Abstract
This paper aims at comparing macroeconomic performance of three European socialist economies (Hungary, Poland, Yugoslavia) with developing and developed countries during the 1970s and the 1980s. Using panel data for 89 countries, we measure macroeconomic performance with two panel data production frontier models: the WITHIN model proposed by (Cornwell et al J Econom 46:185–200, 1990), and the firm effects model developed by (Battese and Coelli J Prod Anal 3:153–169, 1992). We conclude in favor of the underperformance of socialist countries in relation to developed countries but also to developing countries in most cases, which may be explained by the features of the socialist economic system.
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Notes
Two reasons motivate the choice of the Cobb–Douglas form. First, it is commonly used in empirical works on growth and on aggregate efficiency frontiers technical efficiency. Second, in his estimation of production functions with CES and translog forms for European socialist countries, Whitesell (1985) showed that the Cobb–Douglas was the most appropriate form to describe growth in these countries.
Koop et al. (2000) also used the Penn World Table for their estimation of technical efficiency of Poland, Yugoslavia and Western countries. They consider that “the Penn World Table provides the best currently available data that allows for reliable cross-country comparisons” (p. 186).
These data can be downloaded at http://www.cid.harvard.edu/ciddata/ciddata.html.
An alternative method would have been the application of DEA with the ‘window analysis’ for a dynamic investigation of the efficiency scores (see Charnes et al. 1985).
The Spearman coefficients of correlation between mean efficiency scores obtained with both techniques are, respectively, 0.681, 0.689, 0.731 and 0.753, for the subperiods 1971–1975, 1976–1979, 1980–1983, and 1984–1987. All these coefficients are significant at the 1% level.
We are fully aware that the significance tests we conducted rely on the normality assumption of the distribution of the efficiency scores. While this is questionable, the sample sizes being too small for such approximation, some of our results, including the difference in efficiency between socialist and developed countries, reject so strongly the null hypothesis that we are confident in our conclusions.
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Acknowledgments
I would like to thank Valentin Zelenyuk and two anonymous referees for their very helpful and precise comments that considerably improve the paper. I also thank Pierre-Guillaume Méon for his help.
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Weill, L. On the inefficiency of European socialist economies. J Prod Anal 29, 79–89 (2008). https://doi.org/10.1007/s11123-007-0068-0
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DOI: https://doi.org/10.1007/s11123-007-0068-0