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Productivity of Nations: a stochastic frontier approach to TFP decomposition

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  • Fernando Garcia
  • Jorge Oliveira Pires

Abstract

This paper tackles the problem of aggregate TFP measurement using stochastic frontier analysis (SFA). Data from Penn World Table 6.1 are used to estimate a world production frontier for a sample of 75 countries over a long period (1950-2000) taking advantage of the model offered by Battese & Coelli (1992). We also apply the decomposition of TFP suggested by Bauer (1990) and Kumbhakar (2000) to a smaller sample of 36 countries over the period 1970-2000 in order to evaluate the effects of changes in efficiency (technical and allocative), scale effects and technical change. This allows us to analyze the role of productivity and its components in economic growth of developed and developing nations in addition to the importance of factor accumulation. Although not much explored in the study of economic growth, frontier techniques seem to be of particular interest for that purpose since the separation of efficiency effects and technical change has a direct interpretation in terms of the catch-up debate. The estimated technical efficiency scores reveal the efficiency of nations in the production of non tradable goods since the GDP series used is PPP-adjusted. We also provide a second set of efficiency scores corrected in order to reveal efficiency in the production of tradable goods and rank them. When compared to the rankings of productivity indexes offered by non-frontier studies of Hall & Jones (1996) and Islam (1995) our ranking shows a somewhat more intuitive order of countries. Rankings of the technical change and scale effects components of TFP change are also very intuitive. We also show that productivity is responsible for virtually all the differences of performance between developed and developing countries in terms of rates of growth of income per worker. More important, we find that changes in allocative efficiency play an important role in explaining differences in the productivity of developed and developing nations, even larger than the one played by the technology gap.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 292.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:292

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Keywords: Total factor productivity; stochastic frontiers; technical change; technical efficiency; allocative efficiency; scale efficiency; convergence;

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References

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  1. Hall, Robert E & Jones, Charles I, 1997. "Levels of Economic Activity across Countries," American Economic Review, American Economic Association, vol. 87(2), pages 173-77, May.
  2. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  3. Peter Klenow & Andrés Rodríguez-Clare, 1997. "The Neoclassical Revival in Growth Economics: Has It Gone Too Far?," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 73-114 National Bureau of Economic Research, Inc.
  4. Paul W. Bauer, 1988. "Decomposing TFP growth in the presence of cost inefficiency, nonconstant returns to scale, and technological progress," Working Paper 8813, Federal Reserve Bank of Cleveland.
  5. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  6. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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Cited by:
  1. Cassiano Bragagnolo & Humberto F. S. Spolador & Geraldo Sant’Ana de Camargo Barros, 2010. "Regional Brazilian Agriculture TFP Analysis: A Stochastic Frontier Analysis Approach," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 11(4), pages 217_242.
  2. Loaiza Quintero, Osmar Leandro & Franco Vásquez, Liliana Yaned, 2012. "Un estudio acerca de los determinantes de la productividad y la ineficiencia técnica en la industria colombiana, 1992-2007
    [Determinants of productivity and technical inefficiency in Colombia’s
    ," MPRA Paper 47736, University Library of Munich, Germany, revised 20 Jun 2013.
  3. Maria Alice Móz Christofoletti & Humberto Francisco Silva Spolador, 2011. "Income convergence among Brazilian states after the economic openness in the 1990s," ERSA conference papers ersa10p172, European Regional Science Association.
  4. Michele Boldrin & Maria Cristina De Nardi & Larry E. Jones, 2005. "Fertility and Social Security," Levine's Bibliography 666156000000000506, UCLA Department of Economics.
  5. Diallo, Ibrahima Amadou, 2012. "The effects of real exchange rate volatility on productivity growth," MPRA Paper 36171, University Library of Munich, Germany.

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