Int. J.

Production Economics 66 (2000) 105}117

Convergence and productive e$ciency in fourteen OECD

countries: A non-parametric frontier approach
Francisco J. Arcelus *, Pablo Arocena

Faculty of Administration, University of New Brunswick, P.O. Box 4400, Fredericton, N.B. E3B 5A3, Canada

Dpto. de Gestio& n de Empresas, Universidad Pu& blica de Navarra, Campus de Arrosadia s/n. 31006 Pamplona (Navarra) Spain
Received 29 December 1998; accepted 10 February 1999

Abstract
This paper explores the use of a non-parametric frontier approach to analyse multi-factor productivity across time and
countries. We argue that conventional measures of total factor productivity involve some restrictive assumptions that
might bias the results. A non-parametric approach avoids these assumptions. The model uses linear programming
techniques to examine the productivity catching-up in 14 OECD countries over the 1970}1990 period, under the
assumption of variable returns to scale. We "nd evidence of convergence, even if at quite di!erent speeds, for total
industry, for manufacturing and for services.  2000 Elsevier Science B.V. All rights reserved.
Keywords: E$ciency; Productivity; Convergence; Data Envelopment Analysis

1. Introduction
Are less productive and developing countries
catching-up to their more productive and developed counterparts? Are less productive countries growing faster than the most productive ones?
To what extent there exists a common trend
towards the convergence or divergence of productivity levels among nations? These convergence
queries are among the most salient and controversial issues in the economic growth "eld [1] and
have been subject to a wide gamut of studies, of
diverse objectives and methodology. Barro and

* Corresponding author. Tel.: #1-506-453-4869; fax: #1506-453-3561.

E-mail addresses: arcelus@unb.ca (F.J. Arcelus); pablo@
upna.es (P. Arocena).

Sala-i-Martin [2], Quah [3], Sala-i-Martin [4], de

la Fuente [5] and Durlauf and Quah [6] review
this rather voluminous literature. It is the purpose
of this paper to explore two important issues that
still remain unresolved. We refer to the measurement of total factor productivity (heretofore, TFP)
across time and countries and to the di$culty in
disentangling the related e!ects of e$ciency, productivity and catching-up. For this purpose, the
paper explores the use of a non-parametric frontier
approach to analyse multi-factor productivity
across time and countries. We argue that this approach obviates the need for the rather restrictive
assumptions inherent in the more traditional approaches to the study of TFP comparability across
time and countries.
To that e!ect, the paper is organised as follows.
Section 2 takes up the question of TFP measurement and the di$culties in constructing

0925-5273/00/$ - see front matter  2000 Elsevier Science B.V. All rights reserved.
PII: S 0 9 2 5 - 5 2 7 3 ( 9 9 ) 0 0 1 1 6 - 4

106

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

appropriate indexes. Section 3 sets the stage for the

estimation procedure by de"ning and contrasting
the three concepts alluded to earlier, namely e$ciency, productivity and catching-up and by discussing the issue of constructing productivity
measures that di!erentiates scale from e$ciency
e!ects, in the presence of variable returns to scale.
Section 4 presents the basic methodology proposed
in this study. It di!ers from the conventional approach in that, following the pioneering work of
FaK re et al. [7], we use a non-parametric method to
construct a world frontier that serves as a benchmark to compare the relative position of each
country and its evolution over time. Section 5
presents the empirical results. We analyse the
incidence of productivity catching-up across the
14 countries included in the OECD's International
Sectoral Data Base [8]. The analysis is performed
for the aggregated industry as well as for two
sectors considered essential to the economic
growth of any nation, namely manufacturing and
services. Together, these two economic sectors represent 77.5% of the total industry output in 1970
and 84% in 1990 for the countries included in the
ISDB data base. We "nd evidence of a high degree
of convergence for all three sectors and provide
reasons for any discrepancies with past studies on
the subject. A Conclusions section completes the
paper.

