What Causes Cross-industry Differencesof Technical Efficiency? – An EmpiricalInvestigation∗

Using micro-level panel data of about 35,000 firms from the German Cost StructureCensus, we analyze the differences of technical efficiency across industries. Technicalefficiency is estimated by firms’ fixed effects. One striking result is that the distribution oftechnical efficiency across industries is positively skewed. This is because the efficiencydistribution is truncated at the lower end due to the least efficient firms which exit themarket. We investigate the causes of technical efficiency differences across industries. Oureconometric analyses provide evidence that capital and human capital intensity, the degreeof vertical specialization as well as new firm formation rate are important for explainingthe average technical efficiency of an industry....