To Measure or Not To Measure Total Factor Productivity Growth?

Abstract

To date, the concept, measurement and interpretation of total factor productivity (TFP) growth remains highly discussed but poorly understood. This paper attempts to provide a review of these issues. First, the definition of TFP growth and the related concepts of embodied and disembodied technical change are discussed. Second, a brief overview and critique of TFP growth measuring techniques is provided. Third, the debate surrounding the accounting identity underlying the estimation of a production function for TFP growth is highlighted. Fourth, the usefulness of TFP growth is evaluated (and maintained) in the light of the criticisms hurled at this measure. Finally, some direction for future work on TFP growth is suggested.

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