Productivity and efficiency: Do we need a bridge?

Zhezhi Hou, Subal C. Kumbhakar and Shunan Zhao

International Journal of Production Economics, 2024, vol. 274, issue C

Abstract: The paper focuses on comparing two popular approaches to estimating firm production technology: the proxy-variable method and the stochastic frontier (SF) analysis approach. We show that although the economic interpretations of productivity and efficiency are not the same, the difference between them is not fundamental and even trivial as far as the estimation techniques are concerned when the same structural framework is assumed. By showing the connection and comparing the difference between these two methods, this paper is aimed at building a bridge to connect these two strands of literature. In addition, we provide the SF audience with a new estimation method, i.e., the modified proxy-variable method, with its advantages in handling the endogeneity issue, along with a new way to estimate technical inefficiency. We examine their finite sample performance using Monte Carlo simulations. In the empirical section, we compare the proposed estimator with the conventional MLE SF estimator using Chinese manufacturing firms in the computer and peripheral sector over the period 1998 to 2007. We find that the estimates from our method are more reasonable in explaining the production behavior of these firms, and firms’ technical inefficiency levels are highly persistent over time.

Keywords: Productivity and efficiency; Proxy-variable method; Stochastic frontier model; Productivity/inefficiency determinants (search for similar items in EconPapers)
JEL-codes: C13 C23 D24 O14 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527324001440
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:274:y:2024:i:c:s0925527324001440

DOI: 10.1016/j.ijpe.2024.109287

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().