Public and private inputs in aggregate production and growth: a cross-country efficiency approach

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Abstract:

In a cross section of OECD countries, we replace the macroeconomic production function by a production possibility frontier, total factor productivity being the composite effect of efficiency scores and possibility frontier changes. We consider, for the periods 1970, 1980, 1990 and 2000 one output – GDP per worker – and three inputs – human capital, public physical capital per worker and private physical capital per worker. We use a semi-parametric analysis, computing Malmquist productivity indexes, and we also resort to stochastic frontier analysis. Results show that private capital is important for growth, although public and human capital also contribute positively. A governance indicator, a nondiscretionary input, explains inefficiency. Better governance helps countries to achieve a better performance. Nonparametric and parametric results coincide rather closely on the movements of the countries vis-à-vis the possibility frontier and on their relative distances to the frontier.

Keywords: C14; D24; Malmquist index; data envelopment analysis; economic growth; efficiency; public spending

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2013.791018

Affiliations: 1: European Central Bank, DG-Economics, Kaiserstrasse 29, Frankfurt am Main, 60311, Germany 2: Department of Economics, ISEG/UTL-Tehnical University of Lisbon, and UECE (Research Unit on Complexity and Economics), R. Miguel Lúpi, 20, Lisbon, 1249-078, Portugal

Publication date: November 1, 2013

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