Higher Total Factor Productivity Research Articles

Economic Reforms and Total Factor Productivity Growth in the Indian Unorganized Manufacturing Sector: Spatial and Temporal Analysis

This paper analyses total factor productivity growth in the unorganized manufacturing sector in India using several rounds of the large scale National Sample Survey state-level data for 15 major Indian states for the period 1978-79 to 2000-01. Data Envelopment Analysis is used to compute Malmquist total factor productivity index and its components. The impact of economic reforms on efficiency is examined. Evidence suggests that total factor productivity registered a positive growth during the period in the country as a whole. Most states in the country witnessed higher total factor productivity growth in the post 1990s reform period than in the pre-reform years. Decomposition of the Malmquist productivity index shows that improvement in technical efficiency rather than technical progress had contributed to the observed acceleration in the growth rate. Technological regress was observed which has continued at a decelerated rate in the reforms period. Econometric analysis of the determinants of total factor productivity growth indicates tendency towards convergence in the productivity growth rate across the Indian states.

A Comment on Nishimura, Nakajima, and Kiyota's Does the Natural Selection Mechanism Still Work in Severe Recessions? Examination of the Japanese Economy in the 1990s

Nishimura, Nakajima, and Kiyota (2005) analyze the entry/exit behavior patterns of Japanese firms during the 1990s and find that relatively efficient (high total factor productivity (TFP)) firms exited while relatively inefficient (low TFP) firms survived during the banking-crisis period of 1996-97. They conclude from this finding that the natural selection mechanism (NSM) apparently malfunctions during severe recessions, but we offer a much more plausible interpretation: the NSM continued to function effectively even during this period, but aberrant banking practices (in particular,forbearance lending(evergreening) and the forcible withdrawal of loans and/or the reluctance to lend) caused a shift in the type of natural selection from directional selection to disruptive selection, with the most efficient (highest TFP) firms as well as the least efficient (lowest TFP) firms being favored and firms of intermediate efficiency and TFP being selected against.

Private versus Public Efficiency of Syrian Industrial Enterprises

The economic reforms envisaged by the Syrian government are principally aimed to raise the overall efficiency of economic activities and to improve significantly the productivity of labour and capital. Irrespective of the degree of competitiveness and efficiency of private companies, the government enterprises are by far less efficient and less competitive. In addition, while the efficiency tendency in private firms is increasing, the trend in state owned enterprises is downward slopping. In the Syrian economy the worst performance of a private company is still superior to the best performance of o public enterprise. The weak performance of state enterprises is related to their improper managerial methods, lack of incentives, counter-productive system of remunerating workers, and complete rupture of their production from market demand and needs. The corporate governance of enterprises should be the first measure to be implemented. This will allow the introduction of competitive management, which will be oriented towards profit-making activities. The remuneration of the workers, based on their effort, will increase considerably their productivity and consequently the efficiency. The private-public partnership will allow for higher competitiveness of the activity. The technological modernization will bring better performance and higher total factor productivity, while improving significantly the quality.

TFP Differences and the Aggregate Effects of Labor Mobility in the Long Run

The coexistence of barriers to labor mobility with large output-per-worker disparities driven by Total Factor Productivity (TFP) differences suggests that the world's labor force is misallocated across countries. We investigate the extent and consequences of this potential misallocation in the context of a simple two-location growth model, in which production requires capital, labor and an essential immobile factor (land). We characterize the magnitude of labor movements implied by an efficient long-run allocation, and derive their implications for capital accumulation. Quantitatively, even for moderate TFP differences, we find substantial increases in world output associated with efficient allocations. These output increases are driven by large movements of labor from low to high TFP countries, as well as by a sizeable increase in the capital stock and changes in its endogenous division across countries. Our results are robust to a large set of parameter values, including unrealistically conservative ones.

