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Decomposing growth in revenues and costs into price, quantity and total factor productivity contributions

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  • J. C. Dumagan
  • V. E. Ball

Abstract

This article employs the superlative Fisher and Tornqvist indexes for exact decomposition of growth in nominal revenues and costs. The findings confirm the well-known result that these indexes very closely approximate each other, implying that the mathematically simpler and computationally easier Tornqvist is the more practicable index. Moreover, this article's nominal growth decomposition yields all the results from the more common real growth decomposition and is also more informative for policy purposes. Application to the US agricultural sector during 1948-2001 shows that of the 3.31% average annual growth in revenues, TFP growth contributed 1.90 percentage points (pct. pts.); growth in output prices added 1.43 pct. pts.; while growth in input quantities contributed - 0.02 pct. pts. (i.e. fewer inputs). Therefore, real output growth (or revenue growth less output price growth) was 1.88 pct. pts., revealing that TFP's 1.90 pct. pts. growth contribution was fully responsible for real output growth with fewer inputs. Since revenues measure incomes, these results suggest that policy should focus more on measures to foster TFP growth than on specific price or quantity instruments to enhance income growth.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 41 (2009)
Issue (Month): 23 ()
Pages: 2943-2953

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Handle: RePEc:taf:applec:v:41:y:2009:i:23:p:2943-2953

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Cited by:
  1. Dumagan, Jesus C., 2013. "Relative Price Effects on Decompositions of Change in Aggregate Labor Productivity," Discussion Papers DP 2013-44, Philippine Institute for Development Studies.
  2. Jesus C. Dumagan, 2008. "Implementing US GDP in Chained Prices for Cross-country GDP Growth and Sectoral Comparisons : Application to Selected ASEAN Countries," Macroeconomics Working Papers 22631, East Asian Bureau of Economic Research.
  3. Dumagan, Jesus C., 2008. "Avoiding Anomalies of GDP in Constant Prices by Conversion to Chained Prices: Accentuating Shifts in Philippine Economic Transformation," Discussion Papers DP 2008-24, Philippine Institute for Development Studies.
  4. Jesus C. Dumagan, 2008. "Avoiding Anomalies of GDP in Constant Prices by Conversion to Chained Prices," Macroeconomics Working Papers 22632, East Asian Bureau of Economic Research.

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