2. The problem of measuring total factor

productivity
This section considers the two basic problems
associated with the measurement of TFP, namely
(i) lack of readily available and generally acceptable data on both labour and capital inputs, as well
as lack of widely accepted conversion factors for
output; and (ii) the restrictive assumptions required to measure TFP levels for any inputs-tooutput conversion approach.
The "rst issue is re#ected in the literature primarily through the use of partial productivity indices
as the basic measurement index of convergence,
normally proxied by GDP per capita or similar
income variable. Typical studies of this type are the
pioneering works of Baumol [9] and Abramovitz

[10] which provide evidence of technological

catching-up between industrialised countries especially during the post-war period. Other examples
include those of Barro and Sala-i-Martin [11,12]
and Sala-i-Martin [4,13]. These studies show evidence of convergence across countries and regions
by "nding a signi"cant inverse relationship between the GDP growth and a country's initial level
of productivity in a cross-section regression.
In contrast, Quah [4,13,14] "nd support for
club convergence or polarisation of economies
into groups of rich and poor. Barro and Sala-iMartin [2] and Durlauf and Quah [6] survey this
literature.
A drawback of this literature is that a partial
productivity index improvement might be explained by an input substitution process and not by
an e$ciency improvement in the input usage. An
important implication of this observation is the
advisability of measuring the combined e!ects of all
productivity factors, hence the need for TFP indices. Examples include Dowrick and Nguyen [15],
Bernard and Jones [16], Cronwell and WaK chter
[17] and FaK re et al. [7], among others. Dowrick
and Nguyen [15] "nd strong evidence of TFP convergence for 14 OECD countries between 1950 and
1985, using capital and labour growth rates as well
as the initial relative level of per capita GDP as
independent variables to explain the growth of
GDP. Bernard and Jones [16] also use TFP indices
to compare the productivity performance, across
several sectors, of the same 14 OECD countries
used in the present study, for the 1970}1987 time
period. Its principal "ndings are evidence of convergence if at di!erent speeds among most sectors
of the economy. The service sector exhibited the
highest speed of convergence or catching-up, with
poor to non-existent convergence results for manufacturing. Therefore, services are mainly explaining
the catching-up process detected for the total
industry.
A common feature of these studies is the need for
the computation of TFP levels when comparing
total factor productivity across countries. This in
turn requires the use of the following four rather
limiting assumptions about the existing technology
and the behaviour of the economic unit under analysis (e.g. [18]): (i) the de"nition of a speci"c form of

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

an underlying production function that characterises the existent technology, such as the Cobb}
Douglas production function; (ii) constant returns
to scale; (iii) an optimising behaviour, with no
room for any ine$ciency, be it technical or allocative; and (iv) the use of a Hicks neutral technical change to calculate the TFP growth. The
limiting aspects of these assumptions are re#ected
in the construction of the most popular TFP index,
the Tornqvist index. Based upon a discrete approximation of the general Solow [19] model, it
requires cost shares as weights and assumes these
shares to be cost-minimising shares (i.e. factor prices are equal to their value marginal products).
However, as Bernard and Jones [16] point out,
`depending on the relative price used to weight
apples and oranges, either country may appear to
be more productive than the othera (p. 1232).
Hence, the computation of TFP levels requires
assumptions that are di$cult to justify in practice.
Whenever these assumptions do not hold, TFP
measurements will be biased.
Although its focus is not on the productivity
convergence per se, FaK re et al. [7] analyse TFP
growth in 17 OECD countries over the period
1979}1988 through the computation of the Malmquist productivity index. Recent surveys on the
Malmquist index appear in Coelli et al. [18] and
FaK re et al. [20]. Such an alternate approach to
traditional productivity measurement does not
require the four assumptions outlined earlier and
thus avoids the corresponding measurements pitfalls outlined in this section.

