Measures Of Technical Change Research Articles

The Solow–Pasinetti debate on productivity measurement: Review and reformulation

It is beyond doubt that Solow’s proposal for “an elementary way of segregating variations in output per head due to technical change from those due to the availability of capital per head” (Solow, 1957, p. 312) leading to the ‘residual’, and hence, TFP growth, has been a crucial development of Neoclassical economics. This notwithstanding, the critique of (and alternative to) Solow’s proposal advanced by Pasinetti (1959) has not been equally acknowledged. The debate re-emerged when a posthumous note by Richard Stone (1998[1960]) triggered a further exchange between the authors. This paper aims at retracing the key conceptual aspects of the discussion, pointing to some limitations of Pasinetti’s original implementation of his measure of productivity changes, and providing an Input–Output generalisation based on Pasinetti’s notion of hyper-integrated labour. Seen in this light, Pasinetti’s computable measure of technical change provides a theoretically sound alternative to perform productivity analyses from a Classical perspective.

Spatial production structure and input choices of forest products in Sweden

A spatially analyse of the production structure and input choices for the heating, sawmill, and pulp sectors in Sweden is conducted using a panel data set includes quarterly data for period 2011 to 2016 across 21 counties. Focus is on price and input substitution elasticities, scale effects and technical change measures. A single-output regional translog cost models is developed and estimated. The translog specification is chosen for its flexibility and for the range of alternative hypotheses that can be tested. The results indicate relative elastic price elasticities, limited possibilities to exploit scale effects to future reduce the variable production costs, technical restriction in input substitution options, and mature production technologies that still need to be invested in to reduce technical deterioration over time. The results are usable for practitioners, policy and decision-makers as well as inputs in future academic modelling, especially when assessing the paths towards a biobased economy.

Estimation of technical change: Direct semi/nonparametric approaches

This paper introduces some novel approaches to formulate and estimate technical change (TC) nonparametrically in a variety of cases without estimating the underlying production technology that is usually specified by a production, cost or transformation function. The binding theme in all our formulations of TC is the use of the first-order conditions of profit maximization or cost minimization. The new TC measures are observation-specific due to their nonparametric nature.

Effects of Inefficiency on Marginal Costs, Degree of Economies of Scale and Technical Change: A Theoretical Relationship

In this paper, a theoretical relationship is obtained to measure the effect that inefficiency has on marginal costs, degree of economies of scale and technical change. It is shown that when the relationship between inefficiency and output level is ignored, the estimation of marginal costs and the degree of economies of scale are incorrect. The measurement of technical change is also wrongly calculated if one does not consider the variation of inefficiency over time. This could lead to incorrect pricing decisions that would transfer inefficiency to the consumer via prices and non-optimal investments in productive capacity. In addition, the effect of technical change on costs could be erroneously estimated. The empirical application of this theoretical model to Spanish port authorities during the period 2008-2016 shows that marginal costs of port services were overestimated, the degree of economies of scale was underestimated and the time variations of the inefficiency were interpreted erroneously as technical change when the relationship between inefficiency and output and time is not considered.

College Wage Premium in China: from the Perspective of Skill-Biased Technical Change

This paper explores the impacts of skill-biased technical change measured by computer use on college wage differentials in China over six years from 2010 onward. We find a substantial wage premium for college educated workers, and the expansion of computer use could significantly increase the college wage premium, especially when controlling industry heterogeneities and geographic factors. This pattern, using dynamic analysis in the long run, is mainly driven by complementary effects between capital structure and skilled workers, namely college educated workers. Moreover, the results are consistent when adopting propensity score matching methods, or in the case of over-education, or adopting alternative measures of technical change and wage earnings.

Book Review: The Aggregate Production Function and the Measurement of Technical Change, ‘Not Even Wrong’

Book Review: The Aggregate Production Function and the Measurement of Technical Change, ‘Not Even Wrong’

국내 제조업에 대한 비가격 신재생에너지의 암묵가격, 대체가능성, 생산성 파급효과 분석

This paper analyzes the firms' optimization behavior in response to rising demand for non-priced renewable energy in the manufacturing industries by using an input distance function. The annual estimates of the shadow price of renewable energy is derived and the trend of its shadow price over time is analyzed. The degree of substitution of renewable energy for fossil-fuels is examined. The input-based Malmquist productivity index, defined as a composite of the technical efficiency and technical change measures, is measured. The contribution of renewable energy input growth to the Malmquist index is analyzed. Empirical results indicate that the shadow price of renewable energy declined at an average annual rate of 17% over the period 1992-2012. Substitutability between renewable energy and fossil-fuels was limited. On average, a 1% increase in renewable energy would decrease Malmquist index by 0.04% per year.

Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity

We examine the impact of Chinese import competition on broad measures of technical change—patenting, IT, and TFP—using new panel data across twelve European countries from 1996 to 2007. In particular, we establish that the absolute volume of innovation increases within the firms most affected by Chinese imports in their output markets. We correct for endogeneity using the removal of product-specific quotas following China's entry into the World Trade Organization in 2001. Chinese import competition led to increased technical change within firms and reallocated employment between firms towards more technologically advanced firms. These within and between effects were about equal in magnitude, and account for 14% of European technology upgrading over 2000–7 (and even more when we allow for offshoring to China). Rising Chinese import competition also led to falls in employment and the share of unskilled workers. In contrast to low-wage nations like China, developed countries had no significant effect on innovation.

