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On the Relationship between Gross Output-based TFP Growth and Value Added-based TFP Growth: An Illustration Using Data from Australian Industries

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  • Matthew Calver

Abstract

Diewert (2015) develops simple expressions for the exact relationship between value added TFP growth and gross output TFP growth. These expressions suggest that the magnification factor relating the two TFP growth measures is approximately equal to the share of primary inputs in total costs. We apply these simple approximations to data on Australian industries, finding that they tend to provide very close approximations over short time periods, but are less reliable over longer time horizons. We find that magnification factors vary significantly across industries so that the results of comparative studies can be quite sensitive to the choice of output measure chosen to construct TFP. In particular, industries in which intermediate inputs account for a large share of total inputs exhibit much smaller TFP growth (in absolute value) compared to industries where intermediate inputs are relatively unimportant when gross output is used to construct TFP measures rather than value added.

Suggested Citation

  • Matthew Calver, 2015. "On the Relationship between Gross Output-based TFP Growth and Value Added-based TFP Growth: An Illustration Using Data from Australian Industries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 29, pages 68-82, Fall.
    • Handle: RePEc:sls:ipmsls:v:29:y:2015:5
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    File URL: http://www.csls.ca/ipm/29/calver.pdf
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    References listed on IDEAS

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    1. Paul Schreyer, 2001. "The OECD Productivity Manual: A Guide to the Measurement of Industry-Level and Aggregate Productivity," International Productivity Monitor, Centre for the Study of Living Standards, vol. 2, pages 37-51, Spring.
    2. Erwin Diewert, 2015. "Reconciling Gross Output TFP Growth with Value Added TFP Growth," International Productivity Monitor, Centre for the Study of Living Standards, vol. 29, pages 60-67, Fall.
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    Cited by:

    1. Matthew Calver & Fanny McKellips, 2016. "Productivity Trends in the Canadian Transport Sector: An Overview," CSLS Research Reports 2016-04, Centre for the Study of Living Standards.
    2. Bert M. Balk, 2020. "A novel decomposition of aggregate total factor productivity change," Journal of Productivity Analysis, Springer, vol. 53(1), pages 95-105, February.
    3. Alexander Murray, 2016. "Partial versus Total Factor Productivity: Assessing Resource Use in Natural Resource Industries in Canada," CSLS Research Reports 2016-20, Centre for the Study of Living Standards.
    4. Erwin Diewert, 2015. "Reconciling Gross Output TFP Growth with Value Added TFP Growth," International Productivity Monitor, Centre for the Study of Living Standards, vol. 29, pages 60-67, Fall.

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    More about this item

    Keywords

    Value Added Total Factor Productivity; Total Factor Productivity; Laspeyres; Paasche; Fisher; Gross Output Total Factor Productivity;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • N57 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Africa; Oceania
    • N67 - Economic History - - Manufacturing and Construction - - - Africa; Oceania
    • N77 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Africa; Oceania

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