3. E7ciency, productivity, scale and catching-up

With respect to the concept of convergence, there
are two issues of importance, namely (i) the exact
meaning of the term `convergencea; and (ii) the
standard against which each country is measured.
Convergence may be broadly de"ned as the tendency for two or more economies to become more
similar, be they in terms of per capita incomes, or
in#ation rates, or growth rates or such similar
measure. Barro and Sala-i-Martin [2,11,12] and
Sala-i-Martin [4,13] identify two types of convergence b-convergence and p-convergence. On the

107

one hand, there exists b-convergence in a crosssection of economies, if poor economies tend to
grow faster than wealthy ones. That is, productivity
convergence may be de"ned as catch-up by lowproductivity economies to higher productivity
ones. On the other hand, a group of economies
exhibits p-convergence if the dispersion of their
productivities tend to decrease over time. Estimates
of both types of convergence are presented in
Section 5. It should be observed that only unconditional, also denoted absolute, b-convergence is considered in this paper, following the lead of most
papers using OECD data (e.g. [4,16,17]). The
rationale for this approach lies on the relative
homogeneity of the OECD countries, at least as
compared to the rest of the countries of the world
[2,4], which leads towards ignoring the additional
socio-economic variables usually included to
derive measures of conditional b-convergence.
Durlauf and Quah [6] provide a compilation of
the wide range of variables used in the empirical
studies of conditional b-convergence. Further,
Durlauf and Quah [6] and De la Fuente [5]
summarise various conceptual and estimation
aspects associated with the nature and use of
b-convergence.
As for the second issue, convergence "rstly requires the identi"cation of the most productive
countries in order to construct a behavioural reference or a benchmark for the rest of the economies.
The distance that separates it from that benchmark
explains the relative performance of one country.
If that distance becomes smaller over time we will
say that there is convergence. This is in contrast to
the traditional approach of measuring TFP growth
for one economy exclusively on the basis of the
country's past performance.
Just like growth and convergence are closely
related but not identical concepts [21], so are e$ciency and productivity. An economic unit exhibits
productive e$ciency when it cannot produce more
of any output without decreasing some other output or increasing some other input. Productivity
relates the amount of outputs obtained to the
amount of inputs used, without regard to the e$ciency of the inputs utilisation. Therefore, e$ciency
is a relative concept. That is to say, the performance
of an economic unit must be compared with a

108

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

Fig. 1. The productive e$ciency under variable returns to scale.

standard or norm [22]. In this respect, e$ciency

ranks the productivity of two or more units [23].
Fig. 1 illustrates this fact in a single input}output
situation, where the production technology is represented through the curve F(y, x), that de"nes the
maximum output attainable from each level of
input. All input}output combinations below this
curve are feasible but technically ine$cient. Thus,
economic unit B produces y with x in period 1,
@
@
but it could obtain yH"hy, where h"yH/y (*1)
@
@
@ @
is the Farrell's (1957) output measure of technical
ine$ciency. In contrast, the same unit in period 2
(B) is e$cient since it produces the maximum
output attainable, given the existing technology.
That is, production is occurring on the boundary
of the production possibilities set, therefore
yH/y"1. However, both observations exhibit the
@ @
same average productivity (y/x) measured by the
slope of the ray 0B.
In the simplest case of one input (i.e. labour) and
one output (i.e. GDP) under constant returns to
scale, it is obvious that the catching-up re#ects the
productivity change. The most productive country
presents the highest ratio of average productivity
and it constitutes the reference for the rest. If the
other countries increase their average productivity
ratio more than the leader, they are considered to
be `catching-upa to it. However, this is not necessarily true under variable returns to scale, even in
the simplest of cases, namely that of one input and
one output. To illustrate this point, consider Fig. 1,

Fig. 2. Catching-up under variable returns to scale.

where the technology of production exhibits variable returns to scale, with the optimal scale given
by the maximum average productivity at point S.
Observations on the left of S are too small and are
operating in the region of increasing returns to
scale. On the other hand, observations on the right
of S are too large and are operating in the region of
decreasing returns to scale. Now consider two
economies, A and B, in two periods, with no technical change between them (any shift in the production frontier). In our example, B is more productive
than A in both periods, as shown by the higher
slope of the ray 0B. Let us assume than in period 2,
B moves to B and A to A . This move implies


a change in the scale of operations and the elimination of technical ine$ciency, but the average productivity remains unchanged. Both economies are
now technically e$cient, although they are still
operating far from the optimal scale. Although
these moves reveal an obvious catching-up to the
frontier we would conclude that no convergence
across economies has occurred: the cross-sectional
variance remains constant (no p-convergence) and
the rate of growth (zero) is equal for both countries
(no b-convergence).
Fig. 2 depicts the case of both countries increasing their productivity without changing their scale
of operations. In this example, the most productive
country (B) has increased its productivity more
than the less productive country (A). This implies
the occurrence of some divergence across the

