Decomposing productivity growth in Taiwan’s manufacturing, 1981–1999

Abstract

The objective of this paper is to identify the sources of output growth using a varying coefficients frontier model in which total factor productivity (TFP) growth can be decomposed into change in technical efficiency and technological progress, taking account of industry-specific characteristics. The paper also compares high-tech and low-tech industries on the basis of two proposed hypotheses and analyses the components of TFP growth using long-term trends in technological progress and change in technical efficiency. The empirical result shows that the level of TFP in Taiwan’s manufacturing sector merely increased by 0.2% a year during the period 1981–1999, stemming from 0.4% technological progress and −0.2% decline in technical efficiency. The insignificant TFP growth of 0.2% over the past two decades was mostly driven by TFP slowdown in the 1990s.