Productivity patterns in Europe: adaptation of the Malmquist index to measuring group performance and productivity change over time

Abstract

The paper proposes an extension of the methodology for measuring productivity change based on the Malmquist index that now affords consistent comparisons of productivity change and productivity levels in situations when there are groups of several units monitored in periods of several years. The extended measurement of productivity change is handled in the framework of data envelopment analysis and is applied in two respects in order to analyze productivity patterns of 17 European countries divided into two groups: higher-productivity economies and lower-productivity economies. First, their group-wise productivity changes and productivity differences are examined for the periods 2003–2008 and 2010–2015 divided by the critical crisis year 2009. Second, their absolute and conditional convergence is studied accommodating several specifications of growth regressions. The results confirm that higher-productivity economies preserved their lead in productivity despite the crisis, albeit the productivity differential between higher-productivity and lower productivity economies slightly waned. This is obviously owing to the fact that lower-productivity economies display faster convergence tendencies.