with AK production function, both the private consumption and the outputs will be lowered. In both the Harrod-Domar and Ramsey models with Cobb-Douglas production function, if the debt is not high and the interest rate is sufficiently low, it is better to use public debt for production rather than for consumption. If the country borrows to recover the Total Factor Productivity after the Covid pandemic, both the Harrod-Domar and Ramsey models with Cobb-Douglas production function show that the rate of growth is higher for the year just after the pandemic but is the same as before the pandemic.
Practical implications
The economy can recover the growth rate after a Covid shock, but the recovery process will generally take many periods.
Social implications
This paper focuses on economic implications and does not aim to examine social implications of policy changes or Covid-type shock.
Originality/value
The paper provides a comparison of three basic growth models with respect to public spending, public debts and repayments and Covid-type shocks.
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