Multiple Directions for Measuring Biased Technical Change

Hideyuki Mizobuchi
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Hideyuki Mizobuchi: Faculty of Economics, Ryukoku University

No WP092015, CEPA Working Papers Series from University of Queensland, School of Economics

Abstract: Malmquist and Hicks−Moorsteen productivity indexes are the two most widely used indexes for measuring productivity growth. The former, which has been proposed initially, has a nice feature of decomposing productivity growth into two important sources: efficiency change and technical change components. The technical change component is considered measuring the distances between the isoquants along a single direction. When technical change is not Hicks-neutral and is biased towards certain factor inputs or outputs, the distance between the isoquants is dependent on the direction selected. In this case, if we adopt a single direction for measuring the distances, we can only locally capture technical change, which is a global phenomenon by nature. To rectify this problem, we propose a more global index of technical change that measures the distance between the isoquants by utilizing two directions. Along with the existing measure of efficiency change, this allows us to define a corresponding productivity index. This index turns out to be the geometric mean of the Malmquist and the Hicks-Moorsteen productivity indexes under constant returns to scale technology. While there has been a long discussion on which index is more preferable between the two productivity indexes, we give a justification to using the geometric mean of these two indexes.

Keywords: Productivity; Biased technical change; Malmquist productivity index; Hicks– Moorsteen productivity index (search for similar items in EconPapers)
JEL-codes: C14 D24 O47 O51 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-eff
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Citations: View citations in EconPapers (2)

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