Sources of Total Factor Productivity in South Asia

Abstract

Using World Development data for the period of 1991–2020, this article examines the total factor productivity (TFP) measured by Malmquist productivity index (MPI) and its components’ technological progress and technical efficiency change (TEC) for five South Asian countries, namely India, Pakistan, Nepal, Bangladesh and Sri Lanka. TFP growth is calculated using the MPI along with panel data of those countries. This article adds onto the existing literature by estimating the technological progress and TEC for these five South Asian countries. Further, the article also emphasises differences in the TFP growth among these countries. The study finds that TFP of all the South Asian countries are cyclical in nature, highly volatile and full of ups and downs during the whole study period. TFP is growing in standard technology-based economy (India), which is the consequence of technological progress. On the other hand, among labour-intensive economies, Sri Lanka is performing better as TFP in Sri Lanka is improving at a good rate, while Pakistan’s TFP is also growing steadily. Here, both the countries’ TFP growth is driven by positive technological change. Bangladesh is observing TFP decline as Bangladesh is the worst performer among five nations in South Asia despite the fact that technological change is still progressing. Nepal’s TFP is improving as well, but at a slower pace. Except Bangladesh, efficiency change shows progressive trend in the remaining countries. JEL Classification: D24, F02, F62, O14