Although technological change and technical efficiency share a common
methodological basis in the production function, applied work in these fields
has evolved largely independently. The objective of this paper is to propose a
methodology that decomposes total factor productivity change into technological progress and changes in technical efficiency. We define technological
progress as the change in the best practice production frontier, and establish
its rate by direct estimation of a deterministic frontier production function.'
We then refer to all other productivity change - for example learning by doing,
diffusion of new technological knowledge, improved managerial practice as
well as short run adjustment to shocks external to the enterprise - as technical
efficiency change.