Total Factor Productivity
Total factor productivity (TFP), also called multifactor productivity, measures how much output an economic unit produces from a given bundle of all its inputs taken together — capital, labour, and often intermediate materials. It is the efficiency with which inputs are jointly transformed into output, and it captures everything that raises output without raising measured inputs: technology, organization, and the reallocation of resources. TFP is measured in two broad ways: the index-number approach, which forms the ratio of an aggregate output index to an aggregate input index using economically justified (superlative) weights, and the econometric production-function approach, which estimates the technology and recovers productivity as an unobserved term.
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- Solow, R. M. (1957). Technical change and the aggregate production function. The Review of Economics and Statistics, 39(3), 312–320. · DOI 10.2307/1926047
- Caves, D. W., Christensen, L. R., & Diewert, W. E. (1982). The economic theory of index numbers and the measurement of input, output, and productivity. Econometrica, 50(6), 1393–1414. · DOI 10.2307/1913388
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