Title: Productivity growth and structural changes in a partially liberalised market: a distance function approach

Authors: Meryem Duygun Fethi, Peter M. Jackson, Thomas G. Weyman-Jones

Addresses: School of Management, University of Leicester, University Road, Leicester, LE1 7RH, UK. ' School of Management, University of Leicester, University Road, Leicester, LE1 7RH, UK. ' Department of Economics, Loughborough University, Leicestershire, LE11 3TU, UK

Abstract: The question of whether an industry experiencing rapid structural change will demonstrate productivity growth at the same time is unresolved. This paper uses a panel data sample of European airlines over the period of partial market liberalisation (1991–1995) to investigate whether productivity growth was affected in the immediate aftermath of this structural change. The empirical measurement in the paper is based on the comparison of a time-varying stochastic parametric distance function with conventional Data Envelopment Analysis (DEA). This function is used to generate a parametric stochastic estimate of the Malmquist productivity indices. The indices include a returns to scale effect to provide the proper total factor productivity indices. These are compared with the nonparametric estimates. The measures of productivity change are consistent across both methods, with efficiency change dominating technical change in the response to the third liberalisation package in the European airline industry.

Keywords: stochastic distance functions; Malmquist indices; market liberalisation; productivity growth; structural change; European airlines; data envelopment analysis; DEA; total factor productivity.

DOI: 10.1504/IJBPM.2008.019994

International Journal of Business Performance Management, 2008 Vol.10 No.4, pp.391 - 411

Available online: 20 Aug 2008 *

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