Definition of The Malmquist Index: The Malmquist index is an index number enabling a productivity comparison between economy A and economy B.

Imagine that we have an aggregate production function Q_AA=f_A(K_A,L_A) that describes economy A and an aggregate production Q_BB=f_B(K_B,L_B) that describes economy B. K and L stand for capital and labor inputs. We substitute the inputs of B into the production function of A to compute Q_AB=f_A(K_B,L_B). We also compute Q_BA=f_B(K_A,L_A) with the inputs from country A.

The Malmquist index of A with respect to B is the geometric mean of Q_AA/Q_AB and Q_BA/Q_BB. It will be greater than one if A's aggregate production technology is better than B's. (Econterms)

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