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Measuring Aggregate Productivity Growth Using Plant-Level Data

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Author Info
Amil Petrin (University of Chicago)
James Levinsohn (University of Michigan)

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Abstract

We define productivity growth as the change in welfare that arises from additional output holding primary inputs constant. Using this traditional growth-accounting definition, we show that gains may arise because of plant-level technology shocks, and, in imperfectly competitive settings, from the reallocation of inputs across plants with differing markups and/or shadow values of primary inputs. With plant-level data, the alternative and most popular definition of productivity growth looks at the difference in the first moments of the productivity distribution. We show that this definition adds an additional term to the growth-accounting measure, which has been called “reallocation.” We show there is a very weak relationship between the two indexes in almost every 3-digit manufacturing industry in both Chile from 1987-1996 and Colombia from 1981-1991 - 49 in total - primarily because this “reallocation” term is large and volatile. We explore the theoretical reasons for this sharp divergence, in the process uncovering a number of previously unnoticed and unattractive features of the first-moment definition. For example, it is not tethered to any theoretical model, it is sensitive to measured units, and it can report positive productivity growth when welfare has fallen.

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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 552.

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Length: 42 pages
Date of creation: 2005
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Handle: RePEc:mie:wpaper:552

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L0 - Industrial Organization - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Levinsohn, James, 1999. "Employment responses to international liberalization in Chile," Journal of International Economics, Elsevier, vol. 47(2), pages 321-344, April. [Downloadable!] (restricted)
  2. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September. [Downloadable!]
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  3. Hulten, Charles R, 1973. "Divisia Index Numbers," Econometrica, Econometric Society, vol. 41(6), pages 1017-25, November. [Downloadable!] (restricted)
  4. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Amil Petrin, 2002. "Quantifying the Benefits of New Products: The Case of the Minivan," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 705-729, August. [Downloadable!] (restricted)
  6. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2008. "An Anatomy of International Trade: Evidence from French Firms," NBER Working Papers 14610, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Basu, Susanto & Fernald, John G., 2002. "Aggregate productivity and aggregate technology," European Economic Review, Elsevier, vol. 46(6), pages 963-991, June. [Downloadable!] (restricted)
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  9. Bert M. Balk, 2005. "Divisia price and quantity indices: 80 years after," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(2), pages 119-158. [Downloadable!] (restricted)
  10. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Blackwell Publishing, vol. 70(2), pages 317-341, 04. [Downloadable!] (restricted)
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  11. Trivedi, P K, 1981. "Some Discrete Approximations to Divisia Integral Indices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 71-77, February. [Downloadable!] (restricted)
  12. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
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  13. Star, Spencer & Hall, Robert E, 1976. "An Approximate Divisia Index of Total Factor Productivity," Econometrica, Econometric Society, vol. 44(2), pages 257-63, March. [Downloadable!] (restricted)
  14. Caballero, Ricardo J & Hammour, Mohamad L, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 805-52, August. [Downloadable!] (restricted)
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  15. Hulten, Charles R, 1978. "Growth Accounting with Intermediate Inputs," Review of Economic Studies, Blackwell Publishing, vol. 45(3), pages 511-18, October. [Downloadable!] (restricted)
  16. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  17. Austan Goolsbee & Amil Petrin, 2004. "The Consumer Gains from Direct Broadcast Satellites and the Competition with Cable TV," Econometrica, Econometric Society, vol. 72(2), pages 351-381, 03. [Downloadable!] (restricted)
  18. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May. [Downloadable!] (restricted)
  19. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March. [Downloadable!] (restricted)
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  20. Jeffrey R. Campbell, 1997. "Entry, Exit, Embodied Technology, and Business Cycles," NBER Working Papers 5955, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Stefano Federico & Gaetano Alfredo Minerva, 2008. "Outward FDI and Local Employment Growth in Italy," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 144(2), pages 295-324, July. [Downloadable!] (restricted)
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  2. Robert Breunig & Marn-Heong Wong, 2007. "A Richer Understanding of Australia’s Productivity Performance in the 1990s: Improved estimates based upon firm-level panel data," CEPR Discussion Papers 545, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
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