SECTORAL OUTPUT
For the purposes of measuring MFP growth at the industry level there is a further measure of output that is relevant, the concept of sectoral output. Sectoral output is the value of gross output minus the net value of intra-industry transfers, that is, sectoral output is the value of all goods and services produced within an industry for use outside the industry. The issue of intra-industry intermediate inputs is particularly relevant for industries with vertically integrated supply chains such as Manufacturing and Construction, where there is a high degree of intra-industry transfers inherent in the production process. The exclusion of intra-industry intermediate inputs removes the problems associated with overstatement of intermediate inputs due to fragmentation, which occurs when a vertically integrated firm splits into two or more smaller entities, and increases measured industry gross output without a change in industry sectoral output. Due to the structure of the ABS supply-use benchmarking system, sectoral output estimates are not currently produced for individual industries. This could present problems for the interpretation of gross output MFP in those industries that have a high degree of intra-industry transfers.
Gross output MFP growth based on sectoral output would be the preferred measure for analysing growth in MFP, as it captures underlying gains in technical efficiency without distortions caused by changes to intermediate inputs or fragmentation. However, the gross output MFP growth estimates published in this paper are not of this type as data for intra-industry transfers are not available.
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