Measurement of input-specific productivity growth with an application to the construction industry in Spain and PortugalInternational Journal of Production Economics

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Authors
M. Kapelko, I.M. Horta, A.S. Camanho, A. Oude Lansink
Year
2015
DOI
10.1016/j.ijpe.2015.03.030
Subject
Industrial and Manufacturing Engineering / Management Science and Operations Research / Economics and Econometrics / Business, Management and Accounting (all)

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Measurement of input-specific productivity growth with an application to the construction industry in Spain and Portugal

M. Kapelko a,n, I.M. Horta b, A.S. Camanho b, A. Oude Lansink c a Institute of Applied Mathematics, Department of Logistics, Wroclaw University of Economics, Poland b Department of Industrial Engineering and Management, Faculdade de Engenharia, Universidade do Porto, Portugal c Business Economics Group, Wageningen University, The Netherlands a r t i c l e i n f o

Article history:

Received 25 June 2014

Accepted 30 March 2015

Available online 6 April 2015

Keywords:

Input-specific productivity growth

Directional distance function

Data Envelopment Analysis

Construction industry a b s t r a c t

Decision making in companies requires an assessment of the efficiency and productivity of individual inputs to provide insights into the scope for improvement of inputs' use. This paper estimates an inputspecific Luenberger productivity growth indicator that can be decomposed to identify the contributions of input-specific technological change, technical efficiency change and scale efficiency change. These components for a specific input sum up to the aggregated indicators which are then compared with the traditional Luenberger indicator. The application focuses on panel data of Spanish and Portuguese construction firms over the period 2002–2011, accounting for three inputs: materials, labor and capital.

The results show that aggregated productivity change and its components computed from the inputspecific productivity indicator are different from those obtained using a traditional approach. The results also indicate that productivity change is negative for labor and capital for construction firms in both

Spain and Portugal, while productivity change of materials is positive for Portugal and negative for Spain.

Productivity decline is worse for capital in the Spanish construction firms, and for labor in Portugal. & 2015 Elsevier B.V. All rights reserved. 1. Introduction

The measurement of firms' productivity growth has been extensively studied in the literature. Productivity analysis over time can provide valuable insights into the evolution of an industry and its degree of competitiveness. It is a useful tool to support the design of firm's strategies and government policies towards the improvement of industry performance over time.

A frequently employed approach in the literature to evaluate productivity change over time is the Malmquist productivity index, introduced by Caves et al. (1982) and enhanced by Färe et al. (1992).

The Malmquist index is calculated using ratios of Shephard distance functions and can adopt either an input contraction or an output expansion perspective. For those cases requiring simultaneous adjustments of inputs and outputs or non-radial expansions or contractions, Chambers et al. (1996) proposed the use of directional distance functions to evaluate productivity change over time using the Luenberger productivity growth indicator.

More recently, Mahlberg and Sahoo (2011) developed an enhanced Luenberger indicator using directional slacks-based measures, as proposed by Fukuyama and Weber (2009). This indicator is based on non-radial distance functions, and has the advantage of accounting for the existences of slacks in a context where both input contractions and output expansions are considered. As it allows the estimation of productivity change associated to individual inputs, it provides input-specific estimates of productivity change. This approach has the advantage of providing insights into the contributions of individual inputs to productivity change. As input-specific productivity change measures are recent, only a few applications are reported in the literature (e.g., Skevas and Oude Lansink, 2014, which used a Luenberger indicator, and Oude Lansink and Ondersteijn, 2006, which used a Malmquist index). Nevertheless, input-specific efficiency is a topic well-established in the literature, with studies mostly applied to the agricultural sector (Oude Lansink and Silva, 2003; D’Haese et al., 2009; Oude Lansink et al., 2002; Oude Lansink and Bezlepkin, 2003).

This paper aims at analyzing changes in productivity of individual inputs within the Iberian construction industry over the past decade (2002–2011). For this purpose, we develop an inputspecific Luenberger productivity growth indicator, estimated using a Russell-type measure in the context of directional distance functions, following Färe and Grosskopf (2010). This approach allows removing the slacks in all inputs for the estimation of the projection to the efficient frontier. The use of a multiplicative directional distance function model, with a directional vector specified as being equal to the input levels of the decision making unit (DMU) under evaluation, has the advantage of allowing the interpretation of the inefficiency component associated to each input as

Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/ijpe

Int. J. Production Economics http://dx.doi.org/10.1016/j.ijpe.2015.03.030 0925-5273/& 2015 Elsevier B.V. All rights reserved. n Corresponding author. Tel.: þ48 713680479; fax: þ48 713680334.

E-mail address: magdalena.kapelko@ue.wroc.pl (M. Kapelko).

Int. J. Production Economics 166 (2015) 64–71 a proportional change to the original input levels. We propose a decomposition of the efficiency change component of the inputspecific Luenberger indicator to obtain further information concerning the sources of input-specific productivity change.

To the best of our knowledge, this study is the first to apply the input-specific productivity growth indicator in the context of the construction industry. Previous research of construction industry assesses the productivity growth of all inputs simultaneously and relates to the use of the Malmquist index to evaluate productivity change in the construction firms in China (Xue et al., 2008) and

Australia (Li and Liu, 2010). Using a growth accounting framework,