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An Economic Approach to Identifying the Drivers of Productivity Change in the Market Sectors of the Australian Economy

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Abstract

This paper uses a relatively new total factor productivity (TFP) index to measure productivity change in the Australian economy. Unlike the TFP indexes used by most statistical agencies, the index used in this paper satisfies a suite of common sense axioms from index number theory. It can also be exhaustively decomposed into measures of technical change, environmental change, and various types of efficiency change. This paper uses least squares methods to estimate these components. The main driver of productivity change in the Australian economy is found to have been scale-mix efficiency change. Scale-mix efficiency is a measure of how well a firm is capturing economies of scale and scope.

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  • Christopher O`Donnell, 2014. "An Economic Approach to Identifying the Drivers of Productivity Change in the Market Sectors of the Australian Economy," CEPA Working Papers Series WP022014, School of Economics, University of Queensland, Australia.
  • Handle: RePEc:qld:uqcepa:93
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    File URL: http://www.uq.edu.au/economics/cepa/docs/WP/WP022014.pdf
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    1. Geweke, John, 1986. "Exact Inference in the Inequality Constrained Normal Linear Regression Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(2), pages 127-141, April.
    2. Mary O'Mahony & Marcel P. Timmer, 2009. "Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database," Economic Journal, Royal Economic Society, vol. 119(538), pages 374-403, June.
    3. Christopher J. O'Donnell, 2012. "Nonparametric Estimates of the Components of Productivity and Profitability Change in U.S. Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(4), pages 873-890.
    4. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, pages 21-37.
    5. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    6. Nadiri, M Ishaq, 1970. "Some Approaches to the Theory and Measurement of Total Factor Productivity: A Survey," Journal of Economic Literature, American Economic Association, pages 1137-1177.
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    Cited by:

    1. Ipatova, Irina, 2015. "The dynamics of total factor productivity and its components: Russian plastic production," Applied Econometrics, Publishing House "SINERGIA PRESS", pages 21-40.

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