Abstract
The objective of this study was to identify the sources of productivity growth of the Sri Lankan coconut sector by decomposing the measured growth in total factor productivity into technological change and returns to scale. Technical change is reflected through the shift in the cost function where returns to scale is represented by the cost/output elasticity. This was achieved by linking the productivity growth to key parameters of a specific cost function. The study used cost of production data over the period 1961-2016 and specified a stochastic generalized translog cost function. Parameters were estimated using Seemingly Unrelated Regression (SUR) method. Estimation of the share of factor inputs in the total cost revealed that coconut cultivation is characterized by high labour share (61-67 %) and low material share (24-27 %) followed by low capital share (9-12 %). According to the results, the total factor productivity (TFP) was found to have grown at 0.083% per annum. Decomposing TFP, we found that technological change and scale of economies contributed to 78% and 22% of the TFP growth, respectively. The contribution of technical progress was greater towards the end of the considered time period while diseconomies of scale was operating throughout the period. Based on this, we recommend that the focus of the coconut sector development should be on technological interventions rather than the consolidation of coconut land.
Highlights
The long-run sustainable growth and development of an economy depends on the volume of output produced in the economy
Most efforts to improve the theoretical framework of total factor productivity (TFP) measurement and attribution, using the parametric approach, have been based on duality and on cost function (Karagiannis and Mergos, 2000) and the cost function is more desired for econometric analysis over the production function for a variety of reasons (Brinswanger, 1974)
Since the costshare parameters are a subset of the cost function parameters, exploiting the duality theory and estimating the cost-share equations jointly with the cost function was expected to increase the statistical degrees of freedom
Summary
The long-run sustainable growth and development of an economy depends on the volume of output produced in the economy. The volume of output produced in the economy including agriculture, industry and the service sectors can be augmented by (i) increasing the factor inputs and (ii) efficient utilization of inputs in production. The agricultural sector has to rely on the efficient utilization of inputs in production. Studies on selected crops and agricultural sector as a whole that explored the causes for the stagnation of the sector have invariably concluded that the agricultural scenario has been characterised by long-run incapability to deliver to the needs of the domestic economy (Kottayi, 2008)
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