Decomposition analysis and the mean-rate-of-change index

The mean-rate-of-change index (MRCI) is a recent addition to the suite of decomposition analysis (DA) methods. In addition to the arithmetic mean used by its originators, the MRCI can be formulated incorporating any type of mean. When the logarithmic mean is used, the MRCI is equivalent to the logarithmic mean Divisia index. The MRCI is said to produce plausible decompositions, and to be able to handle negative values. However, regarding the sign and magnitude of decomposition terms, the MRCI is affected by the same distortions and inconsistencies as other DA methods, and generally does not produce more plausible results. Moreover, the MRCI's ability to handle negative values is not necessarily an advantage in DA studies using input-output data. Finally, the MRCI is not robust. (C) 2005 Elsevier Ltd. All rights reserved.