Michael Denny

Productivity and Computers in Canadian Banking

Canadian banks have invested millions in computer systems in the last two decades. Yet the banks and outside observers have been uncertain that these investments have had net benefits. In this paper, unique data collected directly from a bank is used to investigate the impact of these investments on bank output, input and productivity. Using data from 1974–1987, a translog cost model is estimated. Both capital and labor are divided into information and noninformation inputs. The results are generally consistent with economic theory. The attempt to separate technical change from possible scale effects is very sensitive to alternative specification. Overall there has been some productivity growth associated with the changing computer technology. However, many of the benefits seem to have accrued to the customer and have not directly lead to gains for the bank.

Endogenous capital utilization in a short-run production model: Theory and an empiral application☆

Abstract In order to be consistent with production theory, empirical factor demand analyses must transform capital stock data into information about the flows of capital services derived from the stock. This requires information about the utilization rate which is, however, not generally available. This paper develops and estimates a model of a capital using firm that one can implement using observable data. Capital utilization and depreciation are endogenous and are determined by profit maximization. The consistency of the model with the data is tested by checking whether the estimated parameters satisfy the regularity conditions imposed by the theory. The validity of the customary specification of an exogenous, price-independent rate of depreciation is also tested.

An Aggregate Model with Multi-Product Technologies

Publisher Summary This chapter discusses recent developments in the theoretical literature to explore the possibilities of specifying and testing a production sector for a macroeconomic model and provides some estimates of a model for Canada. In macroeconomic models, the production sector has often been specified and estimated without detailed attention to the underlying economic theory. The usual statistical sources of aggregate data for a national economy provide information on employment, imports, and outputs flowing to final demand. Problems arise because of the inconsistencies of data collection systems which do not permit the straightforward application of the economic theory of production to the building of macroeconomic models. Another source of the slackness of the underlying theory is the early prevalence of Keynesian models that were heavily oriented toward demand explanations for aggregate behavior. The estimates of the price elasticities of demand and the elasticities of substitution for the inputs are relatively insensitive to alternative specifications that assume jointness or separability in outputs, and inputs of the function representing the technology. The estimates of the slope of the production possibility curve are more sensitive to the alternative specifications. Large differences in the estimates of the marginal rate of transformation occur.

A general approach to intertemporal and interspatial productivity comparisons

Abstract The purpose of this paper is to introduce a general methodology for analysing the sources of intertemporal or interspatial differences in outputs and costs, general in the sense that our methodology allows the productivity analyst to ‘break out’ of the quadratic ‘straightjacket’ imposed by the class of superlative index number comparisons. Starting fromTaylors series expansions about the two points to be compared, we develop a general growth accounting equation which can be approximated to any desired degree of accuracy, depending on the information available. The theoretical framework is applied to two recent examples of interspatial comparisons which use the Tornqvist superlative index. In the first example, we show that the biases in regional Canadian total manufacturing cost-efficiency comparisons which result from the use of this index are negligible. However, in the second example, it is shown that the Tornqvist index imparts a substantial bias in United States-Japan total domestic economy productivity comparisons. The index consistently overestimates the relative productivitylevel of the U.S. economy and misses the turning point, when the Japanese economy becomes more efficient, by two years.

Testing Long-Run Productivity Models for the Canadian and U.S. Agricultural Sectors

The primary objective of this paper is to develop the linkages between the gross and net productivity indexes and the implied production structures. These linkages are developed as separability restrictions on various subgroups of inputs and time in a general production model. The restricted models are arranged in sequences for nested hypotheses testing. Empirical evidence from the U.S. and Canadian agricultural sectors based on a translog production function support the gross output total factor productivity structure. The net output Hicks neutrality hypothesis is rejected for both the United States and Canada.

The Effects of Factor Prices and Technological Change on the Occupational Demand for Labor: Evidence from Canadian Telecommunications.

This paper investigates the effect of automation on the occupational demand for labor using modern econometric demand theory. We are able to estimate labor demand functions derived from a production process characterized by variable elasticities of substitution, nonhomothetic output expansion effects, and nonneutral technical change. The model is applied to a large Canadian telecommunications firm, Bell Canada, for the period 1952-1972 when detailed data on four occupational groups, capital, materials, output, and the extent of automation are available. Our empirical results demonstrate the strong effects of innovative activity in this industry. Technical change was capital-using and labor-saving, with the labor-saving impact being felt most severely by the least skilled occupations.

Productivity in Manufacturing Industries, Canada, Japan and the United States, 1953-1986: Was the 'Productivity Slowdown' Reversed?

This paper analyzes total factor productivity growth and trends in relative efficiency levels in the national Two-Digit Manufacturing industries of Japan, Canada, and the United States during the last quarter-century. The well-known slowdown in productivity growth rates in the 1973-80 period was a common phenomenon across the three countries but was felt most strongly in Japan and least in Canada. While the 1980s saw a pick-up in productivity growth over the slowdown period, growth in productivity has not returned to the pre-1973 level. The productivity slowdown and any subsequent increase in productivity growth rates have been correlated across industries in the three countries to a very high degree.

Homotheticity and Real Value-Added in Canadian Manufacturing

Publisher Summary For Canadian manufacturing during the period 1950–1970, there is no evidence that real value-added technologies are acceptable. The estimation of production technologies and factor demand equations requires some measure of the output or activity level. Government statistical agencies have developed a variety of measures of real net output, such as Real Domestic Production in Canada or Gross Product Originating in the United States. Using a set of data on Canadian manufacturing from 1950–1970 and a nonhomothetic translog approximation to the cost function. This chapter discusses an alternative real value-added formulation. It is useful to relate the particular problems with real value-added to theoretical knowledge about two-stage optimization and to index number theory. Consistent two-stage optimization requires that the first stage or micro functions be homothetic in the prices. Most index number formulae are linear homogeneous in the variables. For the United States and Canada, it is often possible to approximate a series on gross output. When this can be done, the use of the alternative real value-added function may be useful even if only the first stage can be completed.

The existence of a real value-added function in the Canadian manufacturing sector

Abstract Sims (1969), Gordon (1969), and Arrow (1972) have demonstrated that the capability of using real value-added to measure the output of a sector when material inputs are employed in the production process rests upon primary factor inputs being weakly separable from material inputs. In Canada, the double deflation technique is used by Statistics Canada to measure the real value-added output of an industry; this technique assumes strong separability. This paper tests both of these separability hypotheses for the Canadian manufacturing sector using data from 1950 to 1972 and a translogarithmic production function. Our tests lead us to reject both the strong and weak separability hypotheses. Furthermore, our estimates of the Allen partial elasticity of substitution of capital for labor are radically different from the results of previous Canadian studies.

International Comparisons of Agricultural Productivity: Development and Usefulness

The simultaneous developments in duality theory, in the use of flexible functional forms in economic research, and in the theoretical linkages between index numbers and production technologies have augmented the tools to address productivity measurement.1 As a result there have been many studies of agricultural productivity growth in the United States and other countries in the past two decades; international comparisons, however, have received considerably less attention.2 While from a methodological point of view there is no reason to distinguish intertemporal from international productivity comparisons, the latter comparisons involve additional data-related problems. First, reliable information from many countries may be difficult to obtain. Second, each countrys data must be measured in the same units. Third, comparability of input and output groups is needed. These groups are often less comparable among countries than over time within one country. In this paper we provide an overview and critique of methods for comparing agricultural productivity and efficiency among countries that integrate economic production theory with empirical practices and discuss the relationship of these measures to competitiveness. We conclude by relating the methodological needs to ongoing efforts to construct an internationally consistent data set.