Table 2 Key variables.

|**Variables**|**Definition **|
|---|---|
|Frontier model<br>1<br>_NTx_<br>_Y_<br>: GDP<sup>1</sup>(constant 2000 US$)|GDP at purchaser's prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the<br>value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in<br>constant 2000 U.S. dollars. Dollar figures for GDP are converted from domestic currencies using 2000 official exchange rates. For a few countries where the official<br>exchange rate does not reflect the rate effectivelyapplied to actual foreign exchange transactions,an alternative conversion factor is used.|
|1<br>_NTx_<br>_K_<br>: Gross fixed capital formation<sup>2</sup><br>(constant 2000 US$)|Gross fixed capital formation (formerly gross domestic fixed investment) includes land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment<br>purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential dwellings, and commercial and industrial buildings.<br>According to the 1993 SNA, net acquisitions of valuables are also considered capital formation. Data are in constant 2000 U.S. dollars.|
|1<br>_NTx_<br>_L_<br>: Labor force<sup>3</sup>, total|Total labor force comprises people who meet the International Labour Organization definition of the economically active population: all people who supply labor for the<br>production of goods and services during a specified period. It includes both the employed and the unemployed. While national practices vary in the treatment of such<br>groups as the armed forces and seasonal or part-time workers, in general the labor force includes the armed forces, the unemployed and first-time job-seekers, but excludes<br>homemakers and other unpaid caregivers and workers in the informal sector.|
|1<br>_NTx_<br>_E_<br>: Energy use<sup>4</sup>(kt of oil equivalent)|Energy use refers to use of primary energy before transformation to other end-use fuels, which is equal to indigenous production plus imports and stock changes, minus<br>exports and fuels supplied to ships and aircraft engaged in international transport.|
|1<br>_NTx_<br>_T_<br>: Time|Cyclical and Hicks neutral technological progress.|
|Inefficiency<br>model<br>1<br>_NTx_<br>_FDI_<br>: Foreign direct investment<sup>5</sup>, net<br>inflows(% of GDP)|Foreign direct investment are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an<br>economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of<br>payments. This series shows net inflows in the reporting economy and is divided by GDP.|
|1<br>_NTx_<br>_MT_<br>: Merchandise trade<sup>6</sup>(% of GDP)|Merchandise trade as a share of GDP is the sum of merchandise exports and imports divided by the value of GDP, all in current U.S. dollars.|
|1<br>&<br>_NTx_<br>_D_<br>_R_<br>: Research and development<br>expenditure<sup>7</sup> (% of GDP)|Expenditures for research and development are current and capital expenditures (both public and private) on creative work undertaken systematically to increase<br>knowledge, including knowledge of humanity, culture, and society, and the use of knowledge for new applications. R&D covers basic research, applied research, and<br>experimental development.|
|1<br>_NTx_<br>_LTE_<br>: Labor force with tertiary<br>education<sup>8</sup> (% of total)|Labor force with tertiary education is the proportion of labor force that has a tertiary education, as a percentage of the total labor force.|
|1<br>_NTx_<br>_T_<br>: Year|Time-varying inefficiency effect.|
|Control variables<br>(second stage)<br>1<br>_NTx_<br>_AVA_<br>: Agriculture<sup>2</sup>, value added (% of<br>GDP)|Agriculture corresponds to ISIC divisions 1-5 and includes forestry, hunting, and fishing, as well as cultivation of crops and livestock production. Value added is the net<br>output of a sector after adding up all outputs and subtracting intermediate inputs. It is calculated without making deductions for depreciation of fabricated assets or<br>depletion and degradation of natural resources. The origin of value added is determined by the International Standard Industrial Classification (ISIC), revision 3. Note: For<br>VAB countries, gross value added at factor cost is used as the denominator.|
|1<br>_NTx_<br>_IVA_<br>: Industry<sup>2</sup>, value added (% of GDP)|Industry corresponds to ISIC divisions 10-45 and includes manufacturing (ISIC divisions 15-37). It comprises value added in mining, manufacturing (also reported as a<br>separate subgroup), construction, electricity, water, and gas. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. It is<br>calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. The origin of value added is determined by the<br>International Standard Industrial Classification(ISIC),revision 3. Note: For VAB countries, gross value added at factor cost is used as the denominator.|
|1<br>_NTx_<br>_SVA_<br>: Services<sup>2</sup>, etc., value added (% of<br>GDP)|Services correspond to ISIC divisions 50-99 and they include value added in wholesale and retail trade (including hotels and restaurants), transport, and government,<br>financial, professional, and personal services such as education, health care, and real estate services. Also included are imputed bank service charges, import duties, and any<br>statistical discrepancies noted by national compilers as well as discrepancies arising from rescaling. Value added is the net output of a sector after adding up all outputs and<br>subtracting intermediate inputs. It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. The<br>industrial origin of value added is determined by the International Standard Industrial Classification (ISIC), revision 3. Note: For VAB countries, gross value added at<br>factor cost is used as the denominator.|
|1<br>_NTx_<br>_EVI_<br>: Export value index<sup>12</sup>(2000 = 100)|Export values are from UNCTAD's value indexes or from current values of merchandise exports.|
|1<br>_NTx_<br>_RRD_<br>: Researchers in R&D<sup>13</sup>(per<br>millionpeople)|Researchers in R&D are professionals engaged in the conception or creation of new knowledge, products, processes, methods, or systems and in the management of the<br>projects concerned. Postgraduate PhD students (ISCED97 level 6) engaged in R&D are included.|
|1<br>_NTx_<br>_SET_<br>: School enrollment<sup>13</sup>, tertiary (%|Gross enrollment ratio is the ratio of total enrollment, regardless of age, to the population of the age group that officially corresponds to the level of education shown.<br>Tertiary education, whether or not to an advanced research qualification, normally requires, as a minimum condition of admission, the successful completion of education<br>|
|gross)|at the secondary level<sup>14</sup>|
|1International Finance Corporation's micro, small, and medium-size enterpri<br>2World Bank national accounts data, and OECD National Accounts data file<br>3International Labour Organization,usingWorld Bankpopulation estimates|ses database (http://www.ifc.org/ifcext/sme.nsf/Content/Resources<br>).<br>s.<br>.|

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