First Draft the Role of Labor and Capital in Frontier Total Factor Productivity Growth in Tunisia

In this paper we aim to measure and to explain the frontier total factor productivity (TFP) growth in Tunisia over the period 1983-1996. We do not measure TFP growth by the conventional Solow residual. Instead we define TFP growth as the shift of the economy's production frontier, which we obtain year by year by solving a linear program, a sort of aggregate DEA analysis. We then decompose this aggregate TFP growth into changes of technology, terms of trade, efficiency and resource utilization. We can also attribute TFP growth to its main beneficiaries: labor, decomposed into five types, capital, decomposed into two types, and the allowable trade deficit. We find that potential TFP has been growing after 1986. Labor, in particular machine operators, would be the main source and beneficiary of TFP growth, were resources allocated optimally according to our model. It is only after 1991 that capital, in particular equipment, has been contributing positively to frontier TFP growth. The Solow residual, reflecting technological change, was the main driver of TFP growth. Over the whole period, changes in the terms of trade were detrimental to TFP growth. The Tunisian economy moved closer to its TFP frontier after 1986, but efficiency has again taken a beating after 1991.