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A Note On The Mathematical Derivation Of Total Factor Productivity (Tfp) And Its Decompositions

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  • Naziruddin Abdullah

    (International Islamic University Malaysia)

Abstract

This article is written with a two-fold objective: to prove the equivalence between Total Factor Productivity (TFP) and technological change when the production function exhibits constant returns to scale, and to decompose the TFP into several components. Toward this end, we established a linkage between the theory of production (specifically the cost of production), and TFP. Prior to that, however, we showed how the TFP is computed using the Divisia indexes or the Tornqvist index. Finally, we showed that if the production is subject to constant returns to scale, the TFP growth rate is identical to the rate of technological change. Otherwise, with the existence of scale effects, the TFP may be decomposed into technological change and scale effects, the two major sources of TFP.

Suggested Citation

  • Naziruddin Abdullah, 2000. "A Note On The Mathematical Derivation Of Total Factor Productivity (Tfp) And Its Decompositions," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 8(1), pages 1-71, June.
  • Handle: RePEc:ije:journl:v:8:y:2000:i:1:p:71-
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    References listed on IDEAS

    as
    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    2. Hasan, Zubair, 1995. "Economic Development in Islamic Perspective: Concept, Objectives, and Some Issues," MPRA Paper 3011, University Library of Munich, Germany.
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    More about this item

    Keywords

    Islamic Economics;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O39 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Other

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