Recent Articles

Read more about our latest published articles.

Review’s Archive

Corresponding Author:
Talent Zwane, School of Economics, University of Johannesburg, South Africa

Coauthors:
Mduduzi Biyase, School of Economics, University of Johannesburg, South Africa
Thandolwethu Binda, School of Economics, University of Johannesburg, South Africa

Institutions and Technical Efficiency: A Stochastic Frontier Approach

Volume 74 - Issue 4, November 2021
(pp. 415-438)
JEL classification: C23, C24, C87
Keywords: Technical Efficiency, Stochastic Frontier, Institutions, Economic Growth, SADC

Abstract

The effect of institutions on economic growth and development has been the subject of robust debate among economists and policy makers in both developed and developing countries. This paper employ Penn World Table, World Development Indicators and Barro-Lee data to estimate a panel stochastic production frontier model and the technical efficiency of output for 11 Southern African Development Community (SADC) countries for the period 1980–2013. The empirical findings from the stochastic production frontier based on the Cobb-Douglas production function model shows that institutions promote economic growth. More precisely, the results show a positive and statistical significant effect of political stability on economic growth in the SADC region. Although insignificant, voice accountability is found to have a positive impact on economic growth. Other variables that present positive and significant impact on economic growth include physical and human capital, reinforcing earlier studies in this field. On the other hand, population growth rate presents a negative and statistically significant impact on growth in the SADC region. The results of the determinants of technical inefficiency model indicates that voice accountability and political stability presents positive and statistically significant impact on technical inefficiency. However, population growth rate presents negative and significant coefficients on technical inefficiency in the region. The paper recommends that for growth in the SADC region to be sustainable, countries ought to invest in productivity and institutional enhancing factors, such as physical capital, human capital, voice accountability political stability and reduce population growth rate.


Read the full article

Download the article in PDF format to read and print.


Bibliography

Acemoglu, D., S. Johnson and J. Robinson (2005), Institutions as a Fundamental Cause of Long-Run Growth, in: P. Aghion, S. Durlauf (Eds), “Handbook of Economic Growth”, Elsevier BV.

Acikgoz, S. and Mert, M. (2014), “Sources of Growth Revisited: The Importance of the Nature of Technological Progress”, Journal of Applied Economics, 17(1), 31-62.

Adkins, L.C., R.L. Moomaw and A. Savvides (2002), “Institutions, Freedom, and Technical Efficiency”, Southern Economic Journal, 69(1), 92-108.

Aghion, P. and Howit, P. (2007), “Capital, Innovation, and Growth Accounting”, Oxford Review of Economic Policy, 23(1), 79-93.

Ahmed, M., Z. Lemma and G. Endrias (2014), “Technical Efficiency Of Maize Producing Farmers in Arsi Negelle, Central Rift Valley of Ethiopia: Stochastic Frontier Approach”, Agriculture and Forestry, 60(1), 157-167.

Anaman, K.A. (2004), “Determinants of Economic Growth in Brunei Darussalam”, Journal of Asian Economics, 15(4), 777-796.

Anyanwu, J.C. (2014), “Factors Affecting Economic Growth in Africa: Are there any Lessons from China?”, African Development Review, 26(3), 468-493.

Asteriou, D. and C. Siriopoulos (2000), “The Role of Political Instability in Stock Market Development and Economic Growth: The Case of Greece”, Economic Notes, 29(3), 355-374.

Barro, R. (1991), “Economic Growth in a Cross Section of Countries”, Quarterly Journal of Economics, 106(2), 407-443.

Barro, R.J. (1996), “Democracy and Growth”, Journal of Economic Growth, 1(1), 1-27.

Barro, R.J. (2003), “Determinants of Economic Growth in a Panel of Countries”, Annals of Economics and Finance, 4(2), 231-274.

Barro, R.J. and J. Lee (1994), “Sources of Economic Growth”, Carnegie-Rochester Conference Series on Public Policy, 40, 1-46.

Barro, R. J. and X. Sala-i-Martin (1995), Economic Growth, McGraw Hill: New  York.

Battese, G. and T. Coelli (1995), “A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data”, Empirical Economics, 20(2),325-332.

Benhabib, J. and M. Spiegel (1994), “The Role of Human Capital in Economic Development: Evidence from Aggregate Cross-Country Data”, Journal of Monetary Economics, 34(2), 143-173.

Bergson, A. (1989), “Planning and Performance in Socialist Economies”, Unwin Hyman: Boston.

Dang, V. (2009), “Institutions and Efficiency in Transition Economies”, School of Social Sciences, Brunel University, Economics and Finance Working Paper Series No. 09-32.

