Productivity measurements, production function and Divisia index numbers

Abstract

The objective of this study is the theoretical and methodological analysis of the total productivity index, as a measure of economic efficiency, assuming the existence of various inputs and various outputs. The defined index is a measure of the overall change in productivity. The obtained chain two-factor indices are rationalized Divisia indices. The study actualizes the issues of economic efficiency, measurements of productivity and total productivity, promotes relevant literature in this field, offering a simple methodology with numerous applications at the same time. The presented concept is based on index numbers of total productivity of all factors. Using this approach, net output is compared to a weighted average of all factor inputs. Therefore, a significant part of the study is particularly the input weighting methodology, since it enables the appropriate connection of inputs and outputs, combining their different units of measure at the same time. The results obtained by applying the presented methodology in this paper provide the basis for numerous empirical analyses of the level and dynamics of changes in the economies' efficiency. Due to its simplicity, this approach has several advantages over other similar approaches.