Dynamic Productivity Decomposition with Allocative Efficiency

Author Name HOSONO Kaoru (Faculty Fellow, RIETI) / TAKIZAWA Miho (Gakushuin University)
Creation Date/NO. September 2019 19-E-069
Research Project Microeconometric Analysis of Firm and Industry Growth
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We propose a novel approach to decomposing aggregate productivity growth into changes in technical efficiency, allocative efficiency, and variety of goods as well as relative efficiency of entrants and exiters. We measure technical efficiency by the aggregate production possibility frontier and allocative efficiency by the distance from the frontier. Applying our approach to establishment- and firm-level datasets from Japan, we find that the allocative efficiency among survivors declined during the banking crisis period. We also find that the technical efficiency declined during the Global Financial Crisis period. Furthermore, we find that both entrants and exiters were likely to be more efficient than survivors.