Productivity Growth in Telecommunications: The Case of Tennessee

A divisia index of total factor productivity (TFP) growth is calculated for each of 16 regulated local telephone companies operating in Tennessee over the years 1989 through 1993. Year over year changes in TFP, in Tornqvist form, yield a growth in total factor productivity estimate for each company. These growth rates, however, contain the effects of both scale and technical change. Using the method suggested by Caves and Christensen, the effects are decomposed indirectly by regressing the annual percentage changes in TFP growth against measures of scale, service density, and network size. The results are consistent with the findings of economies of density and nearly constant returns to scale prevalent in the telecommunications literature.