Economic integration, efficiency change and technological progress

This article examines the forces driving output growth in 21 manufacturing industries at the 3-digit level in Hong Kong during the period 1976 to 1997. A varying frontier coefficients model is adopted that relaxes the assumption of homogeneous application of the best practice production technology. The varying coefficients frontier approach allows the decomposition of output growth into factor contributions, technological progress and efficiency change. Following the decomposition framework, it facilitates the investigation of the relative roles of the three components of output growth and of the manner in which technical efficiency changed over time. The article finds evidence of moderate annual TFP growth of 2.7% in Hong Kong manufacturing attributed mainly to technological progress. This implies technical efficiency gained through learning-by-doing has been insignificant, reflecting the loss of skilled labour associated with manufacturing relocation to mainland China.