ABSTRACT
So far, no dynamic effects have been included in the estimation, largely due to the difficulty in converting current value data into a valid time series of input and output quantities. But, during the period of this sample, and subsequently, as discussed in the context of the transformational recession, the real value of output has fallen considerably (see Table 7.1 in the previous chapter). Inter-temporal efficiency has only been measured by comparing the annual results, which is of dubious value when the measures are relative to a frontier that is moving over time, due to technological progress or regress. Indeed, the conclusion to Chapter 6 pointed out that taking note of efficiency without considering technical change was likely to be misleading, as they frequently occur simultaneously and need unscrambling. Thus, it is essential to achieve inter-temporal comparability, to include technical change and move on to TFP measurement. The model is richer, as not only can inefficient firms improve such that they move closer to the frontier, but also the frontier can shift in response to new technologies. The product of these two effects is the Malmquist TFP index.
