In this paper, short-run cost functions are specified which allow technological coefficients to
be different across countries without imposing further restrictions. The model includes a general
index of technical change following Baltagi and Griffin (1988) and Baltagi et al. (1995), and is
capable of generating estimates of country-specific technical change indices which are free from
problems related to assuming homogeneity of the panel. The model can be estimated using
the seemingly unrelated regressions (SUR) technique. These general technical change indices
are better than widely used multilateral TFP measures. As pointed out by Baltagi et al. (1995,
p. 654) ‘‘½unfortunately; measures of technical change that measure both inter-firm and intertemporal
differences have proven to be particularly elusive. Whether one adopts the conventional
Divisia total factor productivity approach or uses a time trend to measure technical change (...)
these approaches offer at best a proxy for inter-temporal changes (...)’’. The general index allows
for inter-firm as well as inter-temporal differences in performance. Moreover, the general index
is superior to multilateral TFP measures because these tend to include the effect of scale
economies, regulatory service constraints, etc., thus confounding technical change with output
attributes.