Measurement of input-specific productivity growth with an application to the construction industry in Spain and Portugal

Decision making in companies requires an assessment of the efficiency and productivity of individual inputs to provide insights into the scope for improvement of inputs? use. This paper estimates an input‐specific Luenberger productivity growth indicator that can be decomposed to identify the contributions of input‐specific technological change, technical efficiency change and scale efficiency change. These components for a specific input sum up to the aggregated indicators which are then compared with the traditional Luenberger indicator. The application focuses on panel data of Spanish and Portuguese construction firms over the period 2002–2011, accounting for three inputs: materials, labor and capital. The results show that aggregated productivity change and its components computed from the input‐specific productivity indicator are different from those obtained using a traditional approach. The results also indicate that productivity change is negative for labor and capital for construction firms in both Spain and Portugal, while productivity change of materials is positive for Portugal and negative for Spain. Productivity decline is worse for capital in the Spanish construction firms, and for labor in Portugal.