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The Many Decompositions of Total Factor Productivity Change

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  • Balk, B.M.
  • Zofío, J.L.

Abstract

Total factor productivity change, here defined as output quantity change di- vided by input quantity change, is the combined result of (technical) efficiency change, technological change, a scale effect, and input and output mix ef- fects. Sometimes allocative efficiency change is supposed to also play a role. Given a certain functional form for the productivity index, the problem is how to decompose such an index into factors corresponding to these five or six components. A basic insight offered in the present paper is that mean- ingful decompositions of productivity indices can only be obtained for indices which are transitive in the main variables. Using a unified approach, we ob- tain decompositions for Malmquist, Moorsteen-Bjurek, price-weighted, and share-weighted productivity indices. A unique feature of this paper is that all the decompositions are applied to the same dataset of a real-life panel of decision-making units so that the extent of the differences between the various decompositions can be judged.

Suggested Citation

  • Balk, B.M. & Zofío, J.L., 2018. "The Many Decompositions of Total Factor Productivity Change," ERIM Report Series Research in Management ERS-2018-003-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  • Handle: RePEc:ems:eureri:104721
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    File URL: https://repub.eur.nl/pub/104721/ERS-2018-003-LIS.pdf
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    References listed on IDEAS

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    1. Agrell, Per J. & Martin West, B., 2001. "A caveat on the measurement of productive efficiency," International Journal of Production Economics, Elsevier, vol. 69(1), pages 1-14, January.
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    3. Ray, Subhash C & Desli, Evangelia, 1997. "Productivity Growth, Technical Progress, and Efficiency Change in Industrialized Countries: Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1033-1039, December.
    4. Christos Pantzios & Giannis Karagiannis & Vangelis Tzouvelekas, 2011. "Parametric decomposition of the input-oriented Malmquist productivity index: with an application to Greek aquaculture," Journal of Productivity Analysis, Springer, vol. 36(1), pages 21-31, August.
    5. Maniadakis, Nikolaos & Thanassoulis, Emmanuel, 2004. "A cost Malmquist productivity index," European Journal of Operational Research, Elsevier, vol. 154(2), pages 396-409, April.
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    8. Aparicio, Juan & Pastor, Jesus T. & Zofio, Jose L., 2015. "How to properly decompose economic efficiency using technical and allocative criteria with non-homothetic DEA technologies," European Journal of Operational Research, Elsevier, vol. 240(3), pages 882-891.
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    10. repec:kap:jproda:v:49:y:2018:i:1:d:10.1007_s11123-017-0523-5 is not listed on IDEAS
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    More about this item

    Keywords

    total factor productivity; index; decomposition; Malmquist; Moorsteen; Bjurek; Fisher; Törnqvist;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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