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A New Method for Measuring Total Factor Productivity Growth Based on the Full Industry Equilibrium Approach: The Case of the Greek Economy

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  • Nicholas Tsounis

    (Laboratory of Applied Economics, Department of Economics, University of Western Macedonia, 52100 Kastoria, Greece
    Economic Analysis and Policy Lab, School of Social Sciences, Hellenic Open University, 26335 Patras, Greece)

  • Ian Steedman

    (Department of Economics, Manchester Metropolitan University, Manchester M15 6BH, UK)

Abstract

A new method of identifying the sources of output growth and measuring total factor productivity (TFP) is proposed, with an application to data from the Greek economy. The price accounting approach, based on the full industry equilibrium (FIE) framework introduced by Opocher and Steedman, where technical progress not only increases outputs relative to inputs but also reduces output prices relative to input rewards, is used. The contributions of this paper are that, first, it amends the FIE TFP measurement approach to account for heterogeneous labor inputs, imported inputs, and indirect taxes, and applies the method to real-world data from the Greek economy; second, it provides a comparison of the results with those found by the use of the neoclassical approach to TFP measurement arguing that the FIE approach measures better sectoral TFP change, and third, it provides an estimate of the effects of sectoral research and development (R&D) expenditures and R&D diffusion from other sectors on TFP change for the Greek economy.

Suggested Citation

  • Nicholas Tsounis & Ian Steedman, 2021. "A New Method for Measuring Total Factor Productivity Growth Based on the Full Industry Equilibrium Approach: The Case of the Greek Economy," Economies, MDPI, vol. 9(3), pages 1-21, August.
    • Handle: RePEc:gam:jecomi:v:9:y:2021:i:3:p:114-:d:615004
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