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Abstract:Studies of productivity growth typically assume that observed data reflect a constant returns to scale structure of production and static equilibrium for the firm. If these assumptions are violated, then estimates of productivity growth include the effects of scale economies and movements toward or away from equilibrium, in addition to shifts in the structure of production. Within a complete theoretical framework for measurement and attribution, using the temporary equilibrium approach, this paper provides a decomposition of productivity growth into its components, namely technical change, returns to scale and disequilibrium effects of quasi-fixed factors. It also provides an empirical application of the framework to Taiwan's manufacture, which has exhibited a slowdown productivity since the late 1980s. The empirical results indicate that technical change and disequilibrium effects are the main factors affecting productivity changes in Taiwan's manufacturing industry, whilst the contribution of the scale effect, although positive, has been quite small. The slowdown in productivity growth in Taiwan's manufacture since the late 1980s is attributed mainly to the market disequilibrium effects of the under-utilization capital, and the over-utilization of labor.