A Note on Technical Efficiency, Productivity Growth and Competitiveness

‘Productivity and efficiency growth enhances competitiveness’. Similarly formulated statements are common in the literature on the economic performance of firms, industries and nations. This conventional perception in the economic literature, originating from trade and growth theory models, however, lacks a clearly defined mathematical formulation. Earlier work by Page (1980) and Nishimizu and Page (1986) provides an elegant formalization of the relationship between the productivity growth and competitiveness measured by the Domestic Resource Costs (DRC) ratio. However, the relationship between technical efficiency and competitiveness has not been addressed in the literature. Moreover, the DRC is a biased measure of competitiveness. We propose static and dynamic decompositions of competitiveness measured by the unbiased Social Cost Benefit Ratio (SCB) indicator using a distance function approach, and demonstrate these decompositions using simulated data. These decompositions extend earlier work to formalize the relationship between technical efficiency, productivity and competitiveness, and demonstrate that competitiveness is also influenced by other factors that can override the effects of efficiency or productivity improvements.