Aggregate Productivity Growth Decomposition: an Overview

In this article, we review some recent developments of decomposition methods of the aggregate productivity growth by using firm/plant level datasets. These methods have been uncovering the sizable impacts of resource reallocation for the aggregate productivity growth. We categorize these methods into (i) reduced form decomposition methods (BHC-FHK decomposition, OP decomposition, and PL decomposition) and (ii) the structural decomposition method that is based on the structural estimation of an endogenous growth model (LM decomposition), and review each of them. By assessing the potential pros and cons of existing reduced form decomposition methods, we highlight features of the structural decomposition method. As an example of the use of the structural decomposition method, we introduce Murao and Nirei (2015) who quantitatively evaluate counterfactual deregulation of firm entry.