A measure of total factor productivity with biased technological change

Abstract

ABSTRACTThe paper presents a new measure of total factor productivity (TFP) that also takes into account the effect of biased technological change. With this methodology, we can distinguish the effects resulting from the introduction of neutral or biased technological change on TFP, called neutral factor productivity and biased factor productivity (BFP), respectively. The new measure of TFP also holds in extreme cases where only the effect of neutral/biased technological change is presented. In particular, the BFP component increases (decreases) when the productivity of the cheaper (more expensive) factor increases. Moreover, the TFP holds up to the modification of both units of measure and to the costs of factors. Finally, the intensity of the BFP is independent of the direction of the technological change.