A Better Technology Frontier: Estimating Aggregate Production Frontiers with Sector Data

Researchers of regional and international productivity comparisons are increasingly adopting various frontier approaches to examine convergence and the possible causes of productivity differences. We argue that economy-wide technology frontiers estimated with aggregate measures of output are downward biased. This bias extends not only to estimates of the technology frontier, but also produces incorrect measures of technical change and efficiency change. We propose a micro-macro approach that estimates a “better” frontier that more closely emulates the underlying technologies. JEL Classifications: O30 & O47