Analyzing the Relationship Between the Firm’s Total Factor Productivity and Firm Characteristics in the Turkish Manufacturing Sector

Abstract

The empirical literature emphasizes total factor productivity growth (TFP) as the primary source of economic growth. The phenomenon of rising firm-level TFP has gained prominence in the investigation of the primary source of economic growth by policymakers. Within this scope, the contribution of TFP to economic growth in the Turkish economy is quite limited and analysis of the determinants of firm level TFP in the manufacturing industry becomes important. In this context, this paper investigated that the relationship between the firm's TFP and firm characteristics such as international trade participation, financial and ownership structure, firm size, price-to-cost margin, and profit before taxes for the Turkish manufacturing industry using firm level data. The results of the analysis indicate that international trade participation, firm size, and financial structure have a significant impact on a firm's total factor productivity. Our findings suggest, based on a heterogeneous firm level model, that for sustained economic growth, incentives should be provided to more competitive firms with high potential that can contribute to productivity improvement.