The Many Decompositions of Total Factor Productivity Change
150 Pages Posted: 2 May 2018 Last revised: 24 Sep 2019
Date Written: April 4, 2018
Total factor productivity change, here defined as output quantity change divided by input quantity change, is the combined result of (technical) efficiency change, technological change, a scale effect, and input and output mix effects. Sometimes allocative efficiency change is supposed to also play a role. Given a certain functional form for the productivity index, the problem is how to decompose such an index into factors corresponding to these five or six components. A basic insight offered in the present paper is that meaningful decompositions of productivity indices can only be obtained for indices which are transitive in the main variables. Using a unified approach, we obtain decompositions for Malmquist, Moorsteen-Bjurek, price-weighted, and share-weighted productivity indices. A unique feature of this paper is that all the decompositions are applied to the same dataset of a real-life panel of decision-making units so that the extent of the differences between the various decompositions can be judged.
Keywords: Total Factor Productivity, Index, Decomposition, Malmquist, Moorsteen, Bjurek, Fisher, Törnqvist
JEL Classification: C43, D24, D61
Suggested Citation: Suggested Citation