Danquah, M., P. Quartey and X. Zhang (2015), “Examining the Determinants of Efficiency using a Latent Class Stochastic Frontier Model”, Cogent Economics & Finance, 3(1): 1124741.

Dawson, J.W. (1998), “Institutions, Investment and Growth: New Cross-Country and Panel Data Evidence”, Economic Inquiry, 36(4), 603-619.

Djomo, J.M.N. and F. Sikod (2012), “The Effects of Human Capital on Agricultural Productivity and Farmer’s Income in Cameroon”, International Business Research, 5(4), 149-159.

Dollar, D., and A. Kraay (2003), “Institutions, Trade, and Growth”, Journal of Monetary Economics, 50(1), 133-162.

Drivas, K., C. Economidou, G. Tsionas (2018), “Production of output and ideas: Efficiency and growth patterns in the United States”, Regional Studies, 52(1), 105-118.

Easterly, W. and R. Levine (2001), “It’s not Factor Accumulation: Stylized Facts and Growth Models”, The World Bank Economic Review, 15(2), 177-219.

Easterly, W. and S. Rebelo (1993), “Fiscal Policy and Economic Growth. An Empirical Investigation”, Journal of Monetary Economics, 3(3), 417-458.

Edwards, S. (1998), “Openness, Productivity and Growth: What do we Really Know?”, Economic Journal, 108(447), 383-398.

Fetahi-Vehapi, M., L. Sadiku and M. Petkovski (2015), “Empirical Analysis of the Effects of Trade Openness on Economic Growth: An Evidence of South East European Countries”, Procedia Economics and Finance, 19, 17-26.

Fleisher, B., H. Li and M. Zhao (2010), “Human Capital, Economic Growth and Regional Inequality in China”, Journal of Development Economics, 92(2), 215-231.

 Hamilton, J.D. and J. Monteagudo (1998), “The Augmented Solow Model and the Productivity Slowdown”, Journal of Monetary Economics, 42(3), 495-509.

Iqbal, Z. and G. Zahid (1998), “Macroeconomic Determinants of Economic Growth in Pakistan”, The Pakistan Development Review, 37(2), 125-148.

Islam, N. (1995), “Growth Empirics: A Panel Data Approach”, Quarterly Journal of Economics, 110(4), 1127-1170.

Islam, N. (2008), “Determinants of Productivity across Countries: An Exploratory Analysis”, The Journal of Developing Areas, 42(1), 201-242.

Khan, M.S. and C. Reinhart (1990), “Private Investment and Economic in Developing Countries”, World Development, 18(1), 19-27.

Klein, P. and H. Luu (2003), “Politics and Productivity”, Economic Inquiry, 41(3), 433-447.

Knack, S. and P. Keefer (1995), “Institutions and Economic Performance: Cross-Country Tests using Alternative Institutional Measures”, Economics and Politics, 7(3), 207-227.

Koop, G., J. Osiewalski and M. Steel (2000), “Modeling the Sources of Output Growth in a Panel of Countries”, Journal of Business and Economic Statistics, 18(3), 284-299.

Lee, K.L. and B-Y. Kim (2009), “Both Institutions and Policies Matter but Differently for Different Income Groups of Countries: Determinants of Long-Run Economic Growth Revisited”, World Development, 37(3), 533-549.

Lee, J-D., J-B. Park and T-Y. Kim (2002), “Estimation of the Shadow Price of Pollutants with Production/Environment Inefficiency Taken into Account: A Nonparametric Directional Distance Function Approach”, Journal of Environmental Management, 64(4), 365-375. 

Levhari, D. (1966), “Further Implications of Learning by Doing”, Review of Economic Studies, 33(1), 31-38.

Lucas, R. (1988), “On the Mechanics of Economic Development”, Journal of Monetary Economics, 22(1), 3-42.

Mankiw, N.G., D. Romer and D.N. Weil (1992), “A Contribution to the Empirics of Economic Growth”, Quarterly Journal of Economics, 1072, 407-437.

Mauro, P. (1995), “Corruption and Growth”, Quarterly Journal of Economics, 107(2), 681-712.

Meon, P. and L. Weill (2004), “Does Better Governance Foster Efficiency? An Aggregate Frontier Analysis”, Economics of Governance, 6(1), 75-90.

Moroney, J.R. (1992), “Energy, Capital and Technological Change in the United States”, Resources and Energy, 14(4), 363-380.

Moroney, J.R. and C.A.K. Lovell (1997), “The Relative Efficiencies of Market and Planned Economies”, Southern Economic Journal, 63(4), 1084-1093.

Nazmi, N. and J. Revilla (2008), “Economic Efficiency and Growth: Evidence from Brazil, China and India”, World Institute for Development of Economic Research, WIDER Working Paper Series 086.

