Total factor productivity is often thought of as “technology.” However, economic

Question

Total factor productivity is often thought of as “technology.” However, economic growth theory teaches us that productivity is the combination of “technology” and “efficiency” where the latter captures how effectively the factors of production (such as physical capital and labor) and technology are combined to produce output. We discussed several sources of productivity growth in steamboats and railroads during the antebellum period. To what extent were these sources improvements in “technology” and to what extent were they improvements in “efficiency?”

Explanation / Answer

Total Factor Productivity - Technology, and, Efficiency

The factors of production - Labour, and, Physical Capital

TFP (Total Factor Productivity) is a source of difference in cross-country difference in growth rates, and, income levels. There are reasons. There is the sensitivity of the development accounting results to the production function's Cobb Douglas specification. Within the Cobb-Douglas Framework, there is evidence of alternative explanations of TFP - inefficiency view, and, the technology view. Determine the World Production Function using the non-deterministic approach. This is known as data development analysis.

Income differences explained by efficiency, physical & human capital, changes from 32 per cent to 55 per cent when departing from the Cobb Douglas assumption. There is evidence consistent with appropriate technology view. These are nations with an inadequate mix of inputs.

Inefficiency is the main explanation of low incomes. In 1995, it explained 43 per cent of output variation. Its importance has increased over time.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.