The productivity effects of privatization: The case of Polish cooperatives

This paper evaluates the productivity effects associated with privatization of producer cooperatives. The results, based on a sample of 2164 Polish cooperatives, indicate that privatized cooperatives have: (1) 1% lower total factor productivity (TFP) the year prior to privatization and 3–20% higher TFP in the year of privatization and three years post-privatization, (2) 9–36% higher labor productivity, (3) capital productivity effects of − 16–6%. The evidence is consistent with governance and incentive mechanisms of cooperatives being more effective outside of state interference, and with competition and hard budget constraints leading to pressure to restructure and adopt practices that improve productivity.

Does Productivity Growth Appreciate the Real Exchange Rate?*

AbstractRevisiting the time‐honored link between productivity growth and the real exchange rate, we find that higher labor productivity tends to appreciate the real exchange rate, consistent with the traditional view. Contrary to the traditional view, however, we find that the positive productivity effect is transmitted through the relative price between tradable goods, rather than through the relative price between tradables and nontradables. Moreover, higher total factor productivity is found to often depreciate the real exchange rate. These latter two pieces of evidence, combined with the conceptual strength of total factor productivity over labor productivity as a productivity measure, call for further refinement of the conventional view regarding the effect of productivity on the real exchange rate.

Net Capital Flows and Productivity: Evidence from U.S. States

We study capital flows between U.S. states. We present a simple neoclassical model with total factor productivity (TFP) that varies across states and over time and where capital freely moves across state borders. In this framework capital flows to states that experience a relative increase in TFP. While TFP can not be directly observed, we can identify states with high TFP growth as states with high output growth. By comparing the level of personal income to output, we construct indicators of capital flows into a state. We then examine if capital (on net) flows to states which experience relative increases in TFP. We find this prediction clearly confirmed by the data.

The Sources of China's Economic Growth: 1952-1998

In this paper, we make an empirical analysis of the roles of total factor productivity (TFP), capital and labor in China's economic growth for 1952-1998, with the consideration of a structural change due to reform in 1978. We find that China's TFP has fluctuated drastically during 1952-1998, due to political instability and policy shocks, and it remained at a low level for 1952-1978. However, it picked up quickly in China's post-reform period, converging to a high level and remains as steady after the 1992 policy shock, as the result of technology adoption. On top of this, a comparison of the roles of TFP, capital and labor in China's growth with those in the East Asian Tigers is made, and we find: for the Tigers, their major deficiency is a low TFP growth; for China, technology adoption leads to a higher TFP growth in the post-reform period, and the problem is an inefficient allocation of capital, due to the official control of credit. Further financial reforms are needed to correct the case.

Estimating Farm Productivity Differentials using Panel Data: The Hausman‐Taylor Approach

This paper investigates the relation between unobserved farm productivity and other production factors in a system of netput equations for specialised pig breeding farms in the Netherlands. In order to estimate the system, a Hausman‐Taylor panel data estimator is developed for a system of equations with unbalanced panel data. Tests on the correlation between model variables and farm‐effects are performed, yielding an insight into the sources of differences in total factor productivity and its components (e.g. managerial ability and scale economies). Results indicate that specialised pig breeding farms that are characterised by high total factor productivity have more buildings and machinery than farms with low total factor productivity.

Do Foreign Firms Bring Greater Total Factor Productivity to Japan?

ABSTRACT In recent years, deregulation and a boom in global merger and acquisition activity has significantly increased inward foreign direct investment in Japan, although the level remains lower than in other developed countries. Using micro data on Japanese manufacturing firms, this article investigates whether foreign-owned firms are more productive than domestically owned firms. The article also addresses the question of whether firms targeted in mergers and acquisitions improve their business efficiency after the transaction has taken place. Results show that foreign-owned firms have 10% higher total factor productivity, a higher R&D intensity and higher growth rates of tangible assets and wages. They also show that, after a merger or acquisition, out–in targeted firms increase their productivity and sales whereas in–in targeted firms and other independent firms fail to do so. These results offer policy recommendations that Japan should create conditions to further increase inward foreign direct investment and to improve productivity through mergers and acquisitions by foreign firms.

