INDEX NUMBER CHOICE
There are numerous choices as to which form of index number to use in measuring outputs and inputs. The following index numbers are used for the analysis presented in this paper:
- The industry value added, gross output and intermediate inputs indexes are chained Laspeyres indexes, as they are consistent with published aggregate market sector output and GDP
- The industry capital services index is a Tornqvist index based on weighted changes in productive capital stock derived using the perpetual inventory method
- The labour input index is a simple elemental index based on hours worked data from the Labour Force Survey (LFS), which is a household survey providing hours worked by industry.
The interpretation of growth in MFP is generally not affected by the choice of index number form, although the results can vary slightly.
The combined input indexes required for MFP estimation are constructed by using the respective income shares of capital and labour for value added, and the respective cost shares for capital, labour and intermediate inputs for gross output. The input indexes are combined to form an aggregate input index using a Tornqvist methodology. These income shares are derived from total industry income. The calculation of MFP is then the output index (gross output or value added) divided by its corresponding combined input index.