Assessing dynamic inefficiency of the Spanish construction sector pre- and post-financial crisis

This paper estimates dynamic efficiency in the Spanish construction industry before and during the current financial crisis over the period 2001-2009. Static efficiency measures are biased in a context of a significant economic crisis with large investments and disinvestments as they do not account for costs in the adjustment of quasi-fixed factors. The results show that overall dynamic cost inefficiency is very high with technical inefficiency being the largest component, followed by allocative and scale inefficiency. Moreover, overall dynamic cost inefficiency is significantly larger before the beginning of the financial crisis than during the financial crisis. Results also show that larger firms are on average less technically and scale inefficient than smaller firms, but have more problems in choosing the mix of inputs that minimizes their long-term costs. Firms that went bankrupt, on average have a higher overall dynamic cost inefficiency and scale inefficiency than firms that did not go bankrupt.