Productivity growth and efficiency measurement : a dual approach

This paper derives output technical efficiency from a dual system of input demand and output supply equations using the concept of virtual prices. The underlying production function is firm-specific through intercept terms and slope parameters. The approach is used to decompose total factor productivity growth of Dutch pot-plant firms over the period 1976-1995 into a scale effect, an efficiency change effect and an exogenous technological change effect. The results show that total factor productivity has grown on average by 3.1 per cent per annum, with the main contribution (2.7 per cent) coming from improvements in technical efficiency.