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Measuring productivity growth when technological change is biased - a new index and an application to UK agriculture

Bailey, A., Irz, X. and Balcombe, K. (2004) Measuring productivity growth when technological change is biased - a new index and an application to UK agriculture. Agricultural Economics, 31 (2-3). pp. 285-295. ISSN 0169-5150

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To link to this item DOI: 10.1016/j.agecon.2004.09.020

Abstract/Summary

Productivity growth is conventionally measured by indices representing discreet approximations of the Divisia TFP index under the assumption that technological change is Hicks-neutral. When this assumption is violated, these indices are no longer meaningful because they conflate the effects of factor accumulation and technological change. We propose a way of adjusting the conventional TFP index that solves this problem. The method adopts a latent variable approach to the measurement of technical change biases that provides a simple means of correcting product and factor shares in the standard Tornqvist-Theil TFP index. An application to UK agriculture over the period 1953-2000 demonstrates that technical progress is strongly biased. The implications of that bias for productivity measurement are shown to be very large, with the conventional TFP index severely underestimating productivity growth. The result is explained primarily by the fact that technological change has favoured the rapidly accumulating factors against labour, the factor leaving the sector. (C) 2004 Elsevier B.V. All rights reserved.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Life Sciences > School of Agriculture, Policy and Development
ID Code:8264
Uncontrolled Keywords:technological change bias, latent variables, TFP, UK agriculture, TECHNICAL CHANGE

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