How can you compute total factor productivity growth using observable statistics? Take a growth rate of...
How can you compute total factor productivity growth using observable statistics? Take a growth rate of output of 6%, a growth rate of labor of 3%, a growth rate of capital of 8%, and a share of capital of 40%. Calculate total factor productivity growth rate and interpret your result
Homework Answers
Growth rate of output = share of capital * growth rate of capital + share of labour * growth rate of labour + growth rate of total factor productivity
0.06 = 0.4*0.08 + 0.6*0.03 + growth rate of total factor productivity
0.06 - 0.05 = growth rate of total factor productivity
Hence, total factor productivity has a growth rate of 1%. This shows that the total growth in the output, is composed of growth of capital growth of labour and growth of technology / total factor productivity.
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