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Industry & State Level Value Added and Productivity Decompositions Shipei Zeng 1 , Stephanie Parsons 1,3 , W. Erwin Diewert 1,2 , and Kevin J. Fox 1 1 School of Economics, UNSW Sydney 2 Vancouver School of Economics, University of British

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SLIDE 1

Industry & State Level Value Added and Productivity Decompositions

Shipei Zeng1, Stephanie Parsons1,3, W. Erwin Diewert1,2, and Kevin J. Fox1

1School of Economics, UNSW Sydney 2Vancouver School of Economics, University of British Columbia 3Reserve Bank of Australia

November 29, 2018

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 1 / 33

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SLIDE 2

Identifying changes in value added

Value added decomposition

◮ Parametric and non-parametric estimation of production frontiers ◮ A recent decomposition proposed by Diewert and Fox (2017)

  • Free Disposal Hull (FDH) and index number theory
  • Rule out technical regress
  • A non-parametric approach involving only observable data

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 2 / 33

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SLIDE 3

Identifying changes in value added

Value added decomposition

◮ Value added decomposition for Australian market sector industries

  • 12 selected industries and 16 market sector industries
  • Decomposition at an aggregate level and an industry level
  • Sectoral explanations for Australian TFP change

◮ Simple enough to be implemented by national statistical offices

  • Data cubes from Australian Bureau of Statistics
  • R package: dfvad

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 3 / 33

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SLIDE 4

Methodology

Defining the optimal output value

◮ Cost constrained value added function

Rt(p, w, x) = max

y,z {p · y : (y, z) ∈ St; w · z w · x} ◮ Unit cost function

ct(w, p) = min

s

w · xs p · ys : s = 1, · · · , t

  • Shipei Zeng & Stephanie Parsons

Value added decomposition November 29, 2018 4 / 33

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SLIDE 5

Methodology

Defining the optimal output value

◮ Rewrite the cost constrained value added function

Rt(p, w, x) = max

s

  • p · ys w · x

w · xs : s = 1, · · · , t

  • =

w · x ct(w, p)

◮ A sequential approach which rules out technical regress

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 5 / 33

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SLIDE 6

Methodology

Explanatory factors

◮ Net output price indexes

α(pt−1, pt, w, x, s) = Rs(pt, w, x) Rs(pt−1, w, x)

◮ Input quantity indexes

β(xt−1, xt, w) = w · xt w · xt−1

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 6 / 33

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SLIDE 7

Methodology

Explanatory factors

◮ Input mix indexes

γ(wt−1, wt, p, x, s) = Rs(p, wt, x) Rs(p, wt−1, x)

◮ Returns to scale

δ(xt−1, xt, p, w, s) = Rs(p, w, xt)/Rs(p, w, xt−1) w · xt/w · xt−1 = 1

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 7 / 33

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SLIDE 8

Methodology

Explanatory factors

◮ Growth in value added efficiency

et = pt · yt Rt(pt, wt, xt) 1 εt = et et−1

◮ Technical progress

τ(t − 1, t, p, w, x) = Rt(p, w, x) Rt−1(p, w, x)

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 8 / 33

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SLIDE 9

Methodology

Straightforward decomposition

◮ Value added growth decomposition

pt · yt pt−1 · yt−1 = αt · βt · γt · εt · τ t

◮ TFP growth decomposition

TFPG t = pt · yt/pt−1 · yt−1 αt · βt = γt · εt · τ t

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 9 / 33

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SLIDE 10

Methodology

A weighted average industry approach

◮ T¨

  • rnqvist explanatory factors: λ ∈ {α, β, γ, ε, τ}

ln λt• =

K

  • k=1

1 2(skt + sk,t−1) ln λkt

◮ Approximation of value relatives

ln vt vt−1

  • ≈

K

  • k=1

1 2

  • skt + sk,t−1

ln vkt vk,t−1

  • =

K

  • k=1

1 2

  • skt + sk,t−1

ln

  • αktβktγktεktτ kt

= ln αt• + ln βt• + ln γt• + ln εt• + ln τ t•

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 10 / 33

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SLIDE 11

Methodology

Establishing a benchmark

◮ t = 1

A1 = 1, B1 = 1, C 1 = 1, E 1 = 1, T 1 = 1

◮ t > 1

At = αtAt−1, Bt = βtBt−1, C t = γtC t−1 E t = εtE t−1, T t = τ tT t−1

◮ Level value of productivity

TFPt = pt · yt p1 · y1 · At · Bt = C tE tT t

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 11 / 33

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SLIDE 12

Data

Australian market sector

◮ 16 industries with productivity data available 1994/95-2016/17

(July-June years)