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

economies in the sense of b. As a result, the conventional cross-section regression analysis would show
a positive correlation between productivity growth
and the initial productive level. Fig. 2 illustrates the
consequences of ignoring the existence of scale
economies in measuring productivity change.
Imposing constant returns to scale implies assuming that the maximum average productivity is attainable for any country, irrespective of its scale
size. Hence, we compute changes in the distance
from each observation to the maximal productivity
showed at the technically optimal scale. This leads
to the ray TOPS in Fig. 2, which includes all combinations having the same (maximal) average productivity as the S point in Fig. 1 and constitutes the
constant returns to scale frontier. As F+rsund [23]
remarks, since we are analysing the variable returns
to scale technology de"ned by F(y, x) these combinations (apart from S) are not feasible; they just
serve as points of comparison. However, when variable returns to scale are taken into account in the
construction of the benchmark, the conclusion is
fairly di!erent: both countries are located at the
best practice frontier in period 2.
The main import of the above discussion is that
the actual productivity change may not re#ect the
relative catching-up, because of the in#uence of
the returns to scale of the frontier technology. The
more signi"cant the scale e!ects are, the higher the
discrepancy will be, since moving closer to TOPS
may require changes both in e$ciency and scale.
Furthermore, if di!erences in scale persist throughout the time, the assumption of constant returns to
scale leads to increases in the probability of detecting divergence, even though all economies are closing the distance that separates them from the best
practice benchmark. For this reason, we consider
the notion of productive e$ciency to be more
appropriate than that of productivity, for the purpose of analysing convergence as catching-up, in
the presence of variable returns to scale.

4. A non-parametric frontier model

We analyse productive e$ciency through nonparametric frontiers or data envelopment analysis
(DEA). Charnes et al. [24], Lovell [25] and Cooper

109

et al. [26] provide a comprehensive survey on DEA

methodology and applications. A DEA model constructs a best practice frontier from the observed
inputs and outputs as a piecewise linear technology. The frontier technology is formed as linear
combinations of observed extremal activities (best
practice), yielding a frontier consisting of facets.
This technology can be shown to satisfy very general axioms of production theory (see [27]).
(In)e$ciency is measured by the distance of each
observation to that frontier. DEA is typically
applied to cross-section data to assess productive
e$ciency of one economic unit for a particular time
period.
Although there exist a considerable amount of
DEA literature, the utilisation of panel data in
empirical applications of DEA is still limited.
Charnes et al. [28] introduced the so-called `window analysisa, for measuring changes of performance over time. A di!erent approach to the
measurement of e$ciency and technical change
between two periods of time was developed by FaK re
et al. [29], through the use of DEA to construct the
Malmquist index [30] of productivity change. We
integrate the time into e$ciency assessment in a different way. Our panel data includes J countries and
years. Using all the data, i.e., the ;J observations, we construct a reference frontier or what
Tulkens and Vanden Eeckaut [31] call an `intertemporal frontiera. This is equivalent to considering a country in each di!erent year as if it were
a di!erent observation in a cross-section analysis.
As a result, it is possible to compare each observation to the rest countries and to their own past
performances, by computing the extent to which
less productive countries move closer to the best
practice frontier, as de"ned by the most productive
countries throughout the whole observation
period. In this way, we have a stable reference in
relation to which we measure the productive e$ciency level achieved by each country from
t"1,2, . Then, if one country improves its relative position over time in relation to the rest, it will
reduce the distance to the frontier. In other words,
it will catch-up to the most productive countries
that form the best practice frontier.
The so-called output distance function [32] is
used to calculate how far each observation is from

110

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

the frontier. This function is the reciprocal of the

Farrell's [33] output measure of technical e$ciency, which is in turn equal to the maximal proportional expansion of the output vector y, given
inputs x. Following FaK re et al. [27], a production
technology transforming inputs x3R, into out>
puts y3R+ can be represented by the Graph of the
>
technology, i.e. by the set of all feasible input}output vectors, as follows:
GR"+(x, y): x can produce y,.
The output distance function is de"ned by
D (x, y)"min+h: (x, y/h)3GR,

