Production and Efficiency in 21 Industrialized Countries from 1966 to 2007 to Analyse the Italy’s Decline: Application of a Stochastic Frontier Model in a Bayesian Approach.

Abstract

This paper uses a stochastic frontier production model to estimate the technical efficiency of 21 nations among the more industrialized countries in the world for the wide period from 1966 to 2007. A Cobb-Douglas with labour and capital as inputs, GDP as output and efficiency with exponential distribution appears to work good from a statistical point of view. This model is used to estimate in a bayesian approach the efficiency score of these 21 countries. The bayesian way, applied via Gibbs sampling, is here useful to avoid problems about the small number of observations. So, each efficiency score is obtained as mean of 10,000 draws. The results underline a general and progressive efficiency reduction with a disappointing rank of Italy (16-th at 1966 and 15-th at 2007) and a very bad position of Greece against better ranks of USA and Luxembourg. It is interesting to note the worsening of Japan between 1966 and 2007 but also the strong improvement of Finland and Ireland. Besides, the decomposition of GDP growth for the whole period shows the prominent role of input changes, a smaller but positive effect of technical changes and a small and, in general, negative effect of efficiency changes. In short, the Italian position reveals the presence of a worrying condition about the economic decline of country. This suggests an indispensable and deep action that would be to invert this dramatic state.