An Economic Approach to the Measurement of Productivity Growth Using Differences Instead of Ratios

Walter Diewert and Hideyuki Mizobuchi

Economics working papers from Vancouver School of Economics

Abstract: Traditional index number theory decomposes a value ratio into the product of a price index times a quantity index. Growth accounting is based on this traditional approach to index number theory. This paper takes an alternative approach which decomposes a value difference into the sum of a price difference plus a quantity difference. We apply this new exact difference methodology in order to decompose the growth of a new measure of labour productivity into additive explanatory factors. This new measure of labour productivity takes into account changes in the terms of trade. We apply our methodology to investigate the growth in living standards per unit of labour for the Japanese economy over the years 1955-2004. The paper also introduces a new flexible functional form for a GDP function that is based on the normalized quadratic functional form pioneered by Diewert and Wales.

Keywords: Flexible functional form; producer theory; Japanese economic growth; difference approach; Bennet indicators; labour productivity; exact index numbers (search for similar items in EconPapers)
JEL-codes: C14 D24 O47 O53 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2009-01-09, Revised 2009-01-09
New Economics Papers: this item is included in nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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