Technical Efficiency and U.S. Manufacturing Productivity Growth

This paper establishes that new inputs increase technical efficiency levels for U.S. manufacturing. Over the period 1950-1998, intermediate inputs exhibited higher rates of efficiency growth than labor and capital. Efficiency-adjusted productivity growth annually averaged 0.4 percentage points above measured growth. The gap between efficiency-adjusted and measured productivity growth arises from aggregating inputs using observed, and not efficiency-adjusted, cost share weights in the calculation of measured growth. Specifically, the decline in efficiency-adjusted material cost shares, compared to the measured shares, coupled with the comparatively high material input growth rate, was the main source of the productivity gap. © 2004 President and Fellows of Harvard College and the Massachusetts Institute of Technology.