Productivity growth and convergence: a stochastic frontier analysis

Purpose - The purpose of this paper is to assess the effect of human capital development on regional productivity growth and convergence in the Spanish provinces over the period 1991-2006. Design/methodology/approach - The stochastic frontier analysis (SFA) methodology is used to estimate production inefficiencies. This approach enables the assessment of the degree to which a given region's observed output deviates from the maximal possible. Therefore, the resulting region specific productive efficiencies are modelled as outcomes of the level of human capital. A beta-convergence equation for the regional efficiency levels is also estimated to detect any signs of regional catching-up. Findings - The results show that increasing levels of human capital development are associated with lower regional inefficiency. All levels of education contributed to reduce the inefficiency levels, however, secondary schooling played a stronger role than primary and even higher education. There is also evidence of regional convergence towards the best practice frontier through a process that is beneficially aided by human capital development. Originality/value - The paper combines the use of the SFA to study the effect of human capital on regional productivity with the estimation of a beta-convergence equation for the obtained regional efficiency levels.