Measuring and explaining productivity growth: A distance function approach

Abstract

Using an output-oriented distance function, the total factor productivity growth is decomposed into the change of four components: technical change, technical efficiency, allocative efficiency, and scale effect. Stochastic output distance functions are estimated based on panel data for dairy farms in Germany and Poland for the time period 1991 to 1994. To get an estimate of the productivity potential in a cross-country comparison of these regions, the concept of a meta-distance frontier is introduced. The results indicate that productivity change in Germany (+6%) and Poland (-5%) are mainly determined by the component technical change.