Measuring technical progress with data envelopment analysis

A nonparametric method for measuring productivity growth of a group of operations over multiple time periods is developed. The method applies data envelopment analysis (DEA) to estimate technical progress via efficiency evaluation through the construction of piecewise linear frontiers to approximate production surfaces pertaining to different time periods. A measurement of the productivity improvement that an individual operation can achieve is made by adjusting the operation to the pertinent production frontiers of different time periods. With this method, the lack of efficiency can be decomposed into the performance deficiency within an operation and the technological growth in terms of a shift of production frontier. That facilitates an explicit inquiry into the productivity change of individual operations in relation to the average productivity growth achieved by their peers in the same industry. The DEA method can, thus, proceed one more step in forging a closer association with the productivity analysis and become a complementary tool for the mainstream economic studies.