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An Economic Approach to the Measurement of Productivity Growth Using Differences Instead of Ratios

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  • Diewert, Erwin
  • Mizobuchi, Hideyuki

Abstract

Traditional index number theory decomposes a value ratio into the product of a price index times a quantity index. Growth accounting is based on this traditional approach to index number theory. This paper takes an alternative approach which decomposes a value difference into the sum of a price difference plus a quantity difference. We apply this new exact difference methodology in order to decompose the growth of a new measure of labour productivity into additive explanatory factors. This new measure of labour productivity takes into account changes in the terms of trade. We apply our methodology to investigate the growth in living standards per unit of labour for the Japanese economy over the years 1955-2004. The paper also introduces a new flexible functional form for a GDP function that is based on the normalized quadratic functional form pioneered by Diewert and Wales.

Suggested Citation

  • Diewert, Erwin & Mizobuchi, Hideyuki, 2009. "An Economic Approach to the Measurement of Productivity Growth Using Differences Instead of Ratios," Economics working papers erwin_diewert-2009-2, Vancouver School of Economics, revised 09 Jan 2009.
  • Handle: RePEc:ubc:bricol:erwin_diewert-2009-2
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    File URL: http://www.econ.ubc.ca/diewert/dp0903.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Flexible functional form; producer theory; Japanese economic growth; difference approach; Bennet indicators; labour productivity; exact index numbers;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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