A Neoclassical Analysis of TFP Using Input–Output Prices

Input–output analysis and neoclassical economics do not seem to mix. Neoclassical economists consider input–output analysis a futile exercise in central planning or at least resent the separation between the quantity and value systems. Conversely, input–output economists resent marginal analysis without an understanding of the underlying structure of the economy. In this paper, I turn the perceptions upside down by analyzing productivity. I ground the concept in the orthodox neoclassical general equilibrium framework. Then I introduce a linear specification and use input–output analysis to derive a measure of total factor productivity without using value shares of factor inputs. In other words, input–output analysis has the potential to explain prices which neoclassical growth accountants take at face value.