Productive Efficiency in Bahrain Economy

The main objective of this study is to measure and analyze one of the most important components of total productivity, namely productive (economic) efficiency in Bahrain economy over the time period 1980-2002. In order to obtain the cost inefficiency, a stochastic frontier cost function with time-varying cost inefficiency was used. The null hypothesis specifies whether the stochastic frontier specification is an appropriate representation of the underlying technology compared to the average technology being tested. This null hypothesis could not be rejected at any significance level. Thus, it could be concluded that there is no strong foundation for estimating cost inefficiency in Bahrain economy, given the model specifications and testing. It follows that the empirical findings, given the empirical model, showed no evidence of cost inefficiency at the aggregate level. Accordingly, further research at the disaggregated economic levels (i.e., the five digits industrial standard classification, ISC) is strongly recommended in order to obtain clearer explanations and step on the inside economic activities in terms of cost inefficiency.