The Top-Down Approach 2: Aggregate Total Factor Productivity Index

This chapter considers the relation between total factor productivity (TFP) measures for individual production units and for aggregates such as industries, sectors, or economies. Though this topic has been treated in a number of influential publications in the literature, this chapter’s distinctive feature is that all kinds of (neo-classical) structural and behavioural assumptions are avoided, such as assumptions about the existence of production frontiers with certain properties, or optimizing behaviour of the production units. In addition, the chapter treats dynamic ensembles of production units, characterized by entry and exit. Thus, a greater level of generality is achieved from which the well-known results follow as special cases.