Low Total Factor Productivity Growth Research Articles

Productivity drivers and pro-productivity policies: G20 economies, India and South Korea

In this article we look at productivity trends, drivers of productivity growth and pro-productivity policies across the G20 economies since 1970. We distinguish between three sub-groups of G20 economies: a “leading but slowing” group of the most developed economies, a “lagging but growing” group of economies that have shown rapid growth and a “muddling through” group of economies with no sustained improvement in productivity performance. We find distinctly different dynamics between the sub-groups regarding the contributions of capital deepening and total factor productivity (TFP) to labour productivity growth. The slowdown in labour productivity growth since the 2010s has been underpinned by lower TFP growth. India is the only G20 economy which has experienced a significant improvement in TFP growth over the past few decades. We develop a typology distinguishing five domains of pro-productivity policies (accumulation of the factors of production, markets and resource allocation, technological and structural change, internationalisation, and foundational policies) and explore how these have been applied across countries and over time. We also provide a more detailed analysis of productivity and related policies for two G20 countries: India and South Korea. We argue that a revival of productivity growth in the G20 requires a greater focus on policies which balance technological progress with knowledge diffusion; more investment in intangibles and public assets; and improvements in the quality of human capital.

New evidence of the driving forces behind Brazil's agricultural TFP growth—A stochastic frontier analysis with climatic variables and land suitability index

AbstractUsing panel data from 510 Brazilian micro‐regions in three census years (1995, 2006 and 2017), this study presents a productivity decomposition for the Brazilian agricultural sector using stochastic production frontier methods that account for the effects of rainfall, temperature and the land suitability index. We also calculated the total factor productivity (TFP) index and decomposed it into technical efficiency, technological change, scale efficiency and environmental efficiency. This article thus provides a new and more realistic assessment of recent Brazilian agricultural productivity growth. In recent decades, Brazilian agriculture has become widely known for presenting fast productivity growth; however, our results suggest that a lower TFP growth rate than previous estimates (1.96% per annum) and the overall effects of climate change could potentially compromise Brazilian agricultural TFP growth in the long run. Our findings might thus generate insights for agricultural and regional policies to increase efficiency in the sector and promote sustainable agricultural development in Brazil, which will contribute to the sector's competitiveness in international markets, the country's social and economic welfare, and environmental conservancy.

The growing impact of ICT productivity via the cost of capital: Evidence from the U.S. and Japan

We identify and measure two impacts of industry-level total factor productivity (TFP) growth on aggregate price change in the U.S. and Japan. The first is a standard effect from the definition of aggregate GDP. TFP change lowers aggregate prices ceteris paribus. The second is that a change in TFP in the production of investment goods lowers the cost of capital via lower investment prices. We call this the cost-of-capital effect and formulate an expanded growth accounting framework to capture both effects. We apply it to a harmonized dataset for the two countries and find that the standard effect has fallen since the peak around 2000 due to lower TFP growth and a diminished share of GDP. However, the cost-of-capital effect has risen in importance and offsets part of this decline in the standard effect.

Total factor productivity growth in livestock production in Botswana: what is the role of scale and mix efficiency change in beef production?

ABSTRACT It is well established that improving livestock productivity has the potential to boost food security, income, and employment for rural communities. While the technical efficiency of the livestock sector has been extensively studied in both developing and developed countries, few studies have analysed total factor productivity (TFP) and its components (technical change, technical, scale, and mix efficiency changes). To fill this gap this study specifically analyses the TFP growth of 26 beef cattle producing districts in Botswana using the Färe-Primont index. This index does not only allow us to understand how TFP varies amongst the districts but also how it has changed over time (between 2007 and 2014) as well as examining what has been driving that change. We also employ a feasible generalised least squares estimator for panel data to identify sources of productivity and efficiency growth. Results show that livestock TFP increased during the study period, and that this was driven by technological change, whilst efficiency change (TFPE) decreased. Further, we found that the decline in scale-and mix efficiency change (OSME) was largely responsible for the slowdown of TFPE, with a relatively smaller decline in technical efficiency change (OTE) also contributing. Districts with foot and mouth disease (FMD) outbreaks and restricted access to export markets had lower TFP growth whilst proximity to livestock advisory centres (LAC), off-farm income, education and herd size were shown to enhance productivity and efficiency growth.