North, D.C. (1981), Structure and Change in Economic History, W.W. Norton: New York.

Nourzad, F. (2008), “Openness and the Efficiency of FDI: A Panel Stochastic Production Frontier Study”, International Advances in Economic Research, 14(1), 23-35.

Pelinescu, E. and E. Craciun (2014), “The Human Capital in the Knowledge Society. Theoretical and Empirical Approach”, ManagerJournal, 20(1), 7-18.

Rodrik, D. (1999), “Where did all the Growth Go? External Shocks, Social Conflict and Growth Collapses”, Journal of Economic Growth, 4(4), 385-412.

Rodrik, D. (2000), “Institutions for High-Quality Growth: What they are and how to Acquire them”, Studies in Comparative International Development, 35(3), 3-31.

Rodrik, D., A. Subramanian and F. Trebbi (2004), “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development”, Journal of Economic Growth, 9(2), 131-165.

Roller, L-H. and L. Waverman (2001), “Telecommunications Infrastructure and Economic Development: A Simultaneous Approach”, American Economic Review, 91(4): 909-923.

Romer, P. (1986), “Increasing Returns and Long-Run Growth”, Journal of Political Economy, 94(5), 1002-1037.

Romer, P.M. (1989), “Human Capital and Growth: Theory and Evidence”, NBER Working Paper No. 3173.

Romer, P. (1990), “Endogenous Technological Change”, Journal of Political Economy, 98(5), S71-S102.

Sarwar, K., M. Afzal, M. Shafiq and H. Rehman (2013), “Institutions and Economic Growth in South Asia”, Journal of Quality and Technology Management, 9(2), 01-23.

Sheshinski, E. (1967), Optimal Accumulation with Learning by Doing, in: K. Shell (Ed.) “Essays on the Theory of Optimal Growth”, MIT Press: Cambridge, MA.

Siddiqui, D. and Q. Ahmed (2009), “Does Institution Effect Growth in Pakistan? An Empirical Investigation”, MPRA Paper No. 19744.

Solow, R. (1956), “A contribution to the theory of economic growth”, Quarterly Journal of Economics, 70(1), 65-94.

Solow, R. (1957), “Technical Change and the Aggregate Production Function”, Review of Economics and Statistics, 39(3), 312-320.

Summers, R. and A. Heston (1991), “The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988”, Quarterly Journal of Economics, 106(2), 327-368.

Sundararajan, V. and S. Thakur (1980), “Public Investment, Crowding Out and Growth: A Dynamic Model Applied to India and Korea”, IMF Staff Papers, 27(4), 814-855.

Tefaye, W. and H. Beshir (2014), “Determinants of Technical Efficiency in Maize Production: The Case of Smallholder Farmers in Dhishessa District of Illuababora Zone Ethiopia”, Journal of Economics and Sustainable Development, 5(15), 274-284.

Turner, C., R. Tamura and S. Mulholland (2013), “How Important are Human Capital, Physical Capital and Total Factor Productivity for Determining State Economic Growth in the United States, 1840-2000?”, Journal of Economic Growth, 18, 319-371.

Vijayaraghavan, M. and W. Ward (2001), “Institutions and Economic Growth: Empirical Evidence from a Cross-National Analysis”, Clemson University, Center for International Trade Working Papers 112952.

Wang, M. and S. Wong (2012), “International R&D Transfer and Technical Efficiency: Evidence from Panel Study Using Stochastic Frontier Analysis”, World Development, 40(10), 1982-1998.

World Bank (2013), World Development Indicators, World Bank: Washington, DC.

Younis, M., X. Lin, Y. Sharahili and S. Selvarathinam (2008), “Political Stability and Economic Growth in Asia”, American Journal of Applied Sciences, 5(3), 203-208.

Zaman, G. and Z. Goschin (2010), “Technical Change as Exogenous or Endogenous Factors in the Production Function Models. Empirical Evidence from Romania”, Romanian Journal of Economic Forecasting, 2, 29-45.

Zhou, X., K-W. Li and Q. Li, (2011), “An Analysis on Technical Efficiency in Post-reform China”, China Economic Review, 22(3), 357-372.

Register your account

First-time users should click on “Register your account” and enter the requested information. Upon successful registration, you will receive an e-mail with instructions to verify your registration.

Submission Guidelines

Authors’ login

Use the assigned user ID and password to login. Please, do not register again. Usernames and passwords may be changed after.

Quick search by author:
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Back to the top

Institute for International Economics
of the Genoa Chamber of Commerce


Istituto di Economia Internazionale
Camera di Commercio di Genova
Via Garibaldi, 4 (III piano) - 16124 Genova (Italy)
www.ge.camcom.gov.it