Using information about technologies, markets and firm behaviour to decompose a proper productivity index

This paper uses distance functions to define new output and input quantity indexes that satisfy important axioms from index number theory (e.g., identity, transitivity, proportionality and time-space reversal). Dividing the output index by the input index yields a new productivity index that can be decomposed into a measure of technical change, a measure of environmental change, and several measures of efficiency change. A problem with this new index is that it cannot be computed without estimating the production frontier. The paper shows how assumptions concerning technologies, markets and firm behaviour can be used to inform the estimation process. The focus is on the asymptotic properties of least squares estimators when the explanatory variables in the production frontier model are endogenous. In this case, the ordinary least squares estimator is usually inconsistent. However, there is one situation where it is super-consistent. A fully-modified ordinary least squares estimator is also available in this case. To illustrate the main ideas, the paper uses US state-level farm data to estimate a stochastic production frontier. The parameter estimates are then used to obtain estimates of the economically-relevant components of productivity change.

Technology mapping and the evaluation of technical change

In this paper a model of technological evolution based on a twin characteristics representation and on a population approach has been used to discuss the possibility of obtaining a single measure of technical change which could be used for all possible types of evaluation. Possible changes for a technological population include changes in position, changes in density, corresponding to a change in the intensity and type of competition; changes in the shape of the technological population corresponding to the formation of particular trajectories, or to the fragmentation of an existing population following from a process of specialization. In view of these evolutionary trends it is considered impossible to obtain a unique measure of technological change which is useful for all types of evaluation. The heterogeneity/dispersion of the technological population and the presence of qualitative change limit the accuracy and the meaning of measurements of technical change. This means that only in particular circumstances (e.g. long periods of observation and populations of unchanging shape, or developments along a particular trajectory) would such measurements be reasonably accurate and meaningful.

Australia’s mining productivity decline: implications for MFP measurement

This paper investigates the mining sector’s poor productivity performance as measured by the growth accounting formula for multifactor productivity (MFP) index during the recent mining boom in Australia. We provide an alternative measure of productivity growth by estimating a translog variable cost function, with parameters that separate productivity growth due to technical change from that due to the effects of returns to scale, capacity utilisation and natural resource inputs. The results show that the average MFP growth in Australian mining based on the dual cost-function measure of technical change is 2 % over the sample period 1974–1975 to 2007–2008, rather than −0.2 % from the published index. The difference arises because declining natural resource inputs, the effects of capacity utilisation and returns to scale have all reduced the ‘true’ MFP growth.

Econometric estimation of distance functions and associated measures of productivity and efficiency change

Multi-input multi-output production technologies can be represented using distance functions. Econometric estimation of these functions typically involves factoring out one of the outputs or inputs and estimating the resulting equation using maximum likelihood methods. A problem with this approach is that the outputs or inputs that are not factored out may be correlated with the composite error term. Fernandez et al. (J Econ 98:47–79, 2000) show how to solve this so-called ‘endogeneity problem’ using Bayesian methods. In this paper I use the approach to estimate an output distance function and an associated index of total factor productivity (TFP) change. The TFP index is a new index that satisfies most, if not all, economically-relevant axioms from index number theory. It can also be exhaustively decomposed into a measure of technical change and various measures of efficiency change. I illustrate the methodology using state-level data on U.S. agricultural input and output quantities (no prices are needed). Results are summarized in terms of the characteristics (e.g., means) of estimated probability density functions for measures of TFP change, technical change and efficiency change.

Nonparametric Estimates of the Components of Productivity and Profitability Change in U.S. Agriculture

Recent theoretical advances in total factor productivity (TFP) measurement mean that TFP indexes can now be exhaustively decomposed into unambiguous measures of technical change and efficiency change. To date, all applications of this new methodology have involved decomposing indexes that have poor theoretical properties. This article shows how the methodology can be used to decompose a new TFP index that satisfies all economically‐relevant axioms from index theory. The application is to state‐level data from 1960 to 2004. In most states, the main drivers of agricultural TFP change are found to have been technical change and scale and mix efficiency change.

Nonparametric measurement of the overall shift in the technology frontier: an application to multiple-output agricultural production data in the Brazilian Amazon

This article develops a simple, but informative, approach to measure technical changes by applying the Malmquist index framework using data envelopment analysis (DEA). A set of directional vectors is used to capture complete information regarding the overall shift in the technology frontier; we then visualize the DEA frontiers in the output space. This approach deals with the problems of sample dependence and non-circularity of technical change measures. It allows us to measure output-by-output technical change. Furthermore, the geometric mean of the technical change measures derived using this approach satisfies circularity. The application of Malmquist indices to the panel datasets of agricultural production in the Brazilian Amazon during the period 1975–1995 indicates a non-Hicks-neutral technical change, with intersection of frontiers during both the 1975–1985 and the 1985–1995 sub-periods. We find moderate progress in cattle production and annual crops, and a decline in perennial crops (bananas). Technological progress is a modest 0.7% during the period 1975–1995 on average. In addition, comparisons with the sample-dependent measures in the preceding studies demonstrate that these indices are usually sensitive to the distribution of actual sampled data points.