Income convergence of Indian states in the post-reform period: evidence from panel stationarity tests with smooth structural breaks

This paper investigates income convergence of Indian states in the post-reform period when markets played a greater role in resource allocation. We analyze stochastic convergence of relative per capita incomes of 19 states for the period 1994–2018 by employing a recently developed panel data approach controlling for structural breaks as smooth shifts. Smooth shifts are modelled using a more flexible Fourier approach that does not require identifying the number, date, and form of breaks. The empirical results, contrary to recent empirical findings, do not support evidence in favour of convergence in per capita income among Indian states. Poor infrastructure, lack of adequate financial development, and weak governance structure coupled with low total factor productivity growth seem to be responsible for the divergence of income. The findings suggest that development intervention in the post-reform period has neither been of the required order nor in the desired direction to help the lagging states to catch up with the leading ones.

Wage growth and firm performance: Case of Japan

Utilizing a panel dataset of firms from 1994–2015, we estimated the per hour wage growth ratio function determined by firm performance. We observed that firms’ productivity growth and profitability positively affected the hourly wage growth ratio. In addition, except for the Japanese midterm boom from 2005 to 2007, firm size decreased per hour wage growth. The results indicated that large firms tend to curb pay wages by hiring irregular employment. By considering recent total factor productivity (TFP) growth stagnation, low TFP growth caused stagnation in hourly wage growth. After Abenomics, the profit margin rose. Thus, recent firms’ profit environment improvement contributed to hourly wage growth.

New estimates of total factor productivity, technical and efficiency changes for the global agricultural economy

Aim of study: The accuracy of international and intertemporal comparisons of total factor productivity (TFP) growth requires the use of indicators that satisfy transitive and multiplicative properties, such as the Färe-Primont index (FPI). This paper compares the evolution of TFP in global agriculture.Area of study: Worldwide.Material and methods: The evolution of TFP in global agriculture was measured by the traditional Malmquist index (MI) and by the FPI, with alternative measurements of input capital.Main results: We found a significantly lower TFP growth with the FPI. New estimates of TFP growth for 1961-2015 show that output oriented scale-mix efficiency drives TFP growth, with an important technological change between 1996 and 2000 and another in 2014. Regional comparisons reveal heterogeneous trends in efficiency, linked to institutional reforms and agricultural R&D.Research highlights: More realistic figures and global comparisons of agricultural productivity provide a better understanding to implement better policies. Available measures of capital stock do not yield significant differences in TFP estimations, but the precise identification and estimation of the heterogeneous drivers and burdens is fundamental for boosting agricultural productivity and its benefits on global food security.

Beyond land-use intensity: Assessing future global crop productivity growth under different socioeconomic pathways

Productivity growth is essential to meet the increasing global agricultural demand in the future, driven by the growing world population and income. This study develops a hybrid approach to assess future global crop productivity in a holistic way using different productivity measures and improves the understanding of productivity implications of socioeconomic factors by contrasting different shared socioeconomic pathway assumptions. The results show that the global productivity is likely to continue to grow, whereas the productivity growth varies pronouncedly among different future socioeconomic conditions. The fast growth of total factor and partial factor productivity can be reached when slow population growth and high economic growth entail moderate food demand and low investment risks. In contrast, high population growth and low economic growth could lead to relatively high land-use intensity due to the extreme pressure on agricultural production, however, associated with low total factor productivity growth. The model results indicate that the ratio of the total factor productivity growth to cropland expansion has significant impacts on food prices, with increasing prices when cropland increases faster than productivity, and vice versa. Investing in productivity improvement appears to be an effective means of ensuring food availability and sparing cropland, which can contribute to the achievement of sustainable development goals.