"[max+h: (x, hy)3GR,]\.
We consider a reference technology which allows
variable returns to scale and satis"es strong disposability of inputs and outputs (see FaK re et al. [34]
for details). Under these assumptions, the distance
function can be computed by solving the following
linear programming problem:
[D (x HR, y HR)]\"max h

subject to
( 2
hyHR ) zHRyHR , m"1,2, M,
K
K
H R
( 2
zHRxHR)xHR, n"1,2, N,
L
L
H R
( 2
zHR"1,
H R
zHR*0, j"1,2, J; t"1,2, .
D (xG, yG)"1 (hG"1) indicates that the observa
tion i is on the frontier, because it achieves the
maximum output obtainable from any country of
the reference set, given its level of inputs. On the
contrary, if D (x , y )(1 (h '1), observation i is
 G G
G
not e$cient, because there exists some unit or
a convex combination of other referent units
located on the e$cient frontier, that utilises the
same quantity of inputs and produce a higher level
of outputs. For each sector, we solve the above

problem ;J times, one for each observation

(x HR, y HR), with j representing the country and t the
year in our case.

5. Data and results

The data are drawn from the 1996 version of the
International Sectoral Data Base [8], compiled by
the OECD as part of its on-going project to study
the industrial structure and economic performance
of its members. The current version includes
information for 14 countries (Austria, Belgium,
Canada, Denmark, Finland, France, Germany,
Great Britain, Italy, Japan, Netherlands, Norway,
Sweden and USA). The ISDB [8] covers the
1960}1995 time period. However, the gaps for the
pre-1970 and the post-1990 years were considered
to be signi"cant enough to drop these years from
consideration. As a result, the paper uses data
drawn for 1970}1990 time period, for which there
are no gaps, with the exception of the Netherlands
and the last two years of Finland for the service
sector, and the last year for Great Britain in the
total industry case.
The proxies for labour and capital are the number of employees, and the gross capital stock (US
dollars at 1990 prices, and 1990 PPPs). The output
is measured by the GDP (US dollars at 1990 prices,
and 1990 PPPs). Total Industry and Manufacturing correspond to the ISDB codes TIN and MAN
respectively. Services include the ISDB codes RET
(wholesale and retail trade, restaurants and hotels),
TRS (transport, storage and communication), FNI
("nance, insurance, real state and business services)
and SOC (community, social and personal services). Total Industry includes agriculture; mining
and quarrying; electricity, gas and water; manufacturing; services and construction. Further details
on an earlier but still valid ISDB version appears in
Meyer-zu-Schlochtern and Meyer-zu-Schlochtern
[35]. For each country and sector, the results are
presented in summary form for the 1970}1975,
1975}1980, 1980}1985 and 1985}1990 time periods
in order to distinguish possible di!erent patterns of
performance in each period.
Table 1 is designed to elucidate the crucial question alluded to earlier of the type of scale returns

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

111

Table 1
The impact of variable returns to scale
1970}1975

1975}1980

1980}1985

1985}1990

Total

Total industry
Australia
Belgium
Canada
Denmark
Finland
France
Great Britain
Germany
Italy
Japan
Netherlands
Norway
Sweden
USA
Mean
St. dev.

0.952
0.874
0.994
0.655
0.585
0.996
0.990
0.997
0.997
0.999
0.951
0.482
0.963
0.993
0.888
0.170

0.986
0.930
0.998
0.679
0.682
0.991
0.995
0.995
0.993
1.000
0.984
0.568
0.994
0.989
0.913
0.144

0.997
0.958
0.994
0.653
0.718
0.993
0.997
0.992
0.992
1.000
0.999
0.596
0.978
0.986
0.918
0.140

0.997
0.988
0.992
0.735
0.710
0.990
0.996
0.989
0.998
1.000
0.998
0.652
0.959
0.982
0.928
0.122

0.982
0.934
0.994
0.679
0.669
0.993
0.994
0.993
0.995
1.000
0.981
0.570
0.973
0.988
0.910
0.145

Manufacturing
Australia
Belgium
Canada
Denmark
Finland
France
Great Britain
Germany
Italy
Japan
Netherlands
Norway
Sweden
USA
Mean
St. dev.

