A Comparative Analysis of Productivity Growth, Catch-Up, and Convergence in Transition Economies

The paper examines the macroeconomic performance of 25 transition economies using a comparable data set. In order to see whether transition to a market-based economy increased economic efficiency, technical progress, and total factor productivity (TFP), we estimate efficiency measures for Eastern European and Baltic countries and the republics of the former Soviet Union using stochastic frontier analysis (SFA) and data envelopment analysis as a confirmatory analysis. According to the SFA estimates, the average annual efficiency level for the 25 transition economies is 0.548, and the average annual rate of growth in technical efficiency is 1.8 percent for the 1991-2000 period. The average annual technical change in transition economies is -4.3 percent for the period examined. That is, there is no technological progress, but over the period there has been a technological regress. The sum of the rate of change in technical efficiency and technical change implies a 2.5 percent decline in the average annual TFP. These results suggest that, on average, change in technical efficiency is outweighed by the technical regress.