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Decomposing Value Added Growth over Sectors into Explanatory Factors

Author

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  • Diewert, W. Erwin
  • Fox, Kevin J.

Abstract

A decomposition of nominal value added growth over multiple sectors of an economy into explanatory factors is presented. The explanatory factors over a single sector are changes in the efficiency of the sector, growth of primary inputs, changes in sectoral output and input prices, technical progress and returns to scale. In order to implement the decomposition for a sector, an estimate of the sector’s cost constrained value added function for the two periods under consideration is required, which is taken to be the free disposal hull of past observations. The problems associated with aggregating over sectors are also considered. The methodology is illustrated using U.S. data for two sectors over the years 1960-2014.

Suggested Citation

  • Diewert, W. Erwin & Fox, Kevin J., 2016. "Decomposing Value Added Growth over Sectors into Explanatory Factors," Microeconomics.ca working papers erwin_diewert-2016-10, Vancouver School of Economics, revised 27 Sep 2016.
  • Handle: RePEc:ubc:pmicro:erwin_diewert-2016-10
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    File URL: http://econ.sites.olt.ubc.ca/files/2016/09/pdf_paper_erwin-diewert-16-07-DecomposingValue.pdf
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    Cited by:

    1. Bert M. Balk, 2016. "Various Approaches to the Aggregation of Economic Productivity Indices," Pacific Economic Review, Wiley Blackwell, vol. 21(4), pages 445-463, October.

    More about this item

    Keywords

    Measurement of output; input and productivity; value added functions; revenue functions; variable profit functions; duality theory; economic price and;

    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
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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