Abstract
A new method of identifying the sources of output growth and measuring total factor productivity (TFP) is proposed, with an application to data from the Greek economy. The price accounting approach, based on the full industry equilibrium (FIE) framework introduced by Opocher and Steedman, where technical progress not only increases outputs relative to inputs but also reduces output prices relative to input rewards, is used. The contributions of this paper are that, first, it amends the FIE TFP measurement approach to account for heterogeneous labor inputs, imported inputs, and indirect taxes, and applies the method to real-world data from the Greek economy; second, it provides a comparison of the results with those found by the use of the neoclassical approach to TFP measurement arguing that the FIE approach measures better sectoral TFP change, and third, it provides an estimate of the effects of sectoral research and development (R&D) expenditures and R&D diffusion from other sectors on TFP change for the Greek economy.
Highlights
Total factor productivity (TFP) change is an inherent and important part of bothSolow’s (1956) and Lucas (1988) and Romer’s (1986, 1994) growth theories
The paper provides a new approach to the neoclassical method for the measurement of total factor productivity change based on the full industry equilibrium methodology accounting for heterogeneous labor inputs, imported inputs, indirect taxes, and monopoly power
Total sectoral research and development (R&D) and indirect R&D diffused by other sectors of the economy were tested to be the main drivers of total factor productivity (TFP) change
Summary
Total factor productivity (TFP) change is an inherent and important part of bothSolow’s (1956) and Lucas (1988) and Romer’s (1986, 1994) growth theories. Total factor productivity (TFP) change is an inherent and important part of both. There are thousands of studies on TFP growth in many countries; the following paragraphs review the most recent ones. Research and development (R&D) expenditure and human capital (HC) were found to have a positive effect on TFP, while foreign direct investment (FDI) had a positive and significant effect only in the case of non-European countries. They found that the contribution of R&D was considerably higher than that of HC and FDI in all cases
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