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The Suitability of the Divisia Index for the Measurement of Economic Aggregates

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  • Dan Usher

Abstract

This paper considers the properties of the Divisia, or chain‐link, index, as they relate to the argument that this is the most appropriate index for use in studying the sources of economic growth. The great advantage of the Divisia index is alleged to be its “accuracy”, that is, its capacity to combine time series of prices and quantities to give a true reflection of the height of a utility or production function over time. The paper shows that there are circumstances where the confidence in the accuracy of the Divisia index is justified, but that the conditions required are very restrictive and typically do not obtain in the contexts where the Divisia index is used. Misplaced confidence in the Divisia index has led to errors of interpretation that might otherwise have been avoided, and has given rise to a distorted view of the process of economic growth.
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Suggested Citation

  • Dan Usher, 1973. "The Suitability of the Divisia Index for the Measurement of Economic Aggregates," Working Paper 109, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:109
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    Cited by:

    1. Vazquez, Emilia & Rodriguez, X.A., 1997. "Un analisis de la productividad del comercio en las Comunidades Autonomas españolas," Economic Development 21, University of Santiago de Compostela. Faculty of Economics and Business. Econometrics..
    2. Vartia, Yrjö O., . "Relative Changes and Index Numbers," ETLA A, The Research Institute of the Finnish Economy, number 4.
    3. W. Erwin Diewert, 1980. "Aggregation Problems in the Measurement of Capital," NBER Chapters, in: The Measurement of Capital, pages 433-538, National Bureau of Economic Research, Inc.
    4. David Bigman, 1979. "Classification of Technical Change: Diagrammatic Illustration," The American Economist, Sage Publications, vol. 23(1), pages 74-78, March.
    5. Rodriguez, X.A., 1999. "A proposal for decomposing and adjusting the conventional Divisia index for the measure of productivity," Economic Development 41, University of Santiago de Compostela. Faculty of Economics and Business. Econometrics..

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