Nonparametric Estimates of the Components of Productivity and Profitability Change in U.S. Agriculture

Recent theoretical advances in total factor productivity (TFP) measurement mean that TFP indexes can now be exhaustively decomposed into unambiguous measures of technical change and efficiency change. To date, all applications of this new methodology have involved decomposing indexes that have poor theoretical properties. This article shows how the methodology can be used to decompose a new TFP index that satisfies all economically-relevant axioms from index theory. The application is to state-level data from 1960 to 2004. In most states, the main drivers of agricultural TFP change are found to have been technical change and scale and mix efficiency change.