A Note on Modeling Aggregate Productivity Growth : The Importance of Imperfect Markets

Models of aggregate productivity growth linked to sectoral models of production typically assume that product and factor markets are perfectly competitive. The perfect markets assumption allows intermediate goods to be viewed as internal, offsetting transfers. This paper relaxes the conventional perfect markets assumption. The alternatives of basing aggregate models of productivity growth on value-added versus delivery-to-final-demand frameworks are analyzed. The important finding is that if imperfect markets exist, then the value-added and the delivery-to-final-demand models generate identical measures of aggregate productivity growth only under very restrictive assumptions; moreover, a simple variant of imperfect competition cannot reconcile these productivity measures