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A Note on Reconciling Gross Output TFP Growth with Value Added TFP Growth

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  • Diewert, W. Erwin

Abstract

The paper obtains relatively simple exact expressions that relate value added Total Factor Productivity growth (TFP growth or Multifactor Productivity Growth) in a value added framework to the corresponding measures of TFP growth in a gross output framework when Laspeyres or Paasche indexes are used to aggregate outputs and inputs. Basically, as the input base becomes smaller, the corresponding estimates of TFP growth become larger. A fairly simple approximate relationship between Fisher indexes of gross output TFP growth and the corresponding Fisher index of value added TFP growth is also derived. The methodology developed in this note can be applied in other situations.

Suggested Citation

  • Diewert, W. Erwin, 2014. "A Note on Reconciling Gross Output TFP Growth with Value Added TFP Growth," Economics working papers erwin_diewert-2014-56, Vancouver School of Economics, revised 17 Dec 2014.
    • Handle: RePEc:ubc:bricol:erwin_diewert-2014-56
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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. W. Erwin Diewert & Emily Yu, 2012. "New Estimates of Real Income and Multifactor Productivity Growth for the Canadian Business Sector, 1961-2011," International Productivity Monitor, Centre for the Study of Living Standards, vol. 24, pages 27-48, Fall.
    3. W. Diewert, 2014. "US TFP growth and the contribution of changes in export and import prices to real income growth," Journal of Productivity Analysis, Springer, vol. 41(1), pages 19-39, February.
    4. Balk, Bert M., 2009. "On The Relation Between Gross Output– And Value Added–Based Productivity Measures: The Importance Of The Domar Factor," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S2), pages 241-267, September.
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    More about this item

    Keywords

    Total Factor Productivity growth; TFP growth; Multifactor Productivity growth; MFP growth; Laspeyres; Paasche and Fisher index number formulae; magnif;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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