Productivity Growth in Food Manufacturing Industry: Empirical Evidence from Post-reform Sri Lanka

The objective of this article is to measure productivity growth in Sri Lanka’s food manufacturing industry during the 1978–2014 period and briefly review the policy measures adopted over time aiming to improve productivity in the industry. Total Factor Productivity (TFP) growth trends were measured adopting the Cobb–Douglas production function framework using the data extracted from the Annual Surveys of Industries conducted by the Department of Census and Statistics, Sri Lanka. TFP growth was computed for the entire industry as well as for its sub-divisions with emphasis on the scale of operation, type of industry, and policy regimes. Even though the average TFP growth in Sri Lanka’s food manufacturing industries was found to be negative (−0.61%) for the entire period (1978–2014), it is noteworthy that average TFP growth improved over time from −2 per cent during the 1978–1994 sub-period to 0.7 per cent over the 1994–2014 sub-period. Furthermore, large-scale food manufacturing industries achieved higher TFP growth compared to that of their small-scale counterparts. Distilling, rectifying spirits, manufacture of grain mill products and prepared animal feeds industries showed positive and higher TFP growth while cocoa, chocolate and confectionery industries demonstrated a lower TFP growth. Food safety management systems and investments in infrastructure through Public-Private Partnerships were some policy measures that led the productivity growth in Sri Lanka’s food manufacturing industries.

Total factor productivity growth of the crop sector in Kerala

Productivity growth in agriculture is both a necessary and sufficient condition for its development. Total factor productivity (TFP) is an important measure to evaluate the performance of any production system and sustainability of a growth process. There are several reports that total factor productivity growth is declining over the years in many parts of India even with the application of increased inorganic fertilisers. The cropping system is sustainable if it can maintain total factor productivity growth over time. The TFP growth rate showed stagnation in the crop sector (negative and very low TFP growth rate Annum−1) in Kerala and a similar pattern was observed in all districts. A perspective of the TFP changes across the districts and state and the percentage share of total factor productivity in output growth of the crop sector in Kerala showed clear signs of unsustainability of the crop sector. The study revealed that all the districts (except Kollam, Idukki, Wayanad and Palakkad) and the state as a whole, the share of TFP in the output growth was negative during the time period 1980–81 to 2009–10. The period wise analysis also derived deceleration in the total factor productivity growth.

Foreign Risk – Domestic Problem: Trade, Politics, and Capital Allocation

We argue that international trade is a significant conduit of foreign political uncertainty into U.S. markets. We find that industries that export considerable shares of their output to countries with high political risk or countries that hold national elections in a given year experience lower total factor productivity growth, lower valuation, and worse accounting performance. The key channel of political uncertainty transmission is disruption of investment efficiency. Our results are not driven by economic risk or the quality of institutional environment of trading-partner countries, and they remain robust when we account for potential endogeneity of export flows.

The total factor productivity in China and India: new measures and approaches

PurposeThis paper aims to measure and compare agricultural total factor productivity (TFP) growth in China and India and relates TFP growth in each country to policy milestones and investment in agricultural research.Design/methodology/approachTFP is measured using a non‐parametric Malmquist index which allows the decomposition of TFP growth into its components: efficiency and technical change.FindingsComparing TFP growth in China and India it is found that efficiency improvement played a dominant role in promoting TFP growth in China, while technical change has also contributed positively. In India, the major source of productivity improvement came from technical change, as efficiency barely changed over the last three decades, which explains lower TFP growth than in China. Agricultural research has significantly contributed to improve agricultural productivity in both China and India. Even today, returns to agricultural R&D investments are very high, with benefit/cost ratios ranging from 20.7 to 9.6 in China and from 29.6 to 14.8 in India.Originality/valueThe applied methodology and the comparison between TFP growth patterns contribute to a better understanding of the consequences that the different approaches to agricultural reform followed by China and India had on the performance of agriculture in both countries.

The impact of China's millennium labour restructuring program on firm performance and employee earnings1

AbstractAround the turn of the century, China experienced perhaps the largest labour restructuring program in the world. This paper uses a new dataset of Chinese industrial enterprises to examine what leads to downsizing, and tries to understand the effects of labour downsizing on firms’ technical efficiency, financial performance and employee wages. We find that downsizing is more prevalent in state‐owned enterprises (SOEs), and is more likely when enterprises are older, larger and have higher excess capacity. For both SOEs and private firms, downsizing is more likely when the prices of their products drop, but private firms respond more dramatically. Moreover, downsizing has serious short‐term costs in terms of total factor productivity (TFP). For mild downsizing, private firms suffer more deterioration in productivity. The distribution of surplus after downsizing is more favourable to labour in SOEs. For severe downsizing, both SOEs and private firms exhibit lower TFP growth with similar magnitudes. Our findings imply that private firms emphasize profit goals, while SOEs place a greater weight on labour protection.

