Abstract
In this paper, a stochastic frontier model accounting for spatial dependency is developed using generalized maximum entropy estimation. An application is made for measuring total factor productivity in European agriculture. The empirical results show that agricultural productivity growth in Europe is driven by upward movements of technology over time through technological developments. Results are then compared for a situation in which spatial dependency in the technical inefficiency effects is not accounted.
Highlights
This paper develops a stochastic frontier model accounting for spatial dependency through spatial econometrics techniques and using generalized maximum entropy (GME) estimation
A time-varying technical inefficiency stochastic frontier model was developed accounting for spatial dependency through spatial econometrics techniques and using a GME estimation procedure
The inclusion of prior information helped in decreasing multicollinearity issues among the exogenous variables The economic analysis showed that agricultural productivity growth in Europe is driven by upward movements of technology over time through technological developments
Summary
This paper develops a stochastic frontier model accounting for spatial dependency through spatial econometrics techniques and using generalized maximum entropy (GME) estimation. In the literature, [6] detected that the employment rate exhibits a correlation with economic growth in neighbouring counties in the American Midwest, while [7] found that technical efficiency scores can display spatial dependency given that their determinants are often spatially correlated It important to account for the spatial dependency between countries since economic conditions in neighbouring countries are likely to be similar as a result of spillovers of economic activities across borders and even more for the countries that are part of the EU. The paper is structured as follows: Section 2 contains the time-varying technical inefficiency stochastic frontier model accounting for spatial dependency.
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