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Productivity and Intermediate Products: A Frontier Approach

By Rolf Färe and Shawna Grosskopf


Nishimizu and Hulten (1978) developed a model for measuring productivity growth when intermediate inputs are explicitly recognized. they show "...that the aggregate rate of productivity change is the weighted sum of the sectoral rates " (p. 353). To derive this result, the authors assume that the inputs are "...allocated efficiently among sectors " (p. 352). The weights used to sum the sectoral rates relies on prices, and thus it is implicitly assumed that the technology operates in an allocatively efficient manner, to use the terminology of Farrell (1957). The purpose of this paper is to introduce a frontier model for productivity measurement that does not require that inputs are efficiently allocated among sectors or that prices are available. In particular we develop a network activity analysis model that explicitly recognizes that some inputs are produced and consumed within the production technology. Here we differ from Koopmans (1951) by assuming that the intermediate inputs may also be final output. This assumption is in line with current international trade theory, where intermediate inputs are tradable. Our model consists of two production units that are interconnected in a network t

Year: 1996
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