Estimating Technological Change Using a
Stochastic Frontier Production Function Framework:
Evidence from U. S. Firm-Level Data

by

Rajeev Dhawan and Geoffrey Gerdes

Abstract

This paper presents a methodology for estimating an index of technological change using firm-level data in a stochastic frontier production function model that takes into account time-varying technical inefficiency. In contrast to the Solow divisia index approach, econometric estimation of the index with panel data allows the researcher to separate technical progress from the stochastic measurement error. Applying the econometric methodology to a panel of 908 publicly-traded U. S. firms from the COMPUSTAT database, we find evidence of a significant downturn in general technological change for the period, 1970-1989, whereas the divisia index methodology applied to the same data shows stagnation. When the sample is divided into Manufacturing, Services, and Miscellaneous categories we find that estimates of technological change for the three groups display markedly different stochastic behavior and that the Services group is the source of the downturn.

Downloadable Copies

The paper is published in the Journal of Productivity Analysis, Vol. 8, no. 4, Nov. 1997, pp. 431-446. Copies of the paper as submitted to the Journal can be downloaded by clicking on the preferred file format below. Of course, the usual copyrights apply.

Geoff Gerdes, Last Update: November 11, 1998