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Measuring And Decomposing Agricultural Productivity And Profitability Change

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  • O'Donnell, Christopher J.

Abstract

The total factor productivity (TFP) of a multiple-output multiple-input firm can be defined as the ratio of an aggregate output to an aggregate input. With this definition, index numbers that measure changes in TFP can be expressed as the ratio of an output quantity index to an input quantity index. This paper uses the term multiplicatively complete to describe TFP index numbers that are constructed in this way. O'Donnell (2008) shows that, irrespective of the returns to scale and/or scope properties of the production technology, all multiplicatively complete TFP index numbers can be decomposed into widely-used measures of technical change and technical efficiency change, as well as unambiguous measures of scale and mix efficiency change. Members of the class of multiplicatively complete TFP index numbers include the Fisher, Tornquist and Moorsteen-Bjurek indexes, but not the popular Malmquist index of Caves, Christensen and Diewert (1982a). This paper uses data envelopment analysis (DEA) to compute and decompose Moorsteen-Bjurek indexes of world agricultural TFP change for the period 1970- 2001. In a DEA model that prohibits technical regress, only two countries are found to maximize TFP during the study period: Nepal from 1970 to 1995, and Thailand for several years in the late 1990s. The paper explains how changes in the agricultural terms of trade have drawn other larger agricultural producers away from TFP-maximizing input-output points. The annual rate of technical progress in global agriculture is estimated to be less than 1% per annum.

Suggested Citation

  • O'Donnell, Christopher J., 2009. "Measuring And Decomposing Agricultural Productivity And Profitability Change," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 47625, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare09:47625
    DOI: 10.22004/ag.econ.47625
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    References listed on IDEAS

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    1. Christopher O’Donnell & Robert Chambers & John Quiggin, 2010. "Efficiency analysis in the presence of uncertainty," Journal of Productivity Analysis, Springer, vol. 33(1), pages 1-17, February.
    2. John R. Hicks, 1961. "The Measurement of Capital in Relation to the Measurement of Other Economic Aggregates," International Economic Association Series, in: D. C. Hague (ed.), The Theory of Capital, chapter 0, pages 18-31, Palgrave Macmillan.
    3. C.J. O'Donnell, 2008. "An aggregate quantity-price framework for measuring and Decomposing productivity and profitability change," CEPA Working Papers Series WP072008, School of Economics, University of Queensland, Australia.
    4. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(3), pages 249-283.
    5. Bert Balk, 2001. "Scale Efficiency and Productivity Change," Journal of Productivity Analysis, Springer, vol. 15(3), pages 159-183, May.
    6. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "Multilateral Comparisons of Output, Input, and Productivity Using Superlative Index Numbers," Economic Journal, Royal Economic Society, vol. 92(365), pages 73-86, March.
    7. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
    8. Tim J. Coelli & D. S. Prasada Rao, 2005. "Total factor productivity growth in agriculture: a Malmquist index analysis of 93 countries, 1980–2000," Agricultural Economics, International Association of Agricultural Economists, vol. 32(s1), pages 115-134, January.
    9. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
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