1. A Stochastic Walk Along Mexico’s Mesoamerican Frontier
Gregory Brock & Constantin Ogloblin
Dept. of Finance and Economics Georgia Southern University

2. Method Stochastic frontier model: Inefficiency term:
Deterministic function of time:
η = percentage change in inefficiency over time ( )
If η > 0, inefficiency decreases (converges) toward the last period (T )
Time invariant (municipio-specific) inefficiency:

3. Method (cont.)
TL output elasticities with respect to capital and labor:
Total factor productivity change:
where
(shift in the frontier over time)
(change in efficiency over time)
(scale economies/diseconomies factor)
(measures returns to scale)
are growth rates of K and L

4. Method (cont.) Total factor productivity change – alternative measure:
(rate of output change holding inputs fixed)
Convergence equation:

5. Results Table 3. Translog Regression and Likelihood Ratio Results
Variant 1
Variant 2
Variant 3
Coef.
Std. err k
0.5355
0.0936
0.2567 *
0.1184
0.1796 **
0.1015 l
−1.7214
0.2766
−1.9263
0.3175
−1.1570
0.2988 k2
0.0157
0.0035
0.0071
0.0038
−0.0289
0.0037 l2
0.1720
0.0246
0.1414
0.0288
−0.0111
***
0.0239
k × l
−0.0910
0.0183
−0.0381
0.0212
0.0723
0.0166 t
0.0106
0.0032
0.0048
0.0079
Mexico
2.7229
0.0901
2.7967
0.1530 —
Belize
2.1867
0.2676
2.2457
0.2500
constant
1.4564
1.6372
1.4700 mu
0.8070
0.4337
0.3468
0.8568
0.8410
0.3795
eta
0.0178
0.0018
0.0210
0.0021
0.0304
0.0034 θk
0.2436
0.0267
0.1540
0.0324
−0.1422
0.0339 θl
−0.1509
0.0428
−0.0344
0.0552
−0.1428
0.0386
LLH
180.04
133.29
520.11
N = 980. All coefficients significant at 1% except: *- 5%, **- 10%, ***- not significant even at 10%

6. Results (cont.) Table 4C. Technical Efficiency Level and Change
Input Variant
Mean
Std. Dev.
Min
Max
Current K & L, country FE
0.3180
0.2404
0.0037
0.9664
Lagged K & L, country FE
0.3172
0.2481
0.0011
0.9720
Lagged K & L, municipio FE
0.3075
0.2381
0.0020
0.9759
2. Technical Efficiency Change (TE∆)
Input Variant
Mean
Std. Dev.
Min
Max
Current K & L, country FE
Lagged K & L, country FE
Lagged K & L, municipio FE
Table 5. TFP Decomposition — TL Results
A. Country FE
B. Municipio FE
Mean
Std. Dev. TC —
TE∆
Scale
TFP-dot
TFP1-dot

7. Results (cont.)
Table 6. Convergence Results (with White's Correction),
Dependent variable = Output/Labor Growth Rate
Absolute
Conditional
Coef.
t-stat
Constant
16.75
***
4.37
16.88
4.06
Country dummy
−2.03
−8.08
−2.07
−5.48
Ln[(Y/L)1990]
−1.49
−3.64
−1.50
−3.41
TE1990 —
0.21
R2adj
0.62
0.61 n 49
***- 1% level of significance