Productivity measures and effects from subsidies and trade: an empirical analysis for Japan's forestry

Abstract

Several techniques have been proposed in the literature to measure productivity. While allowing for inefficiency of the production unit, we provide a methodological comparison of alternative approaches to measure total factor productivity. This article evaluates the effects of unintended policy outcomes such as government subsidies and foreign trade. Empirically, we analyse the forest productivity of timber in Japan by using panel data on 46 regions. The results suggest substantial variation in productivity between these two techniques although average trends are similar. We find that subsidies impede competition since the government is ready to rescue a loss-making firm with subsidies rather than allow it to close. In contrast, trade is shown to have positive effects on productivity.

Notes

¹ Like all techniques, DEA has strengths and weakness. Since DEA is a data-driven technique, measurement error, missing variables and unmeasured quality differences can cause problems. Analogous problems exist for econometrics and other empirical techniques. Statistical hypothesis tests and confidence intervals are difficult to implement within DEA.

² When profit maximization is a more plausible assumption, however, it is still possible to use hyperbolic Malmquist productivity index (Zofío and Lovell, 2001). This index employs a hyperbolic efficiency measure that turns out to be dual to a ratio-based return to the dollar profit function (Färe et al., 2002).

³ Although we do not compare specific Luenberger output- and input-oriented productivity indicators, we might be able to test which behavioural hypothesis is most compatible with the data by comparing these two indicators and general Luenberger productivity indicator to the Luenberger–Hicks–Moorsteen indicator that is nonoriented.

⁴ It is important to note that, although the traditional nonparametric approach to production or demand analysis suffers from a lack of invariance to the measurement scaling (Chalfant and Zhang, 1997; Chavas, 2000), DEA formulation is unit-free and therefore avoids the problem of units of measurement (Charnes et al., 1978).

⁵ Although the results are not reported in this article, we obtain similar results relating to declining productivity and the negative effects of subsidies on productivity when we use value-added output. Note that only the average price of output in each year is available.

⁶ Even if we consider the other objective such as amenity or conservation, the evidence in the biology literature tends to find no increasing trends of these factors in Japan (Inoue et al., 2003).