Measuring productivity growth when technological change is biased–a new index and an application to UK agriculture |
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Authors: | Alastair Bailey Xavier Irz Kelvin Balcombe |
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Affiliation: | AEBM Research Group, Department of Agricultural Sciences, Imperial College, London, Wye Campus, Wye, Ashford, Kent TN25 5AH, UK;Department of Agricultural and Food Economics, University of Reading, P. O. Box 237, Reading RG6 6AR, UK |
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Abstract: | Productivity growth is conventionally measured by indices representing discreet approximations of the Divisia TEP 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. |
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Keywords: | Technological change bia Latent variables TFP UK agriculture |
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