Bias-Corrected Production Frontiers: Application to Productivity Growth and Convergence

Data envelopment analysis (DEA), originally developed to study production efficiency ofmicro-level organizations, has recently been used to adopt a production-frontier approach to the analysis of international macroeconomic growth and convergence patterns. DEA methods, however, are known to provide biased estimates of the production frontier and efficiency. We employ recent results from the statistics/econometrics literature (and more recent, more extensive, and more accurate data than previously employed) to construct the unbiased convex production frontier and then use this construction to decompose productivity growth into components attributable to technological change (shift of the production frontier), efficiency change (movements toward or away from the frontier), physical capital deepening, and human capital accumulation. Using this decomposition, we analyze the evolution of the world productivity distribution, especially the shift from uni-modality to bimodality over the 1965–2000 period.