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Modelling Technical Efficiency in Cross Sectionally Dependent Stochastic Frontier Panels
Author(s) -
Mastromarco Camilla,
Serlenga Laura,
Shin Yongcheol
Publication year - 2015
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2439
Subject(s) - spillover effect , ranking (information retrieval) , econometrics , economics , frontier , selection (genetic algorithm) , stochastic frontier analysis , estimation , production (economics) , technical change , computer science , microeconomics , productivity , macroeconomics , management , archaeology , machine learning , artificial intelligence , history
Summary This paper proposes a unified framework for accommodating both time and cross‐sectional dependence in modelling technical efficiency in stochastic frontier models by combining the exogenously driven factor‐based approach and an endogenous threshold efficiency regime selection mechanism. This approach is able to deal with both weak and strong cross‐sectional dependence in a flexible manner. Using a dataset of 26 OECD countries over 1970–2010, we provide satisfactory estimation results for the production technology parameters and the associated efficiency ranking of individual countries. We find a positive spillover effect on efficiency, supporting the hypothesis that knowledge spillover is more likely to be induced by technological proximity. Furthermore, our approach enables us to identify efficiency clubs endogenously. Copyright © 2015 John Wiley & Sons, Ltd.