Cross-Country Productivity Comparisons: The "Revealed Superiority" Approach

This paper proposes a novel non-parametric methodology for comparing total factor productivity (TFP) across countries and over time. It develops the principle of revealed superiority along the lines of Samuelson's principle of revealed preferences. Specifically, we compare the aggregate actual profits in each country to the hypothetical profits it would have earned if, facing its own prices, it had employed another country's inputs and produced its output. We show that our procedure reveals the “true” TFP ranking under relatively mild assumptions. We apply our method by ranking a panel of the 25 richest economies relative to one another and over time and find that the United States enjoys the highest TFP whereas Singapore has the lowest.

Does Productivity Growth Lead to Appreciation of the Real Exchange Rate?

We revisit the time-honored link between productivity and the real exchange rate. Consistent with the traditional view, we find that higher labor productivity tends to lead to appreciation of the real exchange rate. Contrary to the traditional view, however, we find that the positive productivity effect is transmitted through the real exchange rate based on tradable prices, rather than through relative prices between tradables and nontradables. Moreover, higher total factor productivity is found, if anything, to lead to depreciation of the real exchange rate. These last two pieces of evidence provide support for the emerging view that limited tradability of goods and services provides scope for the strategic pricing decision, which has material consequences for the aggregate real exchange rate.

Does Productivity Growth Lead to Appreciation of the Real Exchange Rate?

We revisit the time-honored link between productivity and the real exchange rate. Consistent with the traditional view, we find that higher labor productivity tends to lead to appreciation of the real exchange rate. Contrary to the traditional view, however, we find that the positive productivity effect is transmitted through the real exchange rate based on tradable prices, rather than through relative prices between tradables and nontradables. Moreover, higher total factor productivity is found, if anything, to lead to depreciation of the real exchange rate. These last two pieces of evidence provide support for the emerging view that limited tradability of goods and services provides scope for the strategic pricing decision, which has material consequences for the aggregate real exchange rate.

The role of subcontracting in SME development in Indonesia:: Micro-level evidence from the metalworking and machinery industry

This study investigates whether subcontracting linkages are an important support mechanism for the development of Indonesian small- and medium-scale enterprises (SMEs). It estimates production functions and calculates indices of total factor productivity (TFP) based on micro-level data from 60 metalworking and machinery firms that supply their products to automobile, motorcycle, agricultural machinery and bicycle manufacturers. The estimation results confirm our main hypothesis that inter-firm cooperation through subcontracting ties increases productivity of Indonesian SMEs. This study implies that the situation where subcontracting ties in Indonesia did not function well in supporting SMEs has been changing recently. Better financial access and business continuity are important in facilitating subcontracting transactions, which can provide SMEs with support necessary for improving productivity. A comparison of TFP indices indicates differences in productivity between firm groups. Larger SMEs, non-pribumi SMEs and SMEs producing automotive/motorcycle parts have, in general, higher TFP than their counterparts.

Technological progress by small and medium enterprises in Japan

This paper examines various aspects of total factor productivity across different firm sizes in Japan. It shows that larger firms have higher total factor productivity levels and growth than smaller firms. There are, however, some exceptions to this pattern especially in the electric machinery sector where small firms tend to have the edge. The paper also finds that two distinctive characteristics of small and medium firms, the practice of subcontracting and the use of external patents, are positively related to total factor productivity growth while the availability of subsidized public loans is not.

