Non-Structural and Structural Models in Productivity Analysis: Study of the British Isles during the 2007-2009 Financial Crisis

Abstract:

The paper reviews and provides an extension of the benefits and drawbacks of the non-structural Stochastic Frontier Analysis (SFA) paradigm, as well as other number index-based procedures that we will utilize in the analysis. We then compare SFA with two structural models: the Pakes McGuire Model (PMM) (Pakes, Gowrisankaran and McGuire 1993) and the Midrigan and Xu Model (MXM) (Midrigan and Xu 2014). All three methods are used to estimate changes in firm-level productivity in the British Isles before and after the 2007-2009 financial crisis under the canonical single production assumption. The empirical results indicate that overall productivity was not impacted to any substantial degree by the financial crisis, according to both SFA and the PMM. However, the productivity loss estimated by MXM due to financial friction from the recession was substantial.