Technical efficiency analysis and decomposition of productivity growth of Spanish olive farms

Abstract

Spain occupies the first position in worldwide rankings of olive oil production and trade. This analysis assesses the relative technical efficiency with which this sector is operating. The concept of technical efficiency is critical to measuring the performance of a firm, determining the degree of innovative technology adoption and the overall production efficiency. Specifically, the main objective of this study is to assess the relative technical efficiency and to decompose the productivity growth of Spanish olive farms. Technical efficiency effects are assumed to be a function of firm-specific characteristics. Maximum-likelihood methods are applied to the estimation of the model. A primal approach is used to decompose total factor productivity (TFP) growth into its various components. Results indicate that farm location, age of manager, as well as the composition of the workforce affect efficiency levels. Technical efficiency changes and scale effects are found to be the main sources affecting TFP growth.