Relative Sources of European Regional Productivity Convergence: A Bootstrap Frontier Approach

Abstract

This paper addresses the issue of Western European regional productivity growth and convergence by means of Data Envelopment Analysis (DEA), decomposing labour productivity into efficiency change, technical change and capital accumulation. The decomposition shows that most regions have fallen behind the production frontier in efficiency and that capital accumulation has had a diverging effect on the labour productivity distribution. Using bootstrapping methods, the paper also accounts for the inherent bias and the stochastic elements in the efficiency estimation. It is found that the relative ranking of the efficiency scores remains stable after the bias-correction, even after controlling for spatially correlated measurement errors, and that the DEA successfully identifies the regions on the production frontier as significantly more efficient than other regions.