Neoclassical Growth Accounting and Frontier Analysis: A Synthesis

The standard measure of productivity growth is the Solow residual. Its evaluation requires data on factor input shares or prices. Since these prices are presumed to match factor productivities, the standard procedure amounts to accepting at face value what is supposed to be measured. In this paper we determine total factor productivity growth without recourse to data on factor input prices. Factor productivities are de...ned as Lagrange multipliers to the program that maximizes the level of domestic ...nal demand. The consequent measure of total factor productivity is shown to encompass not only the Solow residual, but also the e¢ciency change of frontier analysis and the hitherto slippery terms-of-trade e¤ect. Using input-output tables from 1962 to 1991 we show that the source of Canadian productivity growth has shifted from technical change to terms-of-trade e¤ects.