Applied Economics

In this chapter, we will focus on the determinants of TFP and how to measure it rather than Labour Productivity. The Labour Productivity concept has its uses but the problem with this concept is that LP could be very high in one country compared to another country but the difference could be entirely due to a larger amount of nonlabour input in the first country. On the other hand, if TFP is much higher in country A compared to country B, then country A will be genuinely more efficient than country B and it will be useful to study the organization of production in country A in order to see if the techniques used there could be exported to less efficient countries.