Decomposing regional efficiency

Applying an outlier robust extension of the data envelopment analysis (DEA) followed by a geoadditive regression analysis, this study identifies and decomposes the efficiency of 439 German regions in using infrastructure and human capital. The findings show that the regions' efficiency is driven by a spatial and a non-spatial, arguably structural factor. As a consequence, concrete regional funding schemes, shaped by best practice results, might not be appropriate for all regions. Instead, a more differentiated funding scheme that accounts for both spatial and structural factors seems more promising.