137:, is usually measured as the ratio of aggregate output (e.g., GDP) to aggregate inputs. Under some simplifying assumptions about the production technology, growth in TFP becomes the portion of growth in output not explained by growth in traditionally measured inputs of labour and capital used in production. TFP is calculated by dividing output by the weighted geometric average of labour and capital input, with the standard weighting of 0.7 for labour and 0.3 for capital. Total factor productivity is a measure of productive efficiency in that it measures how much output can be produced from a certain amount of inputs. It accounts for part of the differences in cross-country per-capita income. For relatively small percentage changes, the rate of
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form) is often used to represent total output (Y) as a function of total-factor productivity (A), capital input (K), labour input (L), and the two inputs' respective shares of output (α and β are the share of contribution for K and L respectively). As usual for equations of this form, an increase in
153:
Total factor productivity (TFP) is often considered the primary contributor to GDP growth rate. Other contributing factors include labor inputs, human capital, and physical capital. Total factor productivity measures residual growth in total output of a firm, industry or national economy that cannot
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attempted to correct for weaknesses in estimations of the labour component of the equation, by refining estimates of the quality of labour. Specifically, years of schooling is often taken as a proxy for the quality of labour (and stock of human capital), which does not account for differences in
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The word "total" suggests all inputs have been measured. Official statisticians tend to use the term "multifactor productivity" (MFP) instead of TFP because some inputs such as energy are usually not included. External costs including attributes of the workforce, public infrastructure such as
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Technology growth and efficiency are regarded as two of the biggest sub-sections of total factor productivity, the former possessing "special" inherent features such as positive externalities and non-rivals which enhance its position as a driver of economic growth.
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would not have a simple economic interpretation, and the concept of TFP appears to be a modeling artifact. Official statistics avoid measuring levels, instead constructing unitless growth rates of output and inputs and thus also for the residual.
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be explained by the accumulation of traditional inputs such as labor and capital. Since this cannot be measured directly the process of calculating derives TFP as the residual which accounts for effects on total output not caused by inputs.
226:
651:"Economic growth, technological progress and energy use in the U.S. over the last century: Identifying common trends and structural change in macroeconomic time series, INSEAD"
389:
Sickles, R., & Zelenyuk, V. (2019). Measurement of
Productivity and Efficiency: Theory and Practice. Cambridge: Cambridge University Press. doi:10.1017/9781139565981
280:. Therefore, some economists believe that the method and its results are invalid or need to be carefully interpreted and used along with other alternative approaches.
802:
Caves, Douglas W; Christensen, Laurits R; Diewert, W Erwin (1982). "The
Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity".
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Caves, Douglas W; Christensen, Laurits R; Diewert, W Erwin (1982). "Multilateral
Comparisons of Output, Input, and Productivity Using Superlative Index Numbers".
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Färe, R.; Grosskopf, S.; Norris, M.; Zhang, Z. (1994). "Productivity growth, technical progress, and efficiency change in industrialized countries".
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New
Developments in Productivity Analysis: Chapter: Total Factor Productivity: A Short Biography; Sponsored by: National Bureau of Economic Research
518:"Testing Significance of Contributions in Growth Accounting, with Application to Testing ICT Impact on Labour Productivity of Developed Countries"
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Robert Ayres and
Benjamin Warr have found that the model can be improved by using the efficiency of energy conversion, which roughly tracks
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452:"Exergy, Power and Work in the U. S. Economy 1900-1998, Insead's Center For the Management of Environmental Resources, 2002/52/EPS/CMER"
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161:. Also, it has been found that integration (among firms for example) has a causal positive impact on total factor productivity.
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highways and environmental sustainability costs such as mineral depletion and pollution are not traditionally included.
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growth can be estimated by subtracting growth rates of labor and capital inputs from the growth rate of output.
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schooling between countries. Using these re-estimations, the contribution of TFP was substantially lower.
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OECD Productivity Manual: A Guide to the
Measurement of Industry-Level and Aggregate Productivity Growth
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estimated that for an average country the TFP accounts for 60 percent of growth of output per worker.
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W.E. Diewert and A.O. Nakamura. 2007. The measurement of productivity for nations. Chapter 66 of
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The Rise and Fall of
American Growth: The U.S. Standard of Living since the Civil War
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Natividad, G. (2014). "Integration and
Productivity: Satellite-Tracked Evidence".
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314:: capital-hours/year (caphr/yr; this raises issues of heterogeneous capital)
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As a residual, TFP is also dependent on estimates of the other components.
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It has been shown that there is a historical correlation between TFP and
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541:"It's Not Factor Accumulation: Stylized Facts and Growth Models"
291:. The units of the quantities in the Cobb–Douglas equation are:
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Hulten, Charles R.; Dean, Edwin R.; Harper, Michael J. (2001).
704:, Annex 1 – Glossary of Statistical Terms. OECD: Paris. 2001
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324:: pure numbers (non-dimensional), due to being exponents
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exercises and total factor productivity are open to the
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729:, volume 6A, edited by J.J. Heckman, and E.E. Leamer.
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221:{\displaystyle Y=A\times K^{\alpha }\times L^{\beta }}
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either A, K or L will lead to an increase in output.
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612:"Accounting for Growth: The Role of Physical Work"
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287:, TFP has been criticized as lacking meaningful
688:. CBO Working Paper 2013–01. page 1, footnote 1
522:International Journal of Business and Economics
853:. University of Chicago Press. pp. 1–54.
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744:"Dimensions and Economics: Some Problems"
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579:"Human Capital and the Wealth of Nations"
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109:Learn how and when to remove this message
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752:Quarterly Journal of Austrian Economics
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334:, a balancing quantity, which is TFP.
47:adding citations to reliable sources
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423:Robert J. Gordon (29 August 2017).
16:Ratio of aggregate output to inputs
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338:In this construction the units of
332:(widgets × year) / (caphr × manhr)
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870:<Chapter by Charles Hulten>
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368:List of production functions
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308:: man-hours/year (manhr/yr)
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714:Frequently Asked Questions
584:. May 2006. Archived from
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684:Robert Shackleton. 2013.
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727:Handbook of Econometrics
169:The equation below (in
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904:Production economics
358:Productivity paradox
289:units of measurement
285:dimensional analysis
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491:Management Science
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278:Cambridge critique
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591:on 29 August 2006
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244:Ross Levine
165:Calculation
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866:22 October
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374:References
145:Background
69:newspapers
876:cite book
265:Critiques
238:In 2001,
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