The Korean Journal of Economic Studies
Measuring Total Factor Productivity under Relaxed Assumptions on Market Competitiveness and Returns
Insong Jang (National Assembly Budget Office)Year 2015Vol. 63No. 1
Abstract
When economic growth is decomposed by growth accounting intocontributing factors, technological progress is measured by total factorproductivity. But, the measured primal TFP coincides with the technologicalprogress only under the strict assumptions of perfect competition and constantreturns to scale (CRS). In this paper, we first measure dual TFP which doesnot depend upon the CRS assumption. We also measure Hall type TFP whichrelaxes the assumption of perfect competition. The former is measured to havehigher variability than the primal TFP, while the latter has lower value. Whenwe relax both assumptions, the estimates of the technological progress turnout to be negligible while returns to scale appear to have increased since1990s. While the increasing returns to scale (IRS) in the total economy mightbe interpreted as evidences of positive externality and spillover effects due tothe transition to knowledge-based economy, the strong IRS in service industrymay suggest the role of increased size of firms as well as franchising.