In the setting of the Stochastic Frontier Production Models, the productive efficiency of the 28 countries belonging to the European Union is analysed. To this end, panel data encompassing a broad period of time is selected, which facilitates the study into whether there is greater efficiency in the years of crisis as a consequence of the adjustment measures. A translog specification of a Cobb-Douglas model is considered, in which the output is measured through the GDP of the countries and two productive factors (capital and labour). The model also includes a trend component that addresses the possible presence of technological change, and dummy variables for each country in order to separate unobserved heterogeneity from productive inefficiency. In relation to the perturbation that models the inefficiency, a model of the type Battese and Coelli (1995) is considered with a trend component and a variable related to economic growth. Finally, the growth of productivity is decomposed into the sum of the changes in technology, in economies of scale, and in inefficiency.
Adjustment and unobserved heterogeneity in dynamic stochastic frontier models