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On the Anatomy of Productivity Growth: A Decomposition of the Fisher Ideal TFP Index

Author

Listed:
  • Timo Kuosmanen

    (Wageningen University, Environmental Economics & Natural Resources Group)

  • Timo Sipiläinen

    (Agrifood Research Finland, MTT Economic Research)

Abstract

Decompositions of productivity indices contribute to our understanding of what drives the observed productivity changes by providing a detailed picture of their constituents. This paper presents the most comprehensive decomposition of total factor productivity (TFP) to date. Starting from the Fisher ideal TFP index, we systematically isolate the productivity effects of changes in production technology, technical efficiency, scale efficiency, allocative efficiency, and the market strength. The three efficiency components further decompose into input- and output-side effects. The proposed decomposition is illustrated with an empirical application to a sample of 459 Finnish farms over period 1992-2000.

Suggested Citation

  • Timo Kuosmanen & Timo Sipiläinen, 2004. "On the Anatomy of Productivity Growth: A Decomposition of the Fisher Ideal TFP Index," Econometrics 0410010, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpem:0410010
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    References listed on IDEAS

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    6. W. Diewert & Alice Nakamura, 2003. "Index Number Concepts, Measures and Decompositions of Productivity Growth," Journal of Productivity Analysis, Springer, vol. 19(2), pages 127-159, April.
    7. Balk, Bert M, 1993. "Malmquist Productivity Indexes and Fisher Ideal Indexes: Comment," Economic Journal, Royal Economic Society, vol. 103(418), pages 680-682, May.
    8. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
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    10. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
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    Cited by:

    1. Ghelfi, Rino & Bertazzoli, Aldo & Marchi, Alan & Rivaroli, Sergio & Samoggia, Antonella, 2010. "Inputs use in the agriculture of Emilia-Romagna: farm comparison through the Total Factor Productivity (TFP) index," 120th Seminar, September 2-4, 2010, Chania, Crete 109322, European Association of Agricultural Economists.
    2. Kamil Decyk, 2021. "Service Sector Productivity in the European Union Member States," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 3), pages 185-202.
    3. Timo Kuosmanen & Timo Sipiläinen, 2009. "Exact decomposition of the Fisher ideal total factor productivity index," Journal of Productivity Analysis, Springer, vol. 31(3), pages 137-150, June.

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    More about this item

    Keywords

    index numbers and aggregation; Total Factor Productivity (TFP) measurement; Fisher ideal index; Malmquist index; decompositions; agriculture;
    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
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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