A Decomposition of U.S. Business Sector TFP Growth into Technical Progress and Cost Efficiency Components

Walter Diewert and Kevin Fox

Microeconomics.ca working papers from Vancouver School of Economics

Abstract: One of the problems with index number methods for computing TFP growth is that during recessions, these methods show declines in TFP and this seems to imply that technical progress is negative during these periods. This is rather implausible since it implies technological regress; i.e., that that the production frontier has contracted. The paper works out a nonparametric method where one can decompose TFP growth into two components: a technical progress component (i.e., a shift in the production frontier over time) and an inefficiency component that is due to the fixity of capital and labour in the short run. The new decomposition is illustrated using the new Bureau of Economic Analysis (BEA) Integrated Macroeconomic Accounts which facilitated the construction of a set of productivity accounts for two key sectors of the US private business sector: the Corporate Nonfinancial Sector and the Noncorporate Nonfinancial Sector. The analysis sheds light on productivity growth slowdowns over the period 1960 to 2014.

Keywords: Total Factor Productivity; user costs; measures of technical progress; measures of technical and allocative inefficiency; nonparametric cost functions (search for similar items in EconPapers)
JEL-codes: C43 C61 C67 C82 D24 E22 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2016-06-30, Revised 2016-06-30
New Economics Papers: this item is included in nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A decomposition of US business sector TFP growth into technical progress and cost efficiency components (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ubc:pmicro:erwin_diewert-2016-8

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