Edited by Jonathan Michie
Chapter 14: Productivity and Competition from a Global Point of View
* Joseph Plasmans 1 Introduction This chapter essentially deals with the interplay of productivity and competition. The productivity of a production unit1 is defined as the ratio of a measure of output produced by this production unit over a measure of input used during the same time period. If the input measure is comprehensive, then the productivity concept is called Total Factor Productivity (TFP) or Multifactor Productivity (MFP). We use TFP and MFP interchangeably, even if there is a slight difference between what they may include.2 If the input measure is (the number of) labour hours, then the productivity concept is called Labour Productivity (LP). Diewert (2006, p. 1) states that: A problem with the Total Factor Productivity concept is that it depends on the units of measurement for outputs and inputs. Hence TFP can only be compared across production units if the production units are basically in the same line of business so that they are producing the same (or closely similar) outputs and using the same inputs. Therefore, we concentrate in this chapter on firms as production units operating in the manufacturing market. Usually TFP growth (TFPG) or MFP Growth (MFPG) can be decomposed into factors such as technical change, technical efficiency (efficient allocation of inputs to outputs), scale effects, input- and output-mix effects (deviations of perfect competition, higher production capabilities), and other components that may be related to productivity changes (uncertainty) (see e.g., Morrison, 1999; Balk, 2008). Therefore, TFPG equals technical change when all the other TFPG decomposition...
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