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International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach (Inglês)

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.


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    Kumbhakar,Subal C., Loayza,Norman V., Norambuena,Vivian

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    Documento de trabalho sobre pesquisa de políticas

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    Regiões Mundiais,

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    International Benchmarking for Country Economic Diagnostics : A Stochastic Frontier Approach

  • Palavras-chave

    Health Nutrition and Population; development research group; comparison of health care system; social and economic development; financial development across country; life expectancy at birth; Drivers of Economic Growth; economic and social performance; access to finance; panel data model; more advanced countries; Health Care Delivery; panel data set; health system performance; Social Safety Nets; quality of public; social inclusion; international trade openness; import of goods; international financial crisis; financial sector activity; improved sanitation facilities; Rule of Law; low population density; rate of change; choice of variables; offshore financial center; electricity distribution utility; economies of scale; health production function; financial sector development; foreign direct investment; educational quality; financial depth; financial system; fiscal balance; benchmarking exercise; international benchmarking; regression residual; sanitation facility; conceptual framework; income inequality; regression approach; measles immunization; constant variance; old-age pension; summary statistic; negative value; population size; health systems; regression equation; econometric model; political science; comparator country; Social Protection; standard deviation; health expenditure; regression line; mathematical programming; Macroeconomic Stability; electoral accountability; frontier model; efficiency ranking; infrastructure endowment; time t; distribution function; poverty alleviation; best practice; global poverty; empirical evidence; robustness check; financial market; bond market; euclidean distance; small country; efficiency score; working-age population; grain farming; multiple imputation; across border; global governance; high correlation; econometric method; simple regression; deposit volume; household risk; development policy; open access; domestic sources; long-term finance; financial service; tourism industry; Health Service; Child Mortality; indicator variable; coefficient vector; maximum likelihood; geographical region; cost efficiency; benchmark value; Learning and Innovation Credit; estimation method; regional performance; consistent estimate; geographic region; saharan africa; panel regression; individual effect; good performance; quantile regressions; benchmarking method; geographic location; management science; operations research; production frontier; standard practice; policy purposes; input use; productive efficiency; economic model; traditional production; health output; trade shock; health coverage; public education; domestic credit; adverse shock; natural disaster; negative terms; high wage; technological innovation; market size; social insurance; labor flexibility; macroeconomic factor; benchmarking approach; global financial; correlation coefficient; pension scheme; eliminating poverty; mobile money; equal distribution; cross-country panel; land area; offshore center; research assistance; measles vaccination; children of ages; child immunization; net lending; informational value; confidence interval; financial corporation; financial resource; bureaucratic efficiency; international norm; financial inclusion; measurement error; statistical error; international market; waiting time; geographic condition; selection criterion; cross-country comparison; empirical literature; Health policies; small states; fiscal deficit; price stability; Research Support; product market; sectoral performance; improving performance; yardstick regulation



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