Russian 1998–2007 TFP decomposed: some inspiration emerging from inherited Soviet legacy

Using a recently developed stochastic Translog production function frontier model, technical inefficiency, technological progress and returns to scale are examined during Russia’s 1998-2007 cyclical expansion at the branch level including both the market and non-market economy.  The service sector plus high skill-intensive goods production is shown to be relatively more efficient than traditional Soviet era goods sectors. Technical efficiency decreases markedly over the expansion while technological progress is quite high (23%) suggesting an expanding frontier leaving many branches behind as the economy adjusts away from the early transition era. Much greater attention to human capital policies are suggested to foster intensive growth in an environment of low oil and gas prices.