Productivity change using growth accounting and frontier-based approaches:evidence from a Monte Carlo analysis

This study presents some quantitative evidence from a number of simulation experiments on the accuracy of the productivitygrowth estimates derived from growthaccounting (GA) and frontier-based methods (namely data envelopment analysis-, corrected ordinary least squares-, and stochastic frontier analysis-based malmquist indices) under various conditions. These include the presence of technical inefficiency, measurement error, misspecification of the production function (for the GA and parametric approaches) and increased input and price volatility from one period to the next. The study finds that the frontier-based methods usually outperform GA, but the overall performance varies by experiment. Parametric approaches generally perform best when there is no functional form misspecification, but their accuracy greatly diminishes otherwise. The results also show that the deterministic approaches perform adequately even under conditions of (modest) measurement error and when measurement error becomes larger, the accuracy of all approaches (including stochastic approaches) deteriorates rapidly, to the point that their estimates could be considered unreliable for policy purposes.

The measurement and decomposition of economy-wide productivity growth:Assessing the accuracy and selecting between different approaches

Productivity at the macro level is a complex concept but also arguably the most appropriate measure of economic welfare. Currently, there is limited research available on the various approaches that can be used to measure it and especially on the relative accuracy of said approaches. This thesis has two main objectives: firstly, to detail some of the most common productivity measurement approaches and assess their accuracy under a number of conditions and secondly, to present an up-to-date application of productivity measurement and provide some guidance on selecting between sometimes conflicting productivity estimates. With regards to the first objective, the thesis provides a discussion on the issues specific to macro-level productivity measurement and on the strengths and weaknesses of the three main types of approaches available, namely index-number approaches (represented by Growth Accounting), non-parametric distance functions (DEA-based Malmquist indices) and parametric production functions (COLS- and SFA-based Malmquist indices). The accuracy of these approaches is assessed through simulation analysis, which provided some interesting findings. Probably the most important were that deterministic approaches are quite accurate even when the data is moderately noisy, that no approaches were accurate when noise was more extensive, that functional form misspecification has a severe negative effect in the accuracy of the parametric approaches and finally that increased volatility in inputs and prices from one period to the next adversely affects all approaches examined. The application was based on the EU KLEMS (2008) dataset and revealed that the different approaches do in fact result in different productivity change estimates, at least for some of the countries assessed. To assist researchers in selecting between conflicting estimates, a new, three step selection framework is proposed, based on findings of simulation analyses and established diagnostics/indicators. An application of this framework is also provided, based on the EU KLEMS dataset.

Empirical analysis of human capital development and economic growth in Europe

Recent discussion of the knowledge-based economy draws increasingly attention to the role that the creation and management of knowledge plays in economic development. Development of human capital, the principal mechanism for knowledge creation and management, becomes a central issue for policy-makers and practitioners at the regional, as well as national, level. Facing competition both within and across nations, regional policy-makers view human capital development as a key to strengthening the positions of their economies in the global market. Against this background, the aim of this study is to go some way towards answering the question of whether, and how, investment in education and vocational training at regional level provides these territorial units with comparative advantages. The study reviews literature in economics and economic geography on economic growth (Chapter 2). In growth model literature, human capital has gained increased recognition as a key production factor along with physical capital and labour. Although leaving technical progress as an exogenous factor, neoclassical Solow-Swan models have improved their estimates through the inclusion of human capital. In contrast, endogenous growth models place investment in research at centre stage in accounting for technical progress. As a result, they often focus upon research workers, who embody high-order human capital, as a key variable in their framework. An issue of discussion is how human capital facilitates economic growth: is it the level of its stock or its accumulation that influences the rate of growth? In addition, these economic models are criticised in economic geography literature for their failure to consider spatial aspects of economic development, and particularly for their lack of attention to tacit knowledge and urban environments that facilitate the exchange of such knowledge. Our empirical analysis of European regions (Chapter 3) shows that investment by individuals in human capital formation has distinct patterns. Those regions with a higher level of investment in tertiary education tend to have a larger concentration of information and communication technology (ICT) sectors (including provision of ICT services and manufacture of ICT devices and equipment) and research functions. Not surprisingly, regions with major metropolitan areas where higher education institutions are located show a high enrolment rate for tertiary education, suggesting a possible link to the demand from high-order corporate functions located there. Furthermore, the rate of human capital development (at the level of vocational type of upper secondary education) appears to have significant association with the level of entrepreneurship in emerging industries such as ICT-related services and ICT manufacturing, whereas such association is not found with traditional manufacturing industries. In general, a high level of investment by individuals in tertiary education is found in those regions that accommodate high-tech industries and high-order corporate functions such as research and development (R&D). These functions are supported through the urban infrastructure and public science base, facilitating exchange of tacit knowledge. They also enjoy a low unemployment rate. However, the existing stock of human and physical capital in those regions with a high level of urban infrastructure does not lead to a high rate of economic growth. Our empirical analysis demonstrates that the rate of economic growth is determined by the accumulation of human and physical capital, not by level of their existing stocks. We found no significant effects of scale that would favour those regions with a larger stock of human capital. The primary policy implication of our study is that, in order to facilitate economic growth, education and training need to supply human capital at a faster pace than simply replenishing it as it disappears from the labour market. Given the significant impact of high-order human capital (such as business R&D staff in our case study) as well as the increasingly fast pace of technological change that makes human capital obsolete, a concerted effort needs to be made to facilitate its continuous development.