0.906
0.869
0.940
0.708
0.735
0.983
0.991
0.994
0.982
0.999
0.891
0.621
0.878
1.000
0.893
0.118

0.905
0.856
0.943
0.702
0.779
0.985
0.990
0.993
0.985
0.997
0.903
0.585
0.877
0.989
0.892
0.121

0.924
0.869
0.959
0.707
0.797
0.986
0.989
0.993
0.987
0.997
0.927
0.522
0.872
0.998
0.895
0.133

0.934
0.906
0.966
0.744
0.775
0.986
0.989
0.994
0.991
0.998
0.958
0.504
0.887
1.000
0.902
0.136

0.917
0.875
0.951
0.715
0.770
0.985
0.990
0.993
0.986
0.998
0.918
0.561
0.878
0.997
0.895
0.127

Services
Australia
Belgium
Canada
Denmark
Finland
France
Great Britain
Germany
Italy
Japan
Norway
Sweden
USA
Mean
St. dev.

0.979
0.991
0.998
0.618
0.537
1.000
0.994
0.999
1.000
0.999
0.448
0.964
1.000
0.887
0.196

0.996
0.995
0.999
0.632
0.556
1.000
0.999
0.999
1.000
0.992
0.588
0.935
1.000
0.899
0.170

0.998
0.978
0.999
0.618
0.606
1.000
0.999
1.000
1.000
0.988
0.654
0.879
0.998
0.901
0.154

0.999
1.000
0.999
0.688
0.638
0.994
1.000
0.995
1.000
0.993
0.725
0.894
0.996
0.917
0.123

0.992
0.991
0.999
0.638
0.576
0.998
0.998
0.998
1.000
0.993
0.597
0.920
0.998
0.900
0.163

112

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

exhibited by the various sectors, for the various

countries and time periods. For each sector/year/
country combination the linear program of (1)
was run twice, with and without the equality constraint, to obtain the distances of each unit to the
frontier (variable returns to scale allowed) and
to the optimal scale on the frontier function
(calculated for a constant returns to scale frontier), respectively. The presence of constant (variable) returns is detected when the ratio of the
second to the "rst index for a particular sector/
year/country combination equals (is less than) one
[36]. If there are not scale e!ects, then all observations should be equally technically e$cient, relative
both to variable and constant returns to scale frontier. On the other hand, departures from the optimal scale will be re#ected in scale e$ciency ratios
under one.
Even a cursory look at Table 1 suggests the
presence of variable returns for most cases. For
total industry, only Japan is operating at the optimal scale for the entire period under study. The rest
of countries display scale ratios lower than unity,
re#ecting various degrees of scale economies. In the
manufacturing sector, seven countries (Norway,
Denmark, Finland, Belgium, Sweden, Australia
and The Netherlands) present very low average
values, as a consequence of operating far from the
optimal scale throughout the whole period. Only
Japan (in 1970}1972) and the US (for the whole
period with the exception of 1978}1981) appear as
scale e$cient. In services, Italy, France, the US and
Japan are scale e$cient most of the time and
Belgium, only in the last two years. At the other
end, the Scandinavian countries appear very scale
ine$cient in comparison with the rest. Fig. 3 displays the evolution of the average scale e$ciency
and its dispersion by sector. Panel (a) shows that
total industry and the services sector exhibit a signi"cant increase in scale e$ciency, i.e. countries are
on average moving closer to the optimal scale. By
contrast, only the last seven years of the period
show a moderate increase in the average scale e$ciency for the manufacturing sector. Panel (b) displays the dispersion on the scale e$ciency in the
form of the coe$cients of variation (see also the last
row of Table 1). Whereas pronounced decreases
in dispersion are detected in total industry and

Fig. 3. The evolution of the average scale e$ciency and its

dispersion.

