We use Sato's factor-augmenting technical progress approach to calculate rates of growth of capital efficiency, labour efficiency, and efficiency-based total factor productivity growth in manufacturing by state. Capital efficiency gains, but not labour efficiency gains, have accompanied the rapid output growth of southern and western states. Regression analysis indicates that variables measuring scale effects, education, urbanisation, capital intensity, and research and development activity are directly associated with productivity and/or input-efficiency growth and that variables measuring regulation, interest-group effects, and unionisation effects are inversely associated.
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