Productivity growth in industrialized countries

Abstract

Several recent papers in the American Economic Review examined important questions regarding productivity growth and its sources in industrialized countries: Fare, Grosskopf, Norris, and Zhang (FGNZ),1994 and Ray and Desli (RD), 1997. We examine two sets of issues raised by these papers, and reassess what can be learned about productivity,efficiency and technology from the data used by both papers. The first set of issues are primarily economic in nature. The Malmquist measure of efficiency change was decomposed by FGNZ into measures of "pure efficiency change" and change in scale efficiency. RD offered an alternative decomposition of the Malmquist index in which the FGNZ measure of pure efficiency change appears, but in which both the scale efficiency change and technical change measures differ. But,in RD's alternative decomposition, the component which is supposed to measure changes in returns to scale confounds the different effects of movement of production units in input/output space and changes in the shape of the technology over time. We offer in this paper an alternative decomposition which avoids this problem. The second set of issues we examine concern estimation and inference. We provide a statistical model suggested by the original framework of FGNZ which allows us to estimate confidence intervals and formally test many of the claims made by both papers. The tool we used is the bootstrap methodology of Simar and Wilson (1997a,b).

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