International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach
This paper discusses and illustrates the analytical foundations of international comparisons (or benchmarking) for assessing a country's potential for improvement along various dimensions of social and economic development. By providing a meth...
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/369581593438524015/International-Benchmarking-for-Country-Economic-Diagnostics-A-Stochastic-Frontier-Approach http://hdl.handle.net/10986/34019 |
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okr-10986-340192022-09-20T00:11:14Z International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach Kumbhakar, Subal C. Loayza, Norman V. Norambuena, Vivian ECONOMIC DEVELOPMENT BENCHMARKING COUNTRY DIAGNOSTICS STOCHASTIC FRONTIER STRUCTURAL ENDOWMENT This paper discusses and illustrates the analytical foundations of international comparisons (or benchmarking) for assessing a country's potential for improvement along various dimensions of social and economic development. By providing a methodology for international benchmarking, discussing various alternatives and choices, and presenting a cross-country illustration, the paper can help practitioners be less arbitrary and more systematic in their approach to international comparisons, as well as more realistic in their expectations for a country's improvement. The paper presents the stochastic frontier approach and applies it to estimate feasible frontiers or benchmarks for each variable, country, and year. It then interprets a country's (one-sided) departure from the benchmark as inefficiency or potential for improvement. This contrasts with the literature that compares countries by looking at raw variables or indicators, without considering that countries differ in structural endowments that constrain the maximum performance that a country could achieve in a policy-relevant horizon. The Stochastic Frontier approach also improves upon the literature that uses regression residuals to measure performance. Regression residuals are hard to interpret as inefficiency, because they are mixed with noise and take positive and negative values. As an illustration, the paper uses a panel of 142 countries with yearly data for 2005-14 and considers a set of 10 development indicators. It finds that the potential for improvement does not follow a simple relationship with economic development, with some lower-income countries being closer to their own feasible frontier than more advanced countries are. 2020-07-02T16:33:26Z 2020-07-02T16:33:26Z 2020-06 Working Paper http://documents.worldbank.org/curated/en/369581593438524015/International-Benchmarking-for-Country-Economic-Diagnostics-A-Stochastic-Frontier-Approach http://hdl.handle.net/10986/34019 English Policy Research Working Paper;No. 9304 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ECONOMIC DEVELOPMENT BENCHMARKING COUNTRY DIAGNOSTICS STOCHASTIC FRONTIER STRUCTURAL ENDOWMENT |
| spellingShingle |
ECONOMIC DEVELOPMENT BENCHMARKING COUNTRY DIAGNOSTICS STOCHASTIC FRONTIER STRUCTURAL ENDOWMENT Kumbhakar, Subal C. Loayza, Norman V. Norambuena, Vivian International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach |
| relation |
Policy Research Working Paper;No. 9304 |
| description |
This paper discusses and illustrates the
analytical foundations of international comparisons (or
benchmarking) for assessing a country's potential for
improvement along various dimensions of social and economic
development. By providing a methodology for international
benchmarking, discussing various alternatives and choices,
and presenting a cross-country illustration, the paper can
help practitioners be less arbitrary and more systematic in
their approach to international comparisons, as well as more
realistic in their expectations for a country's
improvement. The paper presents the stochastic frontier
approach and applies it to estimate feasible frontiers or
benchmarks for each variable, country, and year. It then
interprets a country's (one-sided) departure from the
benchmark as inefficiency or potential for improvement. This
contrasts with the literature that compares countries by
looking at raw variables or indicators, without considering
that countries differ in structural endowments that
constrain the maximum performance that a country could
achieve in a policy-relevant horizon. The Stochastic
Frontier approach also improves upon the literature that
uses regression residuals to measure performance. Regression
residuals are hard to interpret as inefficiency, because
they are mixed with noise and take positive and negative
values. As an illustration, the paper uses a panel of 142
countries with yearly data for 2005-14 and considers a set
of 10 development indicators. It finds that the potential
for improvement does not follow a simple relationship with
economic development, with some lower-income countries being
closer to their own feasible frontier than more advanced
countries are. |
| format |
Working Paper |
| author |
Kumbhakar, Subal C. Loayza, Norman V. Norambuena, Vivian |
| author_facet |
Kumbhakar, Subal C. Loayza, Norman V. Norambuena, Vivian |
| author_sort |
Kumbhakar, Subal C. |
| title |
International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach |
| title_short |
International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach |
| title_full |
International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach |
| title_fullStr |
International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach |
| title_full_unstemmed |
International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach |
| title_sort |
international benchmarking for country economic diagnostics : a stochastic frontier approach |
| publisher |
World Bank, Washington, DC |
| publishDate |
2020 |
| url |
http://documents.worldbank.org/curated/en/369581593438524015/International-Benchmarking-for-Country-Economic-Diagnostics-A-Stochastic-Frontier-Approach http://hdl.handle.net/10986/34019 |
| _version_ |
1764480010749476864 |