The Effect of Ownership and Competitive Pressure on Firm Performance in Transition Countries: Micro Evidence from Bulgaria, Romania and Poland

This paper uses a unique representative firm level data set to analyse the effect of domestic and international competitive pressure and ownership changes in three emerging economies, Bulgaria Poland and Romania. Our main findings can be summarized as follows: Domestic competitive pressure, measured by market structure, and increased import penetration are associated with higher firm performance in Poland irrespective of the ownership structure of firms. Furthermore the positive effects of increased import competition are reinforced for foreign owned firms. In contrast, in Bulgaria and Romania, increased import penetration is associated with lower firm performance, while there is some evidence that more competitive market structures are associated with higher total factor productivity. However, these effects depend on the ownership structure of firms, which suggests the existence of complementarities between competitive pressure and ownership changes. The results also indicate that privatisation has positive effects on firm performance. In particular, domestic private firms and foreign owned firms outperform state owned firms. Furthermore, there is evidence that foreign owned firms do better than domestically owned private firms especially in Bulgaria and Poland. The results on ownership are somewhat weaker for Romania.

Structural Transformation and Economic Growth in Hong Kong: Another Look at Young's Hong Kong Thesis

Hong Kong registered high total factor productivity (TFP) growth until the 1980's. Its output growth since the mid-1980's has been driven by the cross-regional division of labor in which Hong Kong relocated manufacturing to mainland China and provided support and entrepôt trade services mainly in the form of service exports. However, TFP growth rate has been low in the booming services sector and high in the declining manufacturing sector, leading to a significant slowdown in overall TFP growth during the 1990's. Because of the deceleration in the growth rate of service exports since the mid-1990's and the greatly reduced size of the manufacturing sector, Hong Kong's potential output growth rate appears to have dropped significantly. J. Comp. Econ., June 2001, 29(1), pp. 366–382. Lingnan University, Tuen Mun, Hong Kong. Copyright 2001 Academic Press.Journal of Economic Literature Classification Numbers: O11, O47, O53.

Getting agriculture moving: do markets provide the right signals?

Political discrimination has often pushed the domestic value of agriculture in developing countries below its value in markets at the border. This paper seeks to explain the reasons why border prices themselves undervalue the linkages that agriculture has to economic growth in the early stages of development. If agriculture is critically important to stimulating and sustaining rapid economic growth, those countries that fail to correct this discrimination exact a heavy toll in economic performance. Furthermore, the poorest countries will suffer the most. Agricultural development and development of the non-agricultural economy are closely linked. The traditional market-mediated linkages form the core of economic analysis of the role of agriculture in economic development: providing labour for an industrial work-force, food for an expanding population with higher incomes, savings for industrial investments, markets for industrial output, export earnings to pay for imported capital goods, and raw materials for agro-processing industries. A second category of linkages is not well mediated by market forces, even when markets are working well. The impact of agricultural growth on the rest of the economy through non-market linkages can be traced using a simple growth-accounting framework that examines contributions to the labour force, capital investment and the productivity with which these two physical factors are utilised. Several linkages stand out as likely to be important and potentially measurable because they draw on the efficiency of decision making in rural households, the low opportunity cost of their labour resources, the opportunity for farm investment without financial intermediaries, the potential to earn high rates of return on public investments that correct for urban bias, the contribution of food price stability to increased efficiency in investment decisions, and the impact of growth in food production on widespread improvement in nutrient intake and labour productivity. Each of these factors alone, as public investment and favourable policy stimulate growth in the agricultural sector, should cause an increase in the efficiency of resource allocation and thus higher total factor productivity. Several of these mechanisms will also serve to speed factor accumulation by increasing the savings rate or improving factor mobility.

Growth without productivity: Singapore Manufacturing in the 1970s

There is often a tendency to associate high total factor productivity (TFP) growth with rapidly-growing output. The evidence for Singapore manufacturing industries indicates that this has not been the case. TFP growth has been very low for the majority of Singapore manufacturing industries during 1970–1979. Three hypotheses are suggested as the possible reasons for this result — the predominance of foreign capital in Singapore manufacturing, the government's lowage policy combined with the influx of low-skilled foreign labour and the relatively low level of industrial competence in Singapore.