Abstract
This study investigates the productivity of Brazilian manufacturing industries, particularly addressing the influence of liberalization on productivity. We first calculate total factor productivity (TFP) by estimating the stochastic frontier production function and the inefficiency determination equation simultaneously. Then TFP growth rates are regressed on openness-related variables and other firm characteristics. The results show that firm openness to the world is a crucial determinant of their productivity. Data used for this study were obtained from the Investment Climate Survey, provided by the World Bank.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
The Malmquist TFP index was defined as the geometric mean of two distance indices, which was introduced by Caves et al. (1982) after Sten Malmquist, who earlier proposed construction of quantity indexes as ratios of distance functions.
Because three observations have very low TE values lower than 0.01, we checked the data and found that their output was extremely low, although input variables had high values. These data might be attributable to unexpected shocks or incorrect data. Therefore, we re-estimated the frontier by excluding these three observations. The results changed slightly.
Here a negative sign of the coefficient to inefficiency means a positive impact on efficiency.
As shown in Table 5, tariff reduction rate is an industry-level variable, which is defined as the deviation of each industry from the total average during the period from 1993 to 1999. Consequently the positive effects of Tariff reduction on TFPC implies that tariff reduction intensified import competition in the 1990s, while this import competition contributed to the productivity growth of Brazilian manufacturing industries during the beginning of 2000s. Therefore, this result does not contradict the result of negative effects of Import competition on TFPC for the different definition of period between the two variables.
First a suspected endogenous variable is regressed on all exogenous variables (reduced form). We obtain the estimated residual \( (\hat{u}_{it} ) \). Then we run a regression of model (1) by OLS including the \( (\hat{u}_{it} ) \) as an additional regressor and test the hypothesis that the coefficient of \( (\hat{u}_{it} ) \) is equal to zero using a t statistic. We conclude that the suspected variable is endogenous because \( (\hat{u}_{it} ) \) and \( (\varepsilon_{it} ) \) are correlated if we reject the hypothesis.
The average technical efficiency value of foreign firms is 0.928 while the value of domestic firms is 0.762 in the sample.
References
Aigner D, Lovell CAK, Schmidt P (1977) Formulation and estimation of stochastic frontier production function models. J Econom 6(1):21–37
Barro R, Sala-i-Martin X (2004) Economic growth, 2nd edn. McGraw Hill, New York
Battese GE, Coelli TJ (1995) A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empir Econ 20(2):325–332
Caves DW, Christensen LR, Diewert WE (1982) Multilateral comparisons of output, input, and productivity using superlative index numbers. Econ J 92(365):73–86
Clerides SK, Lach S, Tybout JR (1998) Is learning by exporting important? Micro-dynamic evidence from Colombia, Mexico, and Morocco. Q J Econ 113(3):903–947
Coelli T (1996) FRONTIER Version 4.1: a computer program for stochastic frontier production and cost function estimation
Coelli TJ, Rao DSP, O’Donnell CJ, Battese GE (2005) An introduction to efficiency and productivity analysis. Springer, NewYork
Costantin P, Martin DL, y Ribera BBR (2009) Cobb-Douglas, Translog Stochastic Production function and Data Development Analysis in Total factor Productivity in Brazilian Agribusiness. Flagship Res J Int Conf Prod Oper Manag Soc 2(2):20–34
Ferreira PC, Rossi JL (2003) New Evidence from Brazil on Trade Liberalization and Productivity Growth*. Int Econ Rev 44(4):1383–1405
Grossman GM, Helpman E (1991) Innovation and growth in the global economy. MIT Press, Cambridge, MA
Hay DA (2001) The Post-1990 Brazilian Trade Liberalisation and the Performance of Large Manufacturing Firms: Productivity, Market Share and Profits. Econ J 111(473):620–641
Kalirajan K (1981) An econometric analysis of yield variability in paddy production. Can J Agric Econ/Rev can agroecon 29(3):283–294
Lucas RE (1988) On the mechanics of economic development. J Monet Econ 22(1):3–42
Meeusen W, van den Broeck J (1977) Efficiency Estimation from Cobb-Douglas production functions with composed error. Int Econ Rev 18(2):435–444
Melitz M (2003) The impact of trade on aggregate industry productivity and intra-industry reallocations. Econometrica 71(6):1695–1725
Muendler M (2003) Trade and growth: the case of Brazil. Department of Economics, University of California, San Diego. http://econ.ucsd.edu/muendler/docs/brazil/muendler-brazil.pdf. Accessed 10 Jan 2012
Muendler MA (2004) Trade, technology, and productivity: a study of Brazilian manufacturers, 1986–1998. CESifo Working Paper, No. 1148
Nazmi N, Revilla JE (2008) Economic efficiency and growth: evidence from Brazil, China, and India. Research Paper No. 2008/86, United Nations University
Pitt MM, Lee LF (1981) The measurement and sources of technical inefficiency in the Indonesian weaving industry. J Dev Econ 9(1):43–64
Rossi JL, Ferreira PC (1999) Evolução da produtividade industrial brasileira e abertura comercial. IPEA,Texto para Discussão, n. 651
Sharma C, Mishra RK (2011) Does export and productivity growth linkage exist? Evidence from the Indian manufacturing industry. Int Rev Appl Econ 25(6):633–652
Subramanian U, Anderson W, Lee K (2005) Measuring the impact of the investment climate on total factor productivity: the cases of China and Brazil. World Bank Policy Research Working Paper, No. 3792
Wooldridge JM (2002) Econometric analysis of cross section and panel data. The MIT press, Cambridge
Acknowledgments
We are very grateful to the editor and anonymous referees for their valuable comments that improved this paper. We would also like to thank the World Bank Group for allowing us to have access to the data used in this paper. All the analysis, interpretations and conclusions drawn from the data in this paper are entirely and solely those of us.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Liu, W., Nishijima, S. Productivity and openness: firm level evidence in Brazilian manufacturing industries. Econ Change Restruct 46, 363–384 (2013). https://doi.org/10.1007/s10644-012-9131-6
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10644-012-9131-6