Multi-factor productivity

Abstract

Growth accounting typically involves breaking down the growth of gross domestic product (GDP) into three components – the contribution of labour, the contribution of capital and multi-factor productivity (MFP). MFP is the change in GDP that cannot be explained by changes in the quantities of capital and labour that are made available to generate GDP. MFP is sometimes described as disembodied technological progress, because it is the increase in GDP that is not embodied in the amounts of either labour or capital. MFP growth comes from more efficient use of labour and capital inputs, for example through improvements in the management of production processes, organisational change or more generally, innovation. Growth in MFP is a significant factor in explaining the long-term growth of real GDP.