Abstract

This paper establishes that new inputs increase technical efficiency levels for U.S. manufacturing. Over the period 1950–1998, intermediate inputs exhibited higher rates of efficiency growth than labor and capital. Efficiency-adjusted productivity growth annually averaged 0.4 percentage points above measured growth. The gap between efficiency-adjusted and measured productivity growth arises from aggregating inputs using observed, and not efficiency-adjusted, cost share weights in the calculation of measured growth. Specifically, the decline in efficiency-adjusted material cost shares, compared to the measured shares, coupled with the comparatively high material input growth rate, was the main source of the productivity gap.

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