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A Decomposition of U.S. Business Sector TFP Growth into Technical Progress and Cost Efficiency Components

Listed author(s):
  • Diewert, W. Erwin
  • Fox, Kevin J.

One of the problems with index number methods for computing TFP growth is that during recessions, these methods show declines in TFP and this seems to imply that technical progress is negative during these periods. This is rather implausible since it implies technological regress; i.e., that that the production frontier has contracted. The paper works out a nonparametric method where one can decompose TFP growth into two components: a technical progress component (i.e., a shift in the production frontier over time) and an inefficiency component that is due to the fixity of capital and labour in the short run. The new decomposition is illustrated using the new Bureau of Economic Analysis (BEA) Integrated Macroeconomic Accounts which facilitated the construction of a set of productivity accounts for two key sectors of the US private business sector: the Corporate Nonfinancial Sector and the Noncorporate Nonfinancial Sector. The analysis sheds light on productivity growth slowdowns over the period 1960 to 2014.

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File URL: http://econ.sites.olt.ubc.ca/files/2016/06/pdf_paper_erwin-diewert-16-04DecompUSBusinessetc.pdf
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Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number erwin_diewert-2016-8.

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Length: 30 pages
Date of creation: 30 Jun 2016
Date of revision: 30 Jun 2016
Handle: RePEc:ubc:pmicro:erwin_diewert-2016-8
Contact details of provider: Web page: http://www.economics.ubc.ca/

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  1. Kevin Fox & Ulrich Kohli, 1998. "GDP growth, terms-of-trade effects, and total factor productivity," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 7(1), pages 87-110.
  2. Olsson, Ola, 2000. "Knowledge as a Set in Idea Space: An Epistemological View on Growth," Journal of Economic Growth, Springer, vol. 5(3), pages 253-275, September.
  3. Aiyar, Shekhar & Dalgaard, Carl-Johan & Moav, Omer, 2006. "Technological Progress and Regress in Pre-Industrial Times," CEPR Discussion Papers 5454, C.E.P.R. Discussion Papers.
  4. Robert B. Archibald, 1977. "On the Theory of Industrial Price Measurement Output Price Indexes," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 57-72 National Bureau of Economic Research, Inc.
  5. Diewert, Erwin & Fox, Kevin, 2013. "Reference Technology Sets, Free Disposal Hulls and Productivity Decompositions," Economics working papers erwin_diewert-2013-40, Vancouver School of Economics, revised 18 Sep 2013.
  6. Diewert, W. Erwin, 2014. "Decompositions of profitability change using cost functions," Journal of Econometrics, Elsevier, vol. 183(1), pages 58-66.
  7. Henry Tulkens, 1993. "On FDH efficiency analysis: Some methodological issues and applications to retail banking, courts, and urban transit," Journal of Productivity Analysis, Springer, vol. 4(1), pages 183-210, June.
  8. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  9. W. Diewert, 2011. "Measuring productivity in the public sector: some conceptual problems," Journal of Productivity Analysis, Springer, vol. 36(2), pages 177-191, October.
  10. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
  11. Diewert, Erwin, 2010. "Measuring Productivity in the Public Sector: Some Conceptual Problems," Economics working papers erwin_diewert-2010-6, Vancouver School of Economics, revised 13 Jul 2010.
  12. W. Erwin Diewert, 1980. "Aggregation Problems in the Measurement of Capital," NBER Chapters, in: The Measurement of Capital, pages 433-538 National Bureau of Economic Research, Inc.
  13. Diewert, W E, 1980. "Capital and the Theory of Productivity Measurement," American Economic Review, American Economic Association, vol. 70(2), pages 260-267, May.
  14. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
  15. Weitzman, Martin L., 1998. "Recombinant Growth," Scholarly Articles 3708468, Harvard University Department of Economics.
  16. W. Diewert, 2012. "The measurement of productivity in the nonmarket sector," Journal of Productivity Analysis, Springer, vol. 37(3), pages 217-229, June.
  17. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.
  18. Chad Syverson, 2016. "Challenges to Mismeasurement Explanations for the U.S. Productivity Slowdown," NBER Working Papers 21974, National Bureau of Economic Research, Inc.
  19. Eaton, Jonathan & Kortum, Samuel, 1999. "International Technology Diffusion: Theory and Measurement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 537-570, August.
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