Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248466 
Year of Publication: 
2021
Series/Report no.: 
Ilmenau Economics Discussion Papers No. 160
Publisher: 
Technische Universität Ilmenau, Institut für Volkswirtschaftslehre, Ilmenau
Abstract: 
This paper argues that the typical practice of performing growth decompositions based on log-transformed productivity values induces fallacious conclusions: using logs may lead to an inaccurate aggregate growth rate, an inaccurate description of the microsources of aggregate growth, or both. We identify the mathematical sources of this log-induced fallacy in decomposition and analytically demonstrate the questionable reliability of log results. Using rm-level data from the French manufacturing sector during the 2009-2018 period, we empirically show that the magnitude of the log-induced distortions is substantial. Depending on the de nition of accurate log measures, we nd that around 60-80% of four-digit industry results are prone to mismeasurement. We further nd signi cant correlations of this mismeasurement with commonly deployed industry characteristics, indicating, among other things, that less competitive industries are more prone to log distortions. Evidently, these correlations also a ect the validity of studies that investigate the role of industry characteristics in productivity growth.
Subjects: 
productivity decomposition
growth
log approximation
geometric mean
arithmetic mean
Document Type: 
Working Paper

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