services, the disparities remain for the manufacturing sector throughout the period, even becoming
wider during the 1980s. This evidence suggests the
need to evaluate convergence under variable returns to scale.
Table 2 lists the average of sectoral productive
e$ciency scores for each country and time period,
under variable returns-to-scale. In most cases, the
evolution of the average e$ciency scores for the
whole time period clearly shows an ascending tendency, with services displaying a higher average
score than manufacturing throughout the period
under study. Fig. 4 depicts graphically such trends.
Nevertheless, there are still large di!erences among
countries. Hence, even though average e$ciency
has increased for total industry as well as for the

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

113

Table 2
Average e$ciency scores
1970}1975

1975}1980

1980}1985

1985}1990

Total

Total industry
Australia
Belgium
Canada
Denmark
Finland
France
Great Britain
Germany
Italy
Japan
Netherlands
Norway
Sweden
USA
Mean
St. dev.
Minimum

0.812
0.991
0.738
0.859
0.903
0.724
0.663
0.739
0.839
0.949
0.853
0.985
0.561
0.969
0.827
0.127
0.561

0.812
0.975
0.758
0.844
0.756
0.768
0.653
0.780
0.913
0.933
0.879
0.894
0.545
0.964
0.820
0.118
0.545

0.816
0.988
0.740
0.905
0.763
0.782
0.683
0.774
0.935
0.947
0.870
0.903
0.563
0.950
0.830
0.116
0.543

0.837
0.993
0.768
0.848
0.844
0.831
0.782
0.814
0.982
0.980
0.900
0.924
0.604
0.993
0.864
0.106
0.604

0.819
0.987
0.750
0.864
0.821
0.774
0.694
0.775
0.914
0.952
0.874
0.929
0.568
0.969
0.835
0.117
0.568

Manufacturing
Australia
Belgium
Canada
Denmark
Finland
France
Great Britain
Germany
Italy
Japan
Netherlands
Norway
Sweden
USA
Mean
St. dev.
Minimum

0.766
0.787
0.787
0.872
0.631
0.819
0.708
0.883
0.604
0.897
0.692
0.981
0.735
0.925
0.792
0.110
0.601

0.776
0.826
0.797
0.830
0.587
0.817
0.625
0.865
0.710
0.804
0.722
0.874
0.654
0.936
0.773
0.100
0.572

0.759
0.945
0.739
0.861
0.660
0.817
0.591
0.837
0.760
0.828
0.738
0.929
0.686
0.874
0.787
0.100
0.591

0.804
0.986
0.784
0.775
0.796
0.830
0.704
0.876
0.869
0.885
0.766
0.950
0.732
0.975
0.838
0.088
0.699

0.776
0.881
0.777
0.836
0.667
0.821
0.659
0.866
0.730
0.855
0.728
0.936
0.703
0.928
0.797
0.100
0.615

Services
Australia
Belgium
Canada
Denmark
Finland
France
Great Britain
Germany
Italy
Japan
Netherlands
Norway
Sweden
USA
Mean
St. dev.
Minimum

0.841
0.994
0.750
0.969
0.955
0.720
0.747
0.707
0.878
0.981
*
0.854
0.528
0.934
0.835
0.134
0.528

0.841
0.971
0.730
0.966
0.905
0.744
0.742
0.733
0.943
0.939
*
0.690
0.557
0.960
0.825
0.129
0.557

0.864
0.981
0.727
0.986
0.855
0.751
0.761
0.739
0.955
0.965
*
0.631
0.590
0.979
0.830
0.134
0.590

0.865
0.984
0.755
0.941
0.866
0.805
0.839
0.797
0.984
0.994
*
0.626
0.605
0.998
0.851
0.130
0.604

0.852
0.983
0.741
0.966
0.901
0.753
0.771
0.742
0.937
0.970
*
0.708
0.568
0.966
0.835
0.132
0.568