◮ 12 industries with productivity data available 1989/90-2016/17

(July-June years)

◮ Concerns about measurement problems and research periods

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 12 / 33

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SLIDE 13

Data

Australian market sector

Table 1: Industry classification of the market sector in Australia

Division Industry A Agriculture, Forestry and Fishing B Mining C Manufacturing D Electricity, Gas, Water and Waste Services E Construction F Wholesale Trade G Retail Trade H Accommodation and Food Services I Transport, Postal and Warehousing J Information, Media and Telecommunications K Financial and Insurance Services L Rental, Hiring and Real Estate Services M Professional, Scientific and Technical Services N Administrative and Support Services R Arts and Recreation Services S Other Services

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 13 / 33

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SLIDE 14

Industry-level decomposition

Productivity of 12 selected industries

0.00 0.05 0.10 0.15 0.20 0.25 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Log Index

ABS (12) DF Method with ABS Aggregates Weighted Industry Aggregation Method

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 14 / 33

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SLIDE 15

Industry-level decomposition

DF Method with ABS aggregates

  • 0.15
  • 0.10
  • 0.05

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Log Index

lnT lnE lnC lnTFP

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 15 / 33

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SLIDE 16

Industry-level decomposition

Weighted industry aggregation method

  • 0.15
  • 0.10
  • 0.05

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Log Index

lnT lnE lnC lnTFP

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 16 / 33

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SLIDE 17

Industry-level decomposition

Divisions A–D

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Agriculture

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Mining

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Manufacturing

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Utilities

lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 17 / 33

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SLIDE 18

Industry-level decomposition

Divisions E–H

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Construction

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Wholesale

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Retail

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Accommodation

lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 18 / 33

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SLIDE 19

Industry-level decomposition

Divisions I–K, R

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Transport

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Information

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Financial

−0.4 0.0 0.4 0.8 1990 2000 2010 Year Log Index

Arts

lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 19 / 33

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SLIDE 20

Industry-level decomposition

Thoughts on the industry results

◮ Only 4 industries showed considerable technical progress beyond 2004

  • Agriculture, forestry and fishing
  • Retail trade
  • Wholesale trade
  • Financial and insurance services

◮ Some industries showed little technical progress even earlier than the

2004 peak

  • Mining (1996)
  • Electricity, gas, water and waste services (1998)
  • Information, media and telecommunications (1999)
  • Arts and recreation services (1991)

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 20 / 33

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SLIDE 21

Industry-level decomposition

Thoughts on the industry results

◮ The amount of inefficiency for some industries was huge

  • Manufacturing
  • Mining
  • Electricity, gas, water and waste services
  • Accommodation and food services
  • Arts and recreation services

◮ Some of this inefficiency is probably real and some of it probably

indicates mismeasurement of inputs and outputs

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 21 / 33

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SLIDE 22

Industry-level decomposition

Industry contribution: value added shares

0.00 0.25 0.50 0.75 1.00 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Year Share Agriculture Mining Manufacturing Utilities Construction Wholesale Retail Accommodation Transport Information Financial Arts Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 22 / 33

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SLIDE 23

Industry-level decomposition

Industry contribution: aggregation

◮ The weighted average industry approach

ln λt• =

  • k

1 2(skt + sk,t−1) ln λkt

◮ From growth value to level value

ln Λt• =

  • t
  • k

1 2(skt + sk,t−1) ln λkt =

  • k
  • t

1 2(skt + sk,t−1) ln λkt =

  • k

ln Λkt

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 23 / 33

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SLIDE 24

Industry-level decomposition

Industry contribution: productivity

−0.05 0.00 0.05 0.10 0.15 0.20 0.25 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year Log Index lnTFP_WI Contributions from: Agriculture Mining Manufacturing Utilities Construction Wholesale Retail Accommodation Transport Information Financial Arts Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 24 / 33

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SLIDE 25

Industry-level decomposition

Industry contribution: efficiency

−0.12 −0.10 −0.08 −0.06 −0.04 −0.02 0.00 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year Log Index lnE Contributions from: Agriculture Mining Manufacturing Utilities Construction Wholesale Retail Accommodation Transport Information Financial Arts Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 25 / 33

