Do Technology and Efficiency Differences Determine Productivity?

SSRN Electronic Journal 07/2007; DOI: 10.2139/ssrn.998107
Source: RePEc


This paper investigates the forces driving output growth, namely technological, efficiency, and input changes, in 80 countries over the period 1970-2000. Relevant past studies typically assume that: (i) countries use resources efficiently, and (ii) the underlying production technology is the same for all countries. We address these issues by estimating a stochastic frontier model, which explicitly accounts for inefficiency, augmented with a latent class structure, which allows for production technologies to differ across groups of countries. Membership of these groups is estimated, rather than determined ex ante. Our results indicate the existence of three groups of countries. These groups differ significantly in terms of efficiency levels, technological change, and the development of capital and labor elasticities. However, a consistent finding across groups is that growth is driven mainly by factor accumulation (capital deepening).

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    • "In this simple framework producers are assumed to be efficient and to use the same underlying production technology, total factor productivity estimates are retrieved as a residual from a production function. These assumptions are questionable, and may lead to biased productivity estimates (Koetter et al., 2007). In this study, we avoid these restraining hypotheses and tempt to estimate agricultural total factor productivity using the latent class stochastic frontier model, which explicitly accounts for inefficiency. "

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