Multiple Directions for Measuring Biased Technical Change

The Malmquist productivity index is one of the most popular indexes used for measuring productivity growth. Several explanatory factors constitute this index. Among them, the technical change component is defined as the distances between the isoquants measured along a single direction. Therefore, it can be regarded as merely a local measure of technical change, which is a global phenomenon by nature. This becomes problematic especially for biased technical change. To mitigate this problem, we propose a more global measure of technical change that utilizes two directions. Along with the existing measures of other factors, this approach allows us to define a corresponding productivity index. This index turns out to be the geometric mean of the Malmquist and the Hicks–Moorsteen productivity indexes. Finally, we examine the productivity growth of 128 countries during 1980–2019 by applying the proposed indexes. We find that the Malmquist productivity index slightly overestimates world productivity growth