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SLIDE 26

Industry-level decomposition

Industry contribution: technical progress

0.0 0.1 0.2 0.3 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year Log Index lnT Contributions from: Agriculture Mining Manufacturing Utilities Construction Wholesale Retail Accommodation Transport Information Financial Arts Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 26 / 33

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SLIDE 27

Industry-level decomposition

Thoughts on the industry results

◮ Industry performance contributes to the aggregate level according to

value added shares

◮ Efficiency

  • Unweighted: electricity, gas, water and waste services
  • Weighted: mining

◮ Technical progress

  • Unweighted: agriculture, forestry and fishing
  • Weighted: financial and insurance services

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 27 / 33

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SLIDE 28

State-level decomposition

State-level data

◮ ABS published the first (experimental) estimates of state TFP in

January 2018 for 1994/95 to 2016/17

◮ Data cover 12 selected industries (aggregate only) ◮ Less-populated states more prone to measurement error and volatility

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 28 / 33

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SLIDE 29

State-level decomposition

State-level TFP growth

Average TFP Growth by State, 1994/95-2016/17

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 29 / 33

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SLIDE 30

State-level decomposition

Non-mining states

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

NSW

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

VIC

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

TAS

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

ACT

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 30 / 33

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SLIDE 31

State-level decomposition

Mining states

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

QLD

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

WA

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

SA

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

NT

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 31 / 33

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SLIDE 32

State-level decomposition

State-level decomposition

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

NSW

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

VIC

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

QLD

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

SA

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

WA

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

TAS

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

NT

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

ACT

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 32 / 33

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SLIDE 33

Conclusions

Conclusions

◮ We have used a new decomposition of industry value added growth,

applied to official, publicly available data from the ABS

◮ The role of inefficiency proved to be very large for many industries

and states

  • We think that this result is more reasonable than simply interpreting

negative TFP growth as technological regress

  • Industries and states with huge amounts of inefficiency should be

investigated for possible mismeasurement of the underlying inputs and

  • utputs

◮ Our method is easily implementable by national statistical offices and

provides policy-relevant information on growth and productivity

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 33 / 33

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SLIDE 34

Agriculture, Forestry and Fishing

0.00 0.25 0.50 0.75 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 1 / 20

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SLIDE 35

Mining

−0.6 −0.4 −0.2 0.0 0.2 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 2 / 20

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SLIDE 36

Manufacturing

−0.10 −0.05 0.00 0.05 0.10 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 3 / 20

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SLIDE 37

Electricity, Gas, Water and Waste Services

−0.50 −0.25 0.00 0.25 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 4 / 20

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SLIDE 38

Construction

−0.1 0.0 0.1 0.2 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 5 / 20

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SLIDE 39

Wholesale Trade

0.0 0.2 0.4 0.6 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 6 / 20

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SLIDE 40

Retail Trade

0.0 0.1 0.2 0.3 0.4 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 7 / 20

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SLIDE 41

Accommodation and Food Services

−0.10 −0.05 0.00 0.05 0.10 0.15 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 8 / 20

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SLIDE 42

Transport, Postal and Warehousing

0.0 0.1 0.2 0.3 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 9 / 20

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SLIDE 43

Information, Media and Telecommunications

0.0 0.2 0.4 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 10 / 20

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SLIDE 44

Financial and Insurance Services

0.0 0.1 0.2 0.3 0.4 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 11 / 20

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SLIDE 45

Arts and Recreation Services

−0.2 −0.1 0.0 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Log Index lnTFP lnT lnE lnC Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 12 / 20

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SLIDE 46

New South Wales

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

NSW

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 13 / 20

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SLIDE 47

Victoria

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

VIC

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 14 / 20

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SLIDE 48

Queensland

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

QLD

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 15 / 20

slide-49
SLIDE 49

South Australia

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

SA

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 16 / 20

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SLIDE 50

Western Australia

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

WA

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 17 / 20

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SLIDE 51

Tasmania

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

TAS

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 18 / 20

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SLIDE 52

Northern Territory

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

NT

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 19 / 20

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SLIDE 53

Australian Capital Territory

−0.1 0.0 0.1 0.2 1995 2005 2015 Year Log Index

ACT

lnTFP lnT lnE lnC

Shipei Zeng & Stephanie Parsons Value added decomposition November 29, 2018 20 / 20