Investment, technical change and efficiency: empirical evidence from German dairy production

Abstract

This empirical study aims to shed light on the dynamic linkages between innovation, efficiency and productivity at the individual farm level. We use a comprehensive dataset for dairy farms in Germany for the period 1996–2010. Based on a directional distance frontier framework and the Luenberger index, we estimate the changes in efficiency, technical change and productivity over the period considered and simultaneously investigate possible factors for technically efficient milk production at farm level. We find that investments in innovative technology indeed increase the productivity of dairy production by shifting out the production frontier. Our findings further imply that investments in innovative dairy technologies require a sufficient level of complementary education to trigger also an increase in efficiency at farm level. The quality of human capital in terms of educational training seems finally crucial for a lasting increase in efficiency as a result of innovation.