Total factor productivity - a misleading concept

The paper criticises the concept of total factor productivity as a measure of technical change and economic performance on two grounds: (i) theoretical, because it shares all the weaknesses of the neoclassical production function from which it is derived; (ii) its relevance in helping to understand the present technological revolution in computer and information technologies, since it concerns only disembodied technical change. The practical conclusion is that total factor productivity is more a measure of noise than a genuine indicator of technical progress. In spite of the above drawbacks, total factor productivity is still widely used in empirical work on technical change. This is all the more surprising since the alternative concept of productivity of labour not only avoids the above mentioned criticisms but is theoretically superior to its rival concept because it captures the true nature of present technical change. JEL Codes: J24, D24, O47 Keywords: Factor Productivity, Production Function, Production, Productivity, Total Factor Productivity

An aggregate quantity framework for measuring and decomposing productivity change

Total factor productivity (TFP) can be defined as the ratio of an aggregate output to an aggregate input. This definition naturally leads to TFP indexes that can be expressed as the ratio of an output quantity index to an input quantity index. If the aggregator functions satisfy certain regularity properties then these TFP indexes are said to be multiplicativelycomplete. This paper formally defines what is meant by completeness and reveals that (1) the class of multiplicatively complete TFP indexes includes Laspeyres, Paasche, Fisher, Tornqvist and Hicks-Moorsteen indexes, (2) the popular Malmquist TFP index of Caves et al. (Econometrica 50(6):1393–1414, 1982a) is incomplete, implying it cannot always be interpreted as a measure of productivity change, (3) all multiplicatively complete TFP indexes can be exhaustively decomposed into measures of technical change and efficiency change, and (4) the efficiency change component can be further decomposed into measures of technical, mix and scale efficiency change. Artificial data are used to illustrate the decomposition of Hicks-Moorsteen and Fisher TFP indexes.

Australia’s Mining Productivity Paradox: Implications for MFP Measurement

This paper investigates the mining industry's poor productivity performance as measured by the conventional multifactor productivity (MFP) index during the recent mining boom in Australia. We derive a relationship between the measured and 'true' MFP growth that separates the effects of returns to scale, market power, capacity utilisation and natural resource inputs from measured MFP. Using exploration capital as a proxy for natural resource inputs, a translog variable cost function is estimated to provide parameter estimates for the various components in the decomposition equation. The results show that the average MFP growth in Australian mining based on the dual measure of technical change is nearly 2% over the sample period 1974-75 to 2006-07, rather than 0.01% from the published index. The difference arises because changes in natural resource inputs have subtracted 1.14 percentage points from the 'true' MFP growth, while the effects of capacity utilisation and returns to scale are also negative but less sizeable in impact.

Measuring and decomposing agricultural productivity and profitability change*

Profitability change can be decomposed into the product of a total factor productivity (TFP) index and an index measuring changes in relative prices. Many TFP indexes can be further decomposed into measures of technical change, technical efficiency change, scale efficiency change and mix efficiency change. The class of indexes that can be decomposed in this way includes the Fisher, Törnqvist and Hicks–Moorsteen TFP indexes but not the Malmquist TFP index of Caves, Christensen and Diewert (1982). This paper develops data envelopment analysis methodology for computing and decomposing the Hicks–Moorsteen index. The empirical feasibility of the methodology is demonstrated using country‐level agricultural data covering the period 1970–2001. The paper explains why relatively small countries tend to be the most productive, and why favourable movements in relative prices tend to simultaneously increase net returns and decrease productivity. Australia appears to have experienced this relative price effect since at least 1970. Thus, if Australia is a price‐taker in output and input markets, Australian agricultural policy‐makers should not be overly concerned about the estimated 15 per cent decline in agricultural productivity that has taken place over the last three decades.

Progrès technique augmentant le produit marginal des facteurs et productivité dans l’industrie manufacturière canadienne

The purpose of this paper is to establish a relation between the empirical estimates of productivity and technical change. Few studies have tended to give estimates of that relation. The measuring of productivity involves the use of an implicit production function. Moreover, measures of productivity are estimates of the rates of change of Hicks-neutral technical change. The paper suggests that non-sophisticated measures of technical change may be replaced since they offer inadequate description of temporal change in technology. Finally, it would be useful to continue to develop econometrics models of technical change.

The effects of resource depletion on coal mining productivity

The Solow Residual has a direct interpretation as a measure of technical change under perfect competition and constant returns to scale. When these conditions do not hold, the residual has to be appropriately adjusted in order to be considered a correct measure of technical change. We argue that in extractive industries the Solow Residual is also affected by the continuous depletion of a non-renewable resource. Therefore, we provide a new decomposition of the Solow Residual for extractive industries in which the level of reserves is likely to affect extraction costs. Our empirical results illustrate the role played by the depletion of reserves in the measurement of productivity of coal mining in Spain.