Academic journal article Agricultural Economics Review

The Impact of Innovation, Firm Growth and Perceptions on Technical and Scale Efficiency

Academic journal article Agricultural Economics Review

The Impact of Innovation, Firm Growth and Perceptions on Technical and Scale Efficiency

Article excerpt

Abstract

This paper uses a two-stage approach to analyse efficiency and productivity of Dutch glasshouse firms over the period 1991-1998. The first stages uses DEA to determine productivity growth and technical and scale efficiency; the second stage applies a TOBIT model to explain technical and scale efficiency; OLS is used to explain productivity change. The main explanatory variables are structural changes (innovation and firm growth), socio-economic variables and perceptions classified according to the SWOT-analysis. Variables that are stable over time, i.e. socio-economic variables of the firm and perceptions of the entrepreneur explain the level of technical and scale efficiency. Innovation and firm growth are important factors in the explanation of productivity growth.

Key words: firm growth, innovation, panel data, productivity growth scale efficiency, socio-economic structure, technical efficiency

Introduction

The explanation of firm performance has been the subject of numerous studies in the agricultural economics literature. Studies focusing on efficiency form a major category among these studies. Technical efficiency reflects the ability of a firm to obtain a maximum level of outputs from a given bundle of inputs or to use a minimum level of inputs to produce a given bundle of outputs (Coelli et al., 1999)1.

In the literature, a large number of studies explain efficiency using a two-stage approach. The first stage computes the efficiency level whereas the second stage explains efficiency from a set of socio-economic variables. Ideally, all variables representing input and output are included in the first stage. Differences in technical efficiency between firms are then attributed to differences in the level of knowledge, skills and motivation of the entrepreneur. Therefore, inefficiency reflects all known and unknown factors that cause a sub-optimal level of production compared to firms which produce under equal circumstances.

The previous literature has used a variety of socio-economic variables to explain the level of efficiency and Table 1 provides an overview. Bravo-Ureta and Rieger (1991) find that firm size and extension on technical efficiency have a positive effect on technical efficiency and find no impact of the farmer's experience and education. Hallam and Machado (1996) report a positive impact of firm size on efficiency. Andreakos et al. (1997) find a positive impact on efficiency from farmer's age, formal education and access to credit. Also, they find that the presence of a successor and location of the firm have significant negative impacts; no significant effect is found from firm size and specialization. Wilson et al. (1998) report a negative effect of the farmer's experience and a positive effect of firm size on technical efficiency; geographical location has no significant impact. Alvarez and Gonzalez (1999) find a negative effect of firm size on efficiency in dairy farming. They suggest that a manager has a constant management capacity and farms in the largest size category are experiencing limits to a manager's span of control over the farm operation. Amara et al. (1999) also find a negative impact of firm size on efficiency in Canadian arable farming and a positive effect of the number of years with farming experience. No relationship is found between the farmer's perception of environmental degradation and efficiency; adoption of conservation practices, had a positive impact on efficiency.

The socio-economic variables discussed above are weak indicators for the farmer's knowledge level. Better data reflecting the farmer's knowledge could improve the ex- planation of the level of efficiency. Moreover, the socio-economic variables as described above are rather stable over time. These variables are more suitable for explaining differences in efficiency between firms rather than changes in efficiency (and productivity) over the years.

This paper contributes to literature on efficiency and productivity analysis by extending the explanation of efficiency and productivity change with socio-economic variables about the firm operator's perceptions of firm and environment reflecting his knowledge and motivation. …

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