Does Technical Efficiency Dominate Resource Reallocation in Aggregate Productivity Growth? Evidence from Swazi Manufacturing

Wednesday, 7 March, 2018
Is the effect of input reallocation on aggregate productivity growth (APG) less than that of technical efficiency? A robust finding in two influential meta-analyses by Bartelsman et al. (2004) and Paǵes et al. (2008) is that within-plant productivity dominates input reallocation across plants in the 25 countries studied. The method used to derive these patterns of growth is based on the Baily et al. (1992) and Foster et al. (2001) approaches which decompose aggregate labour productivity into real productivity and reallocation. This paper by Mhlanga and Rankin (2018) applies the Baily et al. (1992)/Foster et al. (2001) and Nishida et al. (2014) approaches to answer this question using the Swaziland manufacturing plant-level dataset covering a trade liberalization period of 1994-2003. In terms of the traditional approach, growth from within-firm activity (-4.88%) is subordinate to the Baily et al. (1992) reallocation growth (0.38%) and to the Foster et al. (2001) reallocation growth (3.53%). The Nishida et al. (2014) method generates similar results. For instance, the component of APG associated with technical efficiency/within-firm growth (-3.61%) compares with input reallocation growth (0.15%). The results from both approaches remain unchanged regardless of deflation criterion applied to value-added, capital and material input quantities. Therefore, the Swaziland manufacturing sector experienced robust contribution of input reallocation to APG relative to technical efficiency during the trade reform period. This suggests that firms were not investing more on improving production efficiency through innovation and adoption of new technologies than they moved inputs to higher activity producers.