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Benchmarking Efficiency of Telecommunication Industries in the US and Major European Countries A Stochastic Possibility Frontiers Approach by Georg Erber First Transatlantic Telecom Industry Forum, IDATE, Montpellier Nov ember 22, 2005. Productivity Surge and ICT investments. - PowerPoint PPT Presentation
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Benchmarking Efficiency of Telecommunication Industries in the US and Major European Countries A Stochastic Possibility Frontiers Approach byGeorg ErberFirst Transatlantic Telecom Industry Forum, IDATE, Montpellier November 22, 2005
22 November 2005Author Georg Erber 2
Productivity Surge and ICT investments
– US in the mid 1990s experienced a strong recovery of productivity, in labour as well as in total factor productivity (TFP)
– One key factor always expected to have been underestimated were substantial ICT investments
22 November 2005Author Georg Erber 3
Key drivers in communication
– Standardization in data communication via the IP-protocol
– Broadband revolution
– Convergence in networks, All-IP-networks
22 November 2005Author Georg Erber 4
– Mobile and in general wireless communication Leads to ubiquous communication and computation
– No end currently insight of a great transformation how production processes are organized
– ICT as a key driver in globalization
22 November 2005Author Georg Erber 5
Methodological Framework
– Standard Method:
Growth Accounting Approach
– Alternative Method:
Production Possibility Frontiers
22 November 2005Author Georg Erber 6
The Inefficiency Hypothesis
– Inefficient use is an important factor
– Anecdotal evidence: Huge investments in ICT project failed, e.g. UMTS or TollCollect
– Microdata show a high dispersion of ICT productivity
22 November 2005Author Georg Erber 7
Potential Complementary Factors
– ICT-Capital/ICT-Skill-Complementarity
– Internally in the firm, ICT-based company organization
– Externally in the supply and value chain, transaction cost based global value chains
22 November 2005Author Georg Erber 8
A first step in efficiency/inefficiency analysis
– A production possibility set, feasib´le solutions
– A production possibility frontier is the outer boundary of production possibility set, i.e. it is the location of the maximum output attainable with a given amount of factor inputs
22 November 2005Author Georg Erber 9
Production Possibility Frontiers
22 November 2005Author Georg Erber 10
Choosing a probability distribution for the inefficiency random variable
– Our analysis currently assumes a truncated normal distribution for the inefficiency shocks
– Estimation method is Maximum-Likelihood-Estimation which gives consistent and asymptotically efficient parameter estimates
22 November 2005Author Georg Erber 11
Truncated Normal Densities
0.0
0.5
1.0
1.5
2.0
2.5
0 1 2 3 4 5 6
µ = -2 µ = -1 µ = 0 µ = 1 µ = 2
22 November 2005Author Georg Erber 12
Measuring Inefficiency at the country and industry level
– Annual data from 1979-2001– Countries included (US, Germany, UK,
France, Netherlands plus the aggregate of the four EU countries, EU4)
– Input Factors included (Labour, Labour quality, ICT capital stock, non-ICT capital stock)
– Output: value added
22 November 2005Author Georg Erber 13
J-Curves of Adoption with Phase Delay
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0 5 10 15 20 25 30 35 40 45 50
Country A Country B
22 November 2005Author Georg Erber 14
Relative Efficiency Ratio ofCountry A to Country B
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49
22 November 2005Author Georg Erber 15
Cobb-Douglas-Function with Harrod-neutral technological Progress
1981 - 2002
2 Cf. Battese, Coelli (1995), Erber (2005).
Source: GGDC, Calculations of the DIW Berlin.DIW Berlin 2005
Development of Inefficiency1 in the Telecommunication Industries in the US and selected EU-
Countries, Technological Efficiency Effects2
1 If the value is equal to unity total efficiency for a country is accomplished. Values below unity determine the distance of the country from the stochastic possibility frontier, SP F.
0.600
0.650
0.700
0.750
0.800
0.850
0.900
0.950
1.000
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
USGermanyUKFranceNetherlandsEU4
22 November 2005Author Georg Erber 16
Cobb-Douglas-Funktion mit Harrod-neutralem technischen Fortschritt
1981 - 2002
2 Cf. Battese, Coelli (1995), Erber (2005).
Source: GGDC, Calculations of the DIW Berlin.DIW Berlin 2005
Development of Inefficiency-Gaps1 in the Telecommunication Industries in Germany relative to the
US and selected EU-countries, Technological Efficiency Effects2
1 If values are equal to 100 total efficiency/inefficiency equality between Gemany and the other countries prevail. Values below 100 denote an inefficiency-gap of Germany relative to the other country. Value above 100 denote an efficiency-advantage relati
60.000
70.000
80.000
90.000
100.000
110.000
120.000
130.000
140.000
150.000
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
relative to the US
relative to ther UKrelative to France
relative to the Netherlands
22 November 2005Author Georg Erber 17
Conclusions
– Using time-varying methods a ranking in 2001 is:
– 1. Netherlands
– 2. UK
– 3. France
– 4. Germany
– 5. US
22 November 2005Author Georg Erber 18
Conclusions
– All countries show a J-curve of adoption of two major innovations in telecommunication: deregulation of TK-markets and the Internet
– Phase delays show that the following sequence:
– 1. US (1993), 2. UK (1994), 3. Netherlands (1996), 4. France (1997), 5. Germany (1999)
