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On The Relation Between Gross Output– And Value Added–Based Productivity Measures: The Importance Of The Domar Factor

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  • Balk, Bert M.

Abstract

In this paper I consider the relation between gross output– and value added–based total factor productivity (TFP) measures. It appears that, without any (micro-)economic theory being required, a conditional relationship between TFP indices can be derived, in which the Domar factor plays an important role. At the same time it turns out that gross output– and value added–based TFP indicators (difference-type measures) always coincide. In the Divisia index framework and maintaining the classical assumptions (profit maximization and a production technology that exhibits globally constant returns to scale), it appears that both TFP indices measure technological change, albeit in a dual way. In establishing this result, no separability assumptions are involved. Both indices are in general path-dependent. Path independence of the gross output–based TFP index requires that the technology exhibit Hicks input neutrality, whereas path independence of the value added–based TFP index requires Hicks value-added neutrality. These two concepts of neutrality are, however, not dual.

Suggested Citation

  • Balk, Bert M., 2009. "On The Relation Between Gross Output– And Value Added–Based Productivity Measures: The Importance Of The Domar Factor," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S2), pages 241-267, September.
  • Handle: RePEc:cup:macdyn:v:13:y:2009:i:s2:p:241-267_09
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    Cited by:

    1. Diewert, W. Erwin, 2014. "A Note on Reconciling Gross Output TFP Growth with Value Added TFP Growth," Economics working papers erwin_diewert-2014-56, Vancouver School of Economics, revised 17 Dec 2014.
    2. Bert M. Balk, 2015. "Measuring and relating aggregate and subaggregate total factor productivity change without neoclassical assumptions," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 69(1), pages 21-48, February.
    3. Tomáš Volek & Martina Novotná, 2015. "Gross Value Added and Total Factor Productivity In Czech Sectors," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 9(1), March.
    4. Loren Brandt & Feitao Jiang & Yao Luo & Yingjun Su, 2019. "Ownership and Productivity in Vertically-Integrated Firms: Evidence from the Chinese Steel Industry," Working Papers tecipa-641, University of Toronto, Department of Economics.
    5. Erwin Diewert, 2015. "Reconciling Gross Output TFP Growth with Value Added TFP Growth," International Productivity Monitor, Centre for the Study of Living Standards, vol. 29, pages 60-67, Fall.
    6. de Mey, Yann & Vancauteren, Mark & Van Passel, Steven, 2011. "Input-output Concepts, Profits and Productivity Growth: An Application Using Flemish Farm Level Data," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114448, European Association of Agricultural Economists.

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