Decomposing Value Added Growth into Explanatory Factors

Abstract

A method for decomposing nominal value added growth is presented, which identifies the contributions from efficiency change, growth of primary inputs, changes in output and input prices, technical progress and returns to scale. In order to implement the decomposition, an estimate of the relevant cost constrained value added function for the two periods under consideration is required. This is taken to be the free disposal hull of past observations. Aggregation over sectors is also considered. The methodology is illustrated using U.S. data for two sectors over the years 1960-2014.

Keywords: Measurement of Output, Input and Productivity, Value Added Functions, Revenue Functions, Variable Profit Functions, Duality Theory, Economic Price and Quantity Indexes, Technical Progress, Total Factor Productivity, Revenue Efficiency, Aggregation over Sectors

JEL Classification: C43, D24, D61, E23, H44, O47