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Nested Stochastic Possibility Frontiers with Heterogeneous Capital Inputs

Author

Listed:
  • Georg Erber
  • Reinhard Madlener

Abstract

This paper studies the productivity impact of heterogeneous capital inputs of selected EU-15 member countries and of the U.S. at the macroeconomic level. The stochastic possibility frontiers approach of Battese and Coelli (1992) applied here is used to identify neutralities or non-neutralities between different heterogeneous capital and labor inputs. Owing to the introduction and estimation of two-stage nested translog possibility production frontiers, the otherwise huge parameter space for the seven input factors included in the model is reduced significantly. This gives more robust estimates of the remaining parameters. Due to the detailed data, specific types of biased technological change in heterogeneous capital inputs can be tested. Furthermore, time-varying inefficiency trajectories for each country are obtainable. Annual data from 1980 to 2004, calculated and published by the Groningen Growth and Development Centre, are used in the empirical analysis. The results obtained shed new light on how fast technological progress in a global economy can shift comparative advantages between countries. In particular the different factor specific impacts of ICT and non-ICT capital stocks give a more detailed picture of the structural dynamics between factor inputs than do most other empirical studies using more aggregate factor input data.

Suggested Citation

  • Georg Erber & Reinhard Madlener, 2007. "Nested Stochastic Possibility Frontiers with Heterogeneous Capital Inputs," Discussion Papers of DIW Berlin 720, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp720
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.63390.de/dp720.pdf
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    References listed on IDEAS

    as
    1. Francesco Venturini, 2009. "The long-run impact of ICT," Empirical Economics, Springer, vol. 37(3), pages 497-515, December.
    2. Timmer, Marcel P. & Ypma, Gerard & Ark, Bart van der, 2003. "IT in the European Union: driving productivity divergence?," GGDC Research Memorandum 200363, Groningen Growth and Development Centre, University of Groningen.
    3. Meijers, Huub, 2007. "ICT Externalities: Evidence from cross country data," MERIT Working Papers 021, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    4. Anders Sorensen, 2001. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries: Comment," American Economic Review, American Economic Association, vol. 91(4), pages 1160-1167, September.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Georg Erber & Reinhard Madlener, 2009. "Impact of ICT and Human Skills on the European Financial Intermediation Sector," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.

    More about this item

    Keywords

    nested production possibility frontiers; (in-)efficiency benchmarking; technology adoption; convergence;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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