Total factor productivity

The total factor productivity is an economic indicator that measures productivity . It indicates which part of the growth in production cannot be traced back to an increase in the use of the factors of production (usually labor and capital), but rather remains as an unexplained remainder, so to speak. It makes sense to assume that technical progress is the cause of this part of the growth in production results .

With the help of growth accounting, economic growth, i.e. H. the growth in macroeconomic output Y, to which the various production factors contribute to growth. In the Solow model these are work A, the production factor capital K and a remainder, the Solow residual. This remainder is called the total factor productivity and can be viewed as a measure of technical progress.

Mathematically, the total differential of a Cobb-Douglas production function with constant returns to scale is formed (that such a production function is present is an assumption) and then derived from time. After dividing by Y, the result is the growth rate of output Y as the sum of the growth rates of the production factors labor A and capital K, each weighted with the marginal productivities of A and K (i.e. the partial derivatives from Y to A or K).

Under the assumption of perfect competition in the goods and factor markets, these marginal productivities correspond to the income shares of the production factors A and K, which are 1d. H. 100% total.

The growth rates of Y, A and K and the income shares of the production factors of A and K are observable (in principle). The Solow growth decomposition can thus be checked empirically. Normally, it can be observed that the sum of the production factor growth rates weighted with the income shares of the production factors results in an output growth rate that is smaller than the observed one. The difference is the empirically determined total factor productivity, which, as I said, can also be understood as a measure of technical progress.

The Cobb-Douglas production function with constant returns to scale is:

{\ displaystyle Y = c \ cdot K ^ {a} \ cdot A ^ {1-a}}

Logarithm:

{\ displaystyle \ log Y = \ log c + a \ cdot \ log K + (1-a) \ cdot \ log A}

Derived according to time, taking into account that

{\ displaystyle {\ frac {\ mathrm {d} \ log Y} {\ mathrm {d} Y}} = {{\ dot {Y}} \ over Y} = {\ hat {Y}}}

one obtains the Solow growth decomposition:

{\ displaystyle {{\ dot {Y}} \ over Y} = a \ cdot {{\ dot {K}} \ over K} + (1-a) \ cdot {{\ dot {A}} \ over A }}

So the growth rate of Y is the weighted sum of the growth rates of K and A. If the actual growth rates are observed and if a is also known as the income share of K or (1-a) as the income share of A, this equation can be checked . As a rule, it is not correct, but the following applies:

{\ displaystyle {{\ dot {Y}} \ over Y} = a \ cdot {{\ dot {K}} \ over K} + (1-a) \ cdot {{\ dot {A}} \ over A } + {\ text {TFP}}}

where TFP is the total factor productivity.

TFP as an explanation for the Asian miracle

The growth theory divided growth factor accumulation and changes in TFP. To explain the enormous growth of the Asian tiger states from 1960 to the 90s, the World Bank (1993) and others argue with the help of estimates by the TFP. They come to the conclusion that a not inconsiderable part of the Asian growth is based on the successful assimilation of western technologies and the further technical diffusion can be used as a potential opportunity for other developing countries (= increase of the TFP).

Criticism of the TFP concept

The view of the Asian tiger states has been questioned by Young and others in various empirical and theoretical papers. The core points of the criticism are the theoretical construction of the TFP and its empirical measurement. Young, Kim, and Lau achieve significantly different results, concluding that Asian economic growth is purely due to factor accumulation. TFP growth is not significant for Asia. Paul Krugman adds another historical component to the discussion. He draws parallels between the economic rise of the tiger states and the rise of the Soviet Union . He warns of the fear that the rise of the tiger states could jeopardize the prosperity of the industrialized countries and, due to the nature of their economic growth, predicts an imminent decline in growth. The discussion seems to have been idle since the late 1990s. Young et al. have apparently prevailed with their criticism, although they could not achieve a "victory" either. The construct of the TFP and the macroeconomic basis are increasingly being replaced by other, more microeconomic approaches. A good summary can be found in Felipe (1997).

Ayres and Kümmel have shown through time series analyzes of economic statistics and energy consumption that the Solow residual as total factor productivity can be explained very well by the energy use of an economy. Thus, "technical progress" is the ability to absorb primary energy and convert it efficiently into useful energy in order to drive economic production processes.

literature

Deutsche Bundesbank (Ed.): On the development of productivity in Germany, Deutsche Bundesbank monthly report September 2002. (PDF file; 367 kB)
Collins, Bosowrth and Rodrik (1996), “Economic Growth in East Asia: Accumulation versus Assimilation,” Brookings Papers on Economic Activity
Felipe (1997): “Total Factor Productivity Growth in East Asia: A critical survey”, EDRC Report Series No. 65
Kim and Lau (1994); "The Sources of Economic Growth of the East Asian Newly Industrialized Countries", Journal of Japanese and International Economies
Kim and Lau (1996): “The Sources of Asian Pacific Economic Growth”, The Canadian Journal of Economics, Vol. 29
Krugman (1994): “The myth of Asia's miracle”, Foreign Affairs
Nelson and Pack (1999): “The Asian Miracle and Modern Growth Theory,” The Economic Journal
Pack and Page (1994): “Accumulation, exports, and growth in the high-performing Asian economies”, Carnegie-Rochester Conferences Series on Public Policy 40
Pack and Page (1994): “Reply to Alwin Young,” Carnegie-Rochester Conference Series on Public Policy 40
Pack and Page (1999): “The Asian Miracle and the Modern Growth Theory,” The Economic Journal
World Bank (1993): "The East Asian Miracle. Economic Growth and Public Policy ”, Oxford University Press
World Bank (2006): “An East Asian Renaissance. Ideas for Economic Growth, ”IBRD
Young, A (1994): “Accumulation, exports and growth in the high performing Asian economies - A comment”
Young, A (1995): “The Tyranny of numbers: confronting the statistical realities of the Est Asian growth experience”, Quarterly Journal of Economics

Individual evidence

^ Robert U. Ayres , Benjamin Warr: Accounting for Growth: The Role of Physical Work. In: INSEAD Working Paper. Center for the Management of Environmental Resources, 2002, accessed June 30, 2018 .
↑ Reiner Kümmel , Dietmar Lindenberger, Wolfgang Eichhorn: Energy, economic growth and technical progress. In: Physical sheets. Wiley, September 1997, accessed June 30, 2018 .

[1] Robert U. Ayres , Benjamin Warr: Accounting for Growth: The Role of Physical Work. In: INSEAD Working Paper. Center for the Management of Environmental Resources, 2002, accessed June 30, 2018 .

[2] Reiner Kümmel , Dietmar Lindenberger, Wolfgang Eichhorn: Energy, economic growth and technical progress. In: Physical sheets. Wiley, September 1997, accessed June 30, 2018 .