Labour Productivity Developments in the Euro Area

This paper provides a description and a discussion of some important aspects relating to recent productivity developments in the euro area. Following decades of stronger gains in the euro area than in the US, labour productivity growth has fallen behind that in the US in recent years. This reflects a decline in average labour productivity growth observed in the euro area since the mid-1990s, which stands in sharp contrast with opposite developments in the US. The decline in labour productivity growth experienced in the euro area since the mid-1990s resulted from both lower capital deepening and lower total factor productivity growth. From a sectoral perspective, industries not producing or using intensively information and communication technology (ICT) would appear mostly responsible for the decline in average labour productivity growth since the mid-1990s. These developments were broadly experienced by most euro area countries. A comparison with developments in the US suggests that the euro area economy seems to have benefited much less from increased production and use of ICT technologies, in particular in the services sector. Diverging trends in labour productivity growth between the euro area and the US in recent years mainly reflect developments in a number of specific ICT-using services such as retail, wholesale and some financial services where strong gains were registered in the US. The evidence presented in this paper suggests that, in order to support economic growth in the euro area, emphasis should be given to both policy measures that directly address the determinants of productivity and, given the interactions among the various factors of growth, to policies that raise labour utilisation. JEL Classification: J24, O47

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.

How cost efficient are Australia's mining industries?

This paper uses a stochastic translog cost frontier model and a panel data of five key mining industries in Australia over 1968–1969 to 1994–1995 to investigate the sources of output growth and the effects of cost inefficiency on total factor productivity (TFP) growth. The results indicate that mining output growth was largely input-driven rather than productivity-driven. Although there were some gains from technological progress and economies of scale in production, cost inefficiency which barely exceeded 1.1% since the mid-1970s in the mining industries was the main factor causing low TFP growth.

Is There a Real TFP Growth Measure for Malaysia´s Manufacturing Industries?

I. Introduction Total factor productivity (TFP) growth is an important measure of potential output growth given the nature of the diminishing returns to input use in the long run. Thus, Malaysia in her drive to enjoy sustainable growth to raise its living standards is set on focusing on TFP growth as stated in Malaysia's Second Industrial Master Plan 1996-2005. In fact, the manufacturing sector which has increased its contribution to gross domestic product (GDP) output from 19.3 per cent in 1979 to 34.2 per cent in 1996 has been identified as a key growth engine in this transformation process. Hence, it is imperative and timely for an analysis on the productivity growth performance of this sector to be undertaken. This study adds to the existing empirical literature in three ways. First, previous studies on Malaysian manufacturing have only considered the nonfrontier measure using the divisia translog index approach. To date, using the nonfrontier approach, Tham (1996, 1997) and the Productivity Report 1999 provide evidence of declining TFP growth for the Malaysian manufacturing sector in the 1990s (see Table 3). (1) How would this result compare with the use of the frontier approach? Will the frontier models also provide low TFP growth measures? This is one of the issues addressed in this article. As for the earlier studies, the nonparametric technique adopted computes TFP growth as a residual since it measures anything and everything of output growth that is not accounted by input growth. More importantly, the translog index TFP growth measure ignores the concept of technical inefficiency (by unrealistically assuming that all industries are technically efficient) and inaccurately interprets technical change as TFP growth. Thus in this study, frontier measures are used to overcome these major drawbacks. In the productivity literature, TFP growth is shown to be composed of both technical change (frontier shift) and technical efficiency (catching up effect). While the frontier effect indicates how far the efficient frontier itself has shifted over time due to the use of better technology and equipment, the catching up effect reflects how far the industry has moved towards the efficient frontier due to the better use of technology and equipment. The second difference in this study is that empirical robustness is ensured by the use of both the parametric and nonparametric frontier approaches to calculate TFP growth. Under the parametric approach, a stochastic production frontier model incorporating non-parallel shifts is estimated. With the nonparametric approach, the data envelope analysis (DEA) technique is used. Using a panel data set of twenty-eight manufacturing industries (see Appendix 1 for a list) from 1981 to 1996, a measure of TFP growth is first obtained and then decomposed to technical change and change in technical efficiency for both models. The results are then compared to previous studies with a focus on the Malaysian manufacturing sector as TFP growth studies on the aggregate economy may have broad implications that are not necessarily reflective of the TFP growth performance of specific sectors in the economy. The third contribution of this article is that the comparative performance of the results from alternative methodologies would add to similar work by Bjurek and Hjalmarsson (1990), Coelli and Perelman (1999), and Kumbhakar, Heshmati, and Hjalmarsson (1999) which provide mixed evidence of similarities in the results from the use of various models. Often, the choice of the method is said to depend on a range of factors. For instance, if the researcher simply wants to know if output growth is TFP or input-driven growth, then either approach would suffice. However, to answer questions on maximum productive or best practice output levels, the stochastic frontier can be used to understand the industries' catching up behaviour with respect to its own maximum potential, while DEA allows for the study of the performance of each industry relative to efficient industries in the sample. …

