TOTAL FACTOR PRODUCTIVITY TFP

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METHODOLOGY FOR TFP ESTIMATION
By Ir. Mah Lok Abdullah Malaysia Tehran, December
2004
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TFP COMPUTATION

• Based on Growth Accounting Method,

TFP growth GDP growth Weighted growth in
factor inputs
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VARIABLES

• Output
• Labour
• Capital
• Relative Income Share of Labour
• Relative Income Share of Capital

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DATA

• Output GDP at constant price
• Labour - Total Number of Workers
• Capital - Used during the period of one
  accounting year
• Relative Income Share of Labour
• - defined by the ratio of the workers
• compensation to GDP at constant
  price
• Relative Income Share of Capital
• - 1- Relative Income Share of Labour

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CAPITAL STOCK AT NATIONAL LEVEL

• CONVERT GROSS FIXED CAPITAL FORMATION INTO
  CONSTANT PRICE
• - Ct Ct-1 CONVERSION FACTOR
• CALCULATE CAPITAL STOCK USING PERPETUAL
  INVENTORY METHOD
• Kt Kt-1 (1-d) It

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PERPETUAL INVENTORY METHOD

• CALCULATE CAPITAL STOCK USING PERPETUAL
  INVENTORY METHOD
• Kt Kt-1 (1-d) It
• where Kt Capital Stock of Current Year
• Kt-1 Capital Stock of Previous Year
• It Investment in Current Year
• d Depreciation Rate

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CAPITAL STOCK AT BENCHMARK YEAR

• Estimate capital stock at benchmark year
• Sum of investment over certain number of years as
  an approximation of capital stock at benchmark
  year
• K1975 I1960 I1961 I1974

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COMPUTE LABOUR SHARE OF INCOME

• Compile data on compensation for labour (total
  wage bill)
• Labour Share Compensation for Labour
• GDP at constant price
• Wage Bill
• GDP at constant price
• Wage Rate No of
  Workers
• GDP at constant price
• (use 2 years moving average for Labour Share)

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RELATIVE INCOME SHARE OF CAPITAL

• Capital Share 1 Labour Share

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COMPUTE GROWTH RATE

• Labour
• Capital

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TFP

• To calculate TFP

. . . . T/T
Y/Y - ( wK. K/K wL. L/L )
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• EXERCISE ON CALCULATING TFP

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THANK YOU