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A novel decomposition of aggregate total factor productivity change

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  • Bert M. Balk

    (Erasmus University)

Abstract

An industry is an ensemble of individual firms (decision making units) which may or may not interact with each other. Similarly, an economy is an ensemble of industries. In National Accounts terms this is symbolized by the fact that the nominal value added produced by an industry or an economy is the simple sum of firm-, or industry-specific nominal value added. From this viewpoint it is natural to expect that there is a relation between (aggregate) industry or economy productivity and the (disaggregate) firm- or industry-specific productivities. In an earlier paper (Statistica Neerlandica 2015) three time-symmetric decompositions of aggregate value-added-based total factor productivity change were developed. In the present paper a fourth decomposition will be developed. A notable difference with the earlier paper is that the development is cast in terms of levels rather than indices. Various aspects of this new decomposition will be discussed and links with decompositions found in the literature unveiled. It turns out that one can dispense with the usual neo-classical assumptions.

Suggested Citation

  • Bert M. Balk, 2020. "A novel decomposition of aggregate total factor productivity change," Journal of Productivity Analysis, Springer, vol. 53(1), pages 95-105, February.
    • Handle: RePEc:kap:jproda:v:53:y:2020:i:1:d:10.1007_s11123-019-00548-7
    DOI: 10.1007/s11123-019-00548-7
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    References listed on IDEAS

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    1. Gu, Wulong & Wang, Weimin, 2013. "Productivity Growth and Capacity Utilization," Economic Analysis (EA) Research Paper Series 2013085e, Statistics Canada, Analytical Studies Branch.
    2. Balk,Bert M., 2012. "Price and Quantity Index Numbers," Cambridge Books, Cambridge University Press, number 9781107404960, July.
    3. Dale W. Jorgenson, 2018. "Production and Welfare: Progress in Economic Measurement," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 867-919, September.
    4. Jesus Dumagan & Bert Balk, 2016. "Dissecting aggregate output and labour productivity change: a postscript on the role of relative prices," Journal of Productivity Analysis, Springer, vol. 45(1), pages 117-119, February.
    5. 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.
    6. Basu, Susanto & Fernald, John G., 2002. "Aggregate productivity and aggregate technology," European Economic Review, Elsevier, vol. 46(6), pages 963-991, June.
    7. 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.
    8. Bert M. Balk, 2011. "Measuring And Decomposing Capital Input Cost," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(3), pages 490-512, September.
    9. Amil Petrin & James Levinsohn, 2012. "Measuring aggregate productivity growth using plant-level data," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 705-725, December.
    10. William H. Greene & Lynda Khalaf & Robin Sickles & Michael Veall & Marcel-Cristian Voia (ed.), 2016. "Productivity and Efficiency Analysis," Springer Proceedings in Business and Economics, Springer, edition 1, number 978-3-319-23228-7, February.
    11. Bert Balk, 2014. "Dissecting aggregate output and labour productivity change," Journal of Productivity Analysis, Springer, vol. 42(1), pages 35-43, August.
    12. John R. Baldwin & Wulong Gu & Beiling Yan, 2013. "Export Growth, Capacity Utilization, and Productivity Growth: Evidence from the Canadian Manufacturing Plants," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(4), pages 665-688, December.
    13. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, vol. 46(4), pages 883-900, July.
    14. Bert M. Balk, 2016. "The Dynamics of Productivity Change: A Review of the Bottom-Up Approach," Springer Proceedings in Business and Economics, in: William H. Greene & Lynda Khalaf & Robin Sickles & Michael Veall & Marcel-Cristian Voia (ed.), Productivity and Efficiency Analysis, edition 1, chapter 0, pages 15-49, Springer.
    15. John R. Baldwin & Wulong Gu & Beiling Yan, 2013. "Export Growth, Capacity Utilization, and Productivity Growth: Evidence from the Canadian Manufacturing Plants," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 59(4), pages 665-688, December.
    16. Matthew Calver, 2015. "On the Relationship between Gross Output-based TFP Growth and Value Added-based TFP Growth: An Illustration Using Data from Australian Industries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 29, pages 68-82, Fall.
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