Total Factor Productivity Growth in East Asia: Implications for the Future

The total factor productivity (TFP) growth controversy and the recent economic crisis raise many questions about the future growth of East Asia. Our analysis of historical experiences shows that low TFP growth in the East Asian newly industrialized economies (NIEs) is a natural pattern of growth at the initial phase of industrialization. Empirical evidence shows that East Asian NIEs in recent decades have been proceeding toward an efficiency-based growth as developed countries did some time ago. The history of Latin America, however, indicates that the reform of old-fashioned institutions is needed if East Asia is to follow the path of the developed countries.

Efficiency of investments in Asian economies: has Singapore over-invested

This paper compares the investment efficiency in Singapore with the rest of Asia to determine whether Singapore’s capital utilisation has been effective vis-à-vis other Asian economies. In particular, it analyses the key investment differences between Singapore, Hong Kong and Taiwan, the three NIEs with comparable data breakdown. While the government facilitates investment through infrastructure development, market-oriented domestic enterprises and foreign companies make much of the investment in Singapore. Singapore’s returns to capital investment are not inferior to other Asian economies. In terms of total factor productivity (TFP), the findings vary according to the computation method used. But even if the traditional approach adopted by Alwyn Young is used, more recent data suggest that while Singapore’s TFP growth had been negligible compared to Hong Kong between 1971 and 1986, it has improved significantly since then. Singapore’s earlier phase of rapid capital deepening with associated low TFP growth is giving way to more sustainable and perceptible simultaneous growth in capital intensity and TFP. Singapore’s experience accords with that of the U.S. and Japan, which also recorded low TFP growth in the early stages of their economic development.

APEC and the Asian Economic Crisis: Early Signals from Productivity Trends

This paper provides empirical estimates of total factor productivity (TFP) trends in a sample of 17 APEC countries over the period 1975 to 1996. TFP growth is an important measure of an economy's performance and if measured correctly it can provide valuable guidance on issues related to the assessment of sustainable growth trends. We use the Malmquist index to measure TFP growth and decompose it into an efficiency change and a technical change component. This decomposition provides extra insight on assessing sustainable growth trends. The measurement technique itself is regarded as a significant improvement over previous conventional measures of TFP growth. The results are very interesting. Japan, Thailand and primarily Indonesia and Malaysia are identified as countries exhibiting on average negative TFP growth rates in the 1975‐1990 period. In all these countries as well as in South Korea and Taiwan the main cause of low TFP growth is a poor (negative) efficiency record. The average TFP growth rate for Japan and Malaysia is positive in the 1975‐1996 period but the efficiency change component remains negative. In all these countries the main contributor to labour productivity growth is capital accumulation. Unlike previous studies we find no evidence of a poor TFP growth performance for Singapore. Furthermore, we estimate that most of Singapore's labour productivity growth is driven by efficiency change. Estimates of rates of convergence towards the frontier economy that is estimated (not assumed as in other studies) to be the US, are also reported.