Linked-Cone Profit Ratio Estimates of U.S. Total Factor Productivity Growth, Using DEA/AR Methods

Abstract

Solow’s total factor productivity (TFP) equation is revisit ed in a Data Envelopment Analysis (DEA) context. Linked-cone (LC) profit ratios were used to measure the capital share and, in turn, TFP growth for the United States. Market imperfections are allowed for, and the role of slacks is evaluated. For the years 1980, 1985, and 1990, DEA methods were applied to Organization for Economic Cooperation and Development (OECD) data for ten leading industrialized nations, namely, Canada, United States (U.S.), Japan, Australia, Belgium, France, Germany, Italy, Sweden and United Kingdom. For the U.S., the LC estimates of TFP growth were noticeably greater than the TFP estimates using the standard growth accounting approach; and similarly, the LC estimates of TFP growth were greater than the TFP estimates using Malmquist indexes. Unfortunately, ignoring slacks in Malmquist indexes may well bias the efficiency measures and, in turn, the TFP growth estimates.KeywordsTotal Factor ProductivityTotal Factor Productivity GrowthMalmquist IndexCapital ShareTotal Factor Productivity Growth RateThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.