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Measuring Productivity Change without Neoclassical Assumptions: A Conceptual Analysis
17 Nov 2008-ERIM report series research in management Erasmus Research Institute of Management (Erasmus Research Institute of Management)-
TL;DR: In this paper, the authors discuss the basics of productivity measurement and show that one can dispense with most if not all of the usual, neoclassical assumptions, such as competitive behaviour and constant returns to scale.
Abstract: The measurement of productivity change (or difference) is usually based on models that make use of strong assumptions such as competitive behaviour and constant returns to scale. This survey discusses the basics of productivity measurement and shows that one can dispense with most if not all of the usual, neoclassical assumptions. By virtue of its structural features, the measurement model is applicable to individual establishments and aggregates such as industries, sectors, or economies.
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TL;DR: This working paper is the first draft of an overview and commentary on the papers to appear in a Macroeconomic Dynamics Special Issue on Measurement with Theory, which is part of a larger initiative to promote "measurement with theory" in economics.
Abstract: This paper is the introduction to the forthcoming Macroeconomic Dynamics Special Issue on Measurement with Theory. The Guest Editors of the special issue are William A. Barnett, W. Erwin Diewert, Shigeru Iwata, and Arnold Zellner. The authors of this detailed introduction and commentary are William A. Barnett, W. Erwin Diewert, and Arnold Zellner. The included papers are part of a larger initiative to promote measurement with theory in economics.
502 citations
Cites background from "Measuring Productivity Change witho..."
...In section 4 of his paper, Balk (2009a) establishes a remarkably simple result using the difference approach to describing the growth in efficiency of a production unit over the two periods under consideration: the value added based TFP indicator of TFP growth is exactly equal to the corresponding…...
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...Thus interest centers on decomposing cost, revenue or profit changes into price and quantity (or volume) effects and this is precisely what Balk (2009a) does in section 4 of his paper....
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...The paper by Bert Balk (2009a) in this special issue looks at the relationship between measures of productivity growth that are based on either a gross output framework or on a value added framework....
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...23 This topic is pursued in much greater depth by Diewert (1992a) (2005) and Balk (2009b)....
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Posted Content•
01 Jan 2008
TL;DR: The GGDC Productivity Level Database as discussed by the authors provides comparisons of output, inputs and productivity at a detailed industry level for a set of thirty OECD countries, including the USA and Canada.
Abstract: In this paper we introduce the GGDC Productivity Level database. This database provides comparisons of output, inputs and productivity at a detailed industry level for a set of thirty OECD countries. It complements the EU KLEMS growth and productivity accounts by providing comparative levels and follows it in terms of country and industry coverage, variable definition and basic data (O’Mahony and Timmer, 2008). As such, the level and growth accounts can be used together in comparative analyses of productivity trends. The methodology followed is based on Jorgenson and Nishimizu (1985), but includes a number of refinements such as the use of sectoral output and input measures that exclude intra-industry flows; the application of multilateral indices; use of relative output prices from the production side and the use of the exante approach to capital price measurement. The paper outlines the construction and contents of the database and presents some empirical results. The GGDC Productivity Level database is publicly available at www.ggdc.net/databases/levels.htm.
115 citations
Cites background from "Measuring Productivity Change witho..."
...Balk (2007) argues that the ex-post approach is based on stringent assumptions of perfect foresight, constant returns to scale and competitive markets which are most likely not to hold in reality....
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TL;DR: In this article, the authors compare a large number of methodological choices and their impact on U.S. capital services at the industry and aggregate level and conclude that an external cost of capital is preferable to an internal rate of return because of its transparency and robustness to measurement error.
Abstract: The measurement of capital inputs is still a contentious issue: many choices have to be made that have potentially large effects on the resulting capital input series. This paper compares a large number of methodological choices and their impact on U.S. capital services at the industry and aggregate level. The results show that the set of capital assets covered and the choice for the rate of return matter substantially, while other choices are less important. I argue that land, inventories, and intangible capital should be included and that for pragmatic reasons, an external cost of capital is preferable to an internal rate of return because of its transparency and robustness to measurement error.
45 citations
01 Jan 2010
TL;DR: In this article, the authors set out the general growth accounting model, with its methods and assumptions, and traces its evolution from a simple index-number technique that decomposes economic growth into capital-deepening and productivity components, to a more complex account of the growth process.
Abstract: Incomes per capita have grown dramatically over the past two centuries, but the increase has been unevenly spread across time and across the world. Growth accounting is the principal quantitative tool for understanding this phenomenon, and for assessing the prospects for further increases in living standards. This paper sets out the general growth accounting model, with its methods and assumptions, and traces its evolution from a simple index-number technique that decomposes economic growth into capital-deepening and productivity components, to a more complex account of the growth process. In the more complex account, capital and productivity interact, both are endogenous, and quality change in inputs and output matters. New developments in micro-level productivity analysis are also reviewed, and the long-standing question of net versus gross output as the appropriate indicator of economic growth is addressed.
