Total Factor Productivity and Sources of Long-Term Growth in ...

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Accounting Approach “. 11
The total factor productivity concept can be summarized as follows:
” An index of productivity that measures total output per unit of total input. The
numerator of the index is total output (say GNP), while the denominator is a
weighted average of inputs of capital, labor, and resources. The growth of TFP is
often taken as an index of rate of technological progress.” 12 In other words TFP
is the growth of output less the growth of the weighted sum of all inputs.
According to the concept of total factor productivity (TFP), the
following equations summarize it:
TFP Index = An index of aggregate output
An index of aggregate inputs
And, Growth in TFP = The growth in total output – the growth in total inputs. 13
Otherwise, the economic concept of productivity means relating output
to a given input, or inputs. Thus, TFP can be represented by the following
equation: TFP = (total output / input of all factors).
By revaluing both output and inputs in the prices of a base year, the resulting
ratio at that time shows changes in physical as opposed to value productivity.
TFP can be divides to partial factor productivity (PFP) i.e. labor and capital
productivity. For example labor productivity can be defined as follows:
Output per person employed = Total output/ Total person employed
Output per person hour = Total output/ Total hours worked. 14
The concept of total factor productivity is very relevant to Solow’s
theory of economic growth. According to economic literature the growth in
multi-factor productivity or total factor productivity (a), which can be calculated
by the flowing equation:
a = (q - n) – b (k - n).
a: the growth rate in total factor productivity or the autonomous growth factor,
q = ∆ Q/Q growth rate of real output or GNP, and
n = ∆ N/N = growth rate of labor input
k = ∆ k/k = growth rate of capital input
b = the elasticity of output with respect to capital input. 15 ∆∆ ∆∆∆∆
Recently, there is a criticism to TFP as a measure of productivity
because TFP index, consider marketable inputs and outputs only. It is failed to
count as output resulting improvement in environmental quality. Thus, TFP
concept has been broadened to total resource productivity (TRP) concept to
capture the non-market by-product. 16
In the case of cross sectional data, the total factor productivity index can
be estimated in the Tornqvist –Theil TFP index as follows:
Ln( TFP t /TFP t-1 ) = ½ ∑ J ( R Jt R Jt-1 ) Ln( Q Jt / Q Jt-1 ) - ½ ∑ J ( S it S it-1 )
Ln( X it / X it-1 )
Where, R Jt is the share of output J in revenues
Q Jt is output
S it is the share of input I in total input case
I t is input i
All in period t , each index is specifying to 100 in a particular year and
calculating TFP index . 17 RESULTS AND DISCUSSION
TOTAL FACTOR PRODUCTIVITY GROWTH
Table 1. presents annual growth rates in value of total agricultural
production, total value of agricultural requests, and total factor productivity.