Explaining output growth with a heteroscedastic non-neutral production frontier: the case of sheep farms in Greece

Abstract

Summary This paper extends the primal decomposition of total factor productivity (TFP) changes to the case of non-neutral production frontiers. Output growth is decomposed into input growth (size effect), changes in technical efficiency, technical change, and the effect of returns to scale. Within the proposed formulation, however, technical efficiency changes are attributed not only to autonomous changes (i.e. passage of time) but also to changes in input use and in farm-specific characteristics. A heteroscedastic non-neutral production frontier is estimated for an unbalanced panel of Greek sheep farms for the period 1989‐1992. Technical efficiency change is found to be the main source of TFP growth. The farm-specific characteristics were the most important determinant of technical efficiency changes.