Technology shape, distance to frontier, or frontier shift? Modeling the determinants of TFP growth

We investigate the determinants of TFP growth of Italian manufacturing firms. Using stochastic frontier techniques, we consider three approaches to take into account the influence of external factors, i.e., the determinants of growth. First, external factors may affect the shape of the technology. Second, they may influence the distance from the frontier. Third, in a novel approach, the external factors influence the technological progress, that is the shift of the frontier. Using a sample of manufacturing firms in 1998-2003, we find that the exports, technological investments and spillovers, public infrastructures, and banking efficiency all have a positive effect on TFP growth. We also find that the first model best fits the data.