34 citations
TL;DR: In this article, the differences in total factor productivity growth rates (TFPG) under different model assumptions are examined in terms of the inclusion of taxes and subsidies in the calculation of rental prices.
Abstract: With the increasing importance of investment in information and communication technology, methods for measuring the contribution of capital to growth have re-assumed centre-stage in recent growth accounting literature. The importance of using capital service growth rates rather than capital stock growth rates has long been advocated, and has become mainstream practice. However, the choice for a particular rate of return in the derivation of capital service prices is not straightforward and has barely been researched. Using four alternative rental price models-based on both external and internal rates of return models-this article quantifies the differences in total factor productivity growth rates (TFPG) under different model assumptions. The differences in TFPG are also examined in terms of the inclusion of taxes and subsidies in the calculation of rental prices. Empirical analysis carried out for four EU countries and the US in 26 industries during 1979-2003 shows that the use of capital stock overestimates TFPG in most industries. Incorporation of taxes seems to have only modest effect. The magnitude of divergence generated by alternative rental price models-particularly between internal models- is quite low. The difference is seen to be relatively high between external rate of return models and internal rate of return models.
26 citations
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535 citations
"Measuring Productivity Change witho..." refers background or methods in this paper
...= QR(1,0) (C1/C0)/PC(1,0) . ( 14 ) Put in words, we are seeing here respectively a deflated revenue index divided by a deflated cost index, a deflated revenue index divided by an input quantity index, and an output quantity index divided by a deflated cost index....
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...Fortunately, one-stage and two-stage Fisher indices are secondorder differential approximations of each other (as shown by Diewert 1978)....
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TL;DR: In this article, the authors consider the problem of finding the right enumeration of real goods and services to be included in the social income, and the money values by which this heterogeneous collection is to be reduced to a common denominator.
Abstract: THE Social Income consists of a collection of goods and services valued in terms of money. Its precise definition thus involves two problems: one of the correct enumeration of the real goods and services to be included, and one of the money values by which this heterogeneous collection is to be reduced to a common denominator. I am concerned in this paper with the second of these problems. The practical statistician has generally been content to take it for granted that every commodity entering into the aggregate should be valued at its market price. I want to ask: what is the basis for this valuation ? Does it hold without exception or are there exceptions ? Are the prices we use for valuation prices in their own rights or do they stand for something else (say marginal utilities or marginal costs) to which market prices are taken as approximations ? These questions ought to be answered before we can have a clear idea of what National Income calculations mean. And they need to be answered before we can settle some of the disputed points about actual computation. I have myself been led to think about these questions as a result of the discussions on one of these disputed points. As is well known, Mr. Colin Clark adds the proceeds of indirect taxation to the total of declared incomes before arriving at his aggregate; Professor Bowley has held that such an addition ought not to be made. In an earlier paper to which I myself contributed' an attempt was made to deal with this difficulty by the usual method of enumeration --by considering what real goods and services ought to be included in the aggregate, and working out the way in which these goods and services will be reflected in the sum of incomes. At the time this treatment seemed to me sufficient, but I have been brought to realise that it did not go deep enough. Professor Bowley has himself
454 citations
"Measuring Productivity Change witho..." refers background in this paper
...(30) For a non-market production unit, a productivity indicator is difficult to define....
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...5This approach goes back to Hicks (1940)....
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TL;DR: In this article, the authors use the Marshallian framework of a short run production or cost function with certain inputs quasi-fixed to provide a theoretical basis for accounting for temporary equilibrium.
312 citations
Posted Content•
TL;DR: The first release of the EU KLEMS database confirms the view that European countries showed a significant slowdown in productivity growth since 1995, which is shown to be widespread across countries and industries, but with notable differences.
Abstract: In March 2007, the EU KLEMS Growth and Productivity Accounts were publicly released. These accounts include measures of output growth, employment and skill creation, capital formation and multifactor productivity (MFP) at the industry level for European Union member states from 1970 onwards. This overview paper first discusses the key characteristics of the database and the variables, country and industry coverage, then reviews the growth accounting methodology, including the measurement of labour and capital services, and finally provides a brief analysis of major trends. The first release of the EU KLEMS database confirms the view that European countries showed a significant slowdown in productivity growth since 1995, which is shown to be widespread across countries and industries, but with notable differences.
265 citations
"Measuring Productivity Change witho..." refers background in this paper
...Though in their main text Timmer et al. (2007) adhere to the Jorgenson, Ho and Stiroh framework, there is a curious footnote saying “Under strict neo-classical assumptions, MFP [multifactor productivity] growth measures disembodied technological change....
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...(30) For a non-market production unit, a productivity indicator is difficult to define....
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