This paper fits translog stochastic frontiers with inefficiency effects to a panel of Hungarian firm level data for 117 agricultural enterprises and 43 firms in the light manufacturing sector for the period from 1985 to 1991. Throughout this period, labor and materials make important contributions to output while energy and capital do not. Constant returns to scale and low elasticities of substitution are the norm. Technological regression dominates, giving negative productivity change, but the cross-section estimates show that relative efficiency improved sufficiently in both agriculture and industry. In the later years, the average production function is preferred to the stochastic frontier, except when manufacturing efficiency collapsed in 1991. The inefficiencies are explained by overcapitalization, subsidies, and excessive management costs, while firms that had established export markets were more efficient.J. Comp. Econom., September 2000, 28(3), pp. 473-501. Birkbeck College, University of London, London WC1E 7HX, United Kingdom; University of Pretoria, Pretoria, 0002, Republic of South Africa; and Imperial College, University of London, London SW7 2AZ, United Kingdom, University of Pretoria, Pretoria, 0002, Republic of South Africa. © 2000 Academic Press.