114

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

The dispersion of the scores in the form of standard deviation is displayed at the bottom of
Table 2. The dispersion data indicate that, for total
industry and manufacturing, higher e$ciency levels
are also accompanied by reductions in the variability. Table 2 suggests a less pronounced move toward the frontier in the service sector and wider
disparities among countries. Fig. 5 plots the evolution of the standard deviation and provides visual
evidence of convergence, in the sense that the dispersion of the productive e$ciency levels tends to
decrease over time, i.e. p (p . This is, of course,
R>2
R
the concept of p-convergence de"ned in Section
3 above.
The last point is the evaluation of the speed of
convergence of the low productive countries
towards the best performers at the frontier. This is,
of course, a question related to b-convergence, also
de"ned in Section 3. The last row of Table 2 reports
the average minimum score for each time period.
The ascending tendency illustrates the catching-up
process of the least productive country. In Table 3,
we measure the strength of this catching-up tendency, while at the same time test for scale e!ects.
We follow standard methodology and regress each
country's annual productive e$ciency growth
rates on the country's initial productive level to
produce estimates of b. The form of the regression
used to estimate beta for each sector is given as
follows:




Fig. 4. The evolution of average productive e$ciency scores by

sector.

two sectors, the variability in the rates of increase

suggests substantial potential for further productive e$ciency improvements in many countries.

2 1
hR>
G
ln
"a#b ln h#e .
G
G

hR
G
R
The results displayed in Table 3 yield clear evidence of convergence under variable returns holds
for the total industry as well as for the manufacturing and service sectors. The catching-up process is
higher for the manufacturing sector, as the null
hypothesis of no convergence is rejected at 1%, and
the adjusted R is the highest. Scale e!ects are
evident, when comparing the regression results under variable and constant returns from Table 3.
Under the later, the convergence e!ect is certainly
underestimated and hence substantially a!ected by
the scale e!ect. This is especially true in manufacturing, where the results under constant returns are
statistically insigni"cant, as they are in other
studies [16,17]. However, once the scale e!ect is

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

115

Table 3
Regression analysis of average productive e$ciency growth
rates on the initial productive level
b

SE

R

Variable returns
Total Industry
Manufacturing
Services

!0.0179
!0.0364
!0.0239

0.0038
0.0058
0.0065

!3.145
!3.523
!2.583

0.4062
0.4675
0.3211

Constant returns
Total Industry
Manufacturing
Services

!0.0116
!0.0461
!0.0077

0.0036
0.0088
0.0028

!2.717
!1.686
!2.842

0.3293
0.1242
0.3709

returns to scale in the analysis of catching-up or

productivity convergence.
6. Some concluding comments

Fig. 5. The evolution of standard deviations of productive e$ciency.

accounted for, Table 3 provides strong evidence

of convergence. Therefore, these results con"rm our
expectations stated in Section 3 about the consequences that one may expect of ignoring variable

This paper deals with the problem of comparing

multifactor productivity levels and changes across
countries and across time. We use a non-parametric approach to construct a best-practice frontier
and compute the evolution of the relative distance
of each country to that benchmark across time in
order to test for the existence of some catching-up
or productivity convergence process. Whereas this
approach di!ers from the more conventional
methodologies used in the economic growth "eld, it
reveals itself as a more #exible approach to the
analysis of productivity convergence. The evidence
obtained from our sample of 14 OECD countries
indicates a high degree of catching-up among these
countries for the total industry and for the manufacturing and services sectors. Further, our results
di!er from those of some previous studies on productivity convergence, in that they also provide
strong evidence of variable returns to scale. As
a consequence, our results di!er from those of some
previous studies on productivity convergence. Our
estimates of b-convergence are higher for the total
industry and for services sector and run counter to
the lack of convergence found in past studies for the
manufacturing sector. However, there still remain
important di!erences in performance among countries, suggesting that further productivity improvements are possible for many economies.

116

F.J. Arcelus, P. Arocena / Int. J. Production Economics 66 (2000) 105}117

Acknowledgements
Financial assistance for the completion of this
research from the Natural Sciences and Engineering Research Council of Canada is gratefully
acknowledged. Part of this research has been carried out while the "rst mentioned author was on
sabbatical at the Departamento de GestioH n de
Empresas, Universidad PuH blica de Navarra under
the Sabbatical Program of the Ministry of Education, Government of Spain. We are grateful for the
funding from the DireccioH n General de InvestigacioH n y Desarrollo, Ministerio de EducacioH n
y Ciencia (Grant No. SAB 95-0428) and for the
supportive facilities at UPNA.

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