An Economic Approach to Identifying the Drivers of Productivity Change in the Market Sectors of the Australian Economy

This paper uses a relatively new total factor productivity (TFP) index to measure productivity change in the Australian economy. Unlike the TFP indexes used by most statistical agencies, the index used in this paper satisfies a suite of common sense axioms from index number theory. It can also be exhaustively decomposed into measures of technical change, environmental change, and various types of efficiency change. This paper uses least squares methods to estimate these components. The main driver of productivity change in the Australian economy is found to have been scale-mix efficiency change. Scale-mix efficiency is a measure of how well a firm is capturing economies of scale and scope.