Total Factor Productivity Growth and Technical Change in a Profit Function Framework

This paper develops a framework for measuring and decomposing TFP changes, within the parametric approach, by using directly the estimated parameters of a profit function. Two alternative relationships are derived for measuring and decomposing TFP changes via a profit function based on two alternative definitions of the rate of technical change, i.e., input- and output-based. Initially a long-run equilibrium framework is assumed and then the analysis is extended to the case of temporary equilibrium. The latter framework is applied to US agriculture by estimating a translog profit function and analyzing TFP changes during the period 1948–1994. Copyright Kluwer Academic Publishers 2000