The Efficiency of Soviet Industry

Abstract

This study provides two alternative measures of technical efficiency for Soviet industry. When standard practices are followed, and each republic's output is compared to that achieved by the sector's “best practice” frontier, substantial dispersion in technical inefficiency scores is found. However, when the data are disaggregated so that different republics are permitted to have different frontiers (based upon variations in their output mixes and heterogeneous technologies) generally higher estimates of technical efficiency with less variation are the result. When considered in the context of the literature, these results suggest that Soviet industry was technically efficient yet allocatively inefficient. It is argued that this result is to be expected from a centrally planned system.