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A stochastic frontier model with structural breaks in efficiency and technology

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  • Guangjie Li

Abstract

We have developed a stochastic frontier model with appropriate priors to estimate the locations and number of structural breaks for both production efficiency and technology, which experience different regime changes. We assume different units could have unknown common break dates. Although panel data with large cross-sectional size can help identify the break locations, it could render posterior simulation very inefficient. Hence, care must be taken to avoid such problems. We apply our method to study the world production over the period of 1960–2007 and find that the data support structural breaks in technology rather than in efficiency. For most countries under study, the most important source of growth is capital accumulation. The technology adopted by different countries shows signs of convergence. Changes of technology usually happen after economic crises to compensate for negative capital growth. Alternative modelling approach and priors are used for robustness check. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Guangjie Li, 2015. "A stochastic frontier model with structural breaks in efficiency and technology," Empirical Economics, Springer, vol. 49(1), pages 131-159, August.
    • Handle: RePEc:spr:empeco:v:49:y:2015:i:1:p:131-159
    DOI: 10.1007/s00181-014-0852-4
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    1. Luintel, Kul B. & Khan, Mosahid & Leon-Gonzalez, Roberto & Li, Guangjie, 2016. "Financial development, structure and growth: New data, method and results," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 95-112.

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    More about this item

    Keywords

    Change point model; Economic growth; Hidden Markov model; Markov chain Monte Carlo; Panel data; Stochastic frontier model; C11; C13; C15; O0;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General

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