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The Total Factor Productivity Index as a Ratio of Price Indexes
Last modified: 2018-05-12
Abstract
Ever since the seminal work by Robert Solow (1957), total factor productivity
has been associated with the movements in the production function caused
by technical progress. This has largely influenced the choice of the index numbers
involved in the productivity measurement. In fact, the methodology currently in use
worldwide is based on the superlative Tornqvist index (Diewert, 1976). In this paper
we observe the empirical evidence about TFP in a few countries and propose to redefine
the TFP as the ratio of the price index of input to the price index of outputs,
using the Sato-Vartia formula.
has been associated with the movements in the production function caused
by technical progress. This has largely influenced the choice of the index numbers
involved in the productivity measurement. In fact, the methodology currently in use
worldwide is based on the superlative Tornqvist index (Diewert, 1976). In this paper
we observe the empirical evidence about TFP in a few countries and propose to redefine
the TFP as the ratio of the price index of input to the price index of outputs,
using the Sato-Vartia formula.
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