Total Factor Productivity and the Measurement of Technological Change

33 Pages Posted: 18 Oct 2004  

Richard G. Lipsey

Simon Fraser University

Kenneth I. Carlaw

University of Canterbury

Abstract

TFP is interpreted in the literature in different, mutually contradictory ways. Changes in TFP are shown to measure not technological change, only the super-normal returns to investing in such change - returns that exceed the full opportunity cost of the activity. Thus, in the limit, technological change can proceed with unchanged TFP. Measuring the effects of technological change instead requires counterfactual estimates. Reasons why changes in TFP are imperfect measures of super normal returns are also studied - reasons connected with the timing of output responses, the treatment of R&D in the national accounts, the omission of resource inputs, and two types of aggregation.

Suggested Citation

Lipsey, Richard G. and Carlaw, Kenneth I., Total Factor Productivity and the Measurement of Technological Change. Canadian Journal of Economics, Vol. 37, No. 4, pp. 1118-1150, November 2004. Available at SSRN: https://ssrn.com/abstract=605136

Richard G. Lipsey

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Kenneth I. Carlaw (Contact Author)

University of Canterbury ( email )

Ilam Road
Christchurch 1
New Zealand

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