What does endogenous growth theory tell about regional economies? Empirics of R&D worker-based productivity growth

What does endogenous growth theory tell about regional economies? Empirics of R&D worker-based productivity growth, Regional Studies. Endogenous growth theory emerged in the 1990s as ‘new growth theory’ accounting for technical progress in the growth process. This paper examines the role of research and development (R&D) workers underlying the Romer model (1990) and its subsequent modifications, and compares it with a model based on the accumulation of human capital engaged in R&D. Cross-section estimates of the models against productivity growth of European regions in the 1990s suggest that each R&D worker has a unique set of knowledge while his/her contributions are enhanced by knowledge sharing within a region as well as spillovers from other regions in proximity.

Postsocial relations:towards a performative view of accounting knowledge

This paper discusses the impact and influences of the growth of postsocial relations on accounting practice. Aspects of the growth of knowledge cultures, which have been argued to impact social and organizational arrangements, are discussed. Extending this view to accounting, we see accountants forming a distinctive knowledge culture with their own unique rules of how knowledge is constituted. These rules are embedded in accounting systems and practices. This paper suggests the need to further develop a research program that seeks to investigate accounting practice in local settings. The discussion in the paper is based on views which posit the growth of intimate links with epistemic objects within organizations and society. This paper argues that such ideas lead to an increasing tendency for us to experience the changes in societal relations and social arrangements as a compression of time and space. The paper relates these ideas to developments in the accounting research literature.

Accounting information systems as knowledge objects:some effects of objectualization

This paper will outline a research methodology informed by theorists who have contributed to actor network theory (ANT). Research informed from such a perspective recognizes the constitutive role of accounting systems in the achievement of broader social goals. Latour, Knoor Cetina and others argue that the bringing in of non-human actants, through the growth of technology and science, has added immeasurably to the complexity of modern society. The paper ‘sees’ accounting and accounting systems as being constituted by technological ‘black boxes’ and seeks to discuss two questions. One concerns the processes which surround the establishment of ‘facts’, i.e. how ‘black boxes’ are created or accepted (even if temporarily) within society. The second concerns the role of existing ‘black boxes’ within society and organizations. Accounting systems not only promote a particular view of the activities of an organization or a subunit, but in their very implementation and operation ‘mobilize’ other organizational members in a particular direction. The implications of such an interpretation are explored in this paper. Firstly through a discussion of some of the theoretic constructs that have been proposed to frame ANT research. Secondly an attempt is made to relate some of these ideas to aspects of the empirics in a qualitative case study. The case site is in the health sector and involves the implementation of a casemix accounting system. Evidence from the case research is used to exemplify aspects of the theoretical constructs.

Characteristics of UK firms related to timing of adoption of Statement of Standard Accounting Practice No. 20

This study examines whether the timing of adoption of the UK Statement of Standard Accounting Practice No. 20 'Foreign Currency Translation' depended on firms' financial characteristics. Consistent with US studies, we find that early adopters tended to be larger firms, and that variables, such as growth options, profitability, leverage and management payout, have strong predictive power. In general, the decision to adopt the Statement of Standard Accounting Practice No. 20 did not appear to adversely affect the profitability measures or dividend payout. Firms tended to adopt when the adverse economic consequences of the adoption were likely to be minimal. They also appeared to defer the adoption of the standard to influence their financial performance and, hence, to achieve certain corporate financial objectives. © 2006 AFAANZ.

An international cohort comparison of size effects on job growth

The contribution of different-sized businesses to job creation continues to attract policymakers’ attention; however, it has recently been recognised that conclusions about size were confounded with the effect of age. We probe the role of size, controlling for age, by comparing the cohorts of firms born in 1998 over their first decade of life, using variation across half a dozen northern European countries Austria, Finland, Germany, Norway, Sweden and the UK to pin down size effects. We find that a very small proportion of the smallest firms play a crucial role in accounting for cross-country differences in job growth. A closer analysis reveals that the initial size distribution and survival rates do not seem to explain job growth differences between countries, rather it is a small number of rapidly growing firms that are driving this result.

Distress risk, growth and earnings quality

We extend and complement prior work by investigating the earnings quality of firms with different financial health characteristics and growth prospects. By using three alternative measures of default likelihood and two alternative measures of growth options, without being limited to a specific event, we provide a more comprehensive setup for analysing the earnings characteristics of the universe of firms than examining distressed firms with persistent losses, dividend reductions or bankruptcy-filings. Our dataset consists of 15,049 healthy U.S. firms over the period 1990-2004. Results show that the relation between earnings quality and financial health is not monotonic. Distressed firms have a low level of earnings timeliness for bad news and a high level for good news, and manage earnings toward a positive target more frequently than healthy firms. On the other hand, healthy firms have a high level of earnings timeliness for bad news. Growth aspects play an important role in a firm's ability to manage earnings. In contrast to the findings of prior studies, growth firms have greater earnings timeliness for bad news, whereas value firms manage earnings toward a positive target more frequently than growth firms. © 2011 The Authors. Abacus© 2011 Accounting Foundation, The University of Sydney.