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Is a theory of total factor productivity really needed?

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  • Jesus Felipe
  • J.S.L McCombie

Abstract

This paper addresses the question of whether or not a theory of total factor productivity (TFP) is needed in order to explain the documented large per capita income differences across countries. As the argument that it is needed has been reached by calculating TFP empirically, we show that the way the estimates of TFP have been computed is not an innocuous issue. To prove our point, we discuss how two well-known textbooks on growth theory present the arguments and the problems associated with these expositions. We conclude that the tautological nature of the estimates of TFP lies at the heart of an important question that the empirical literature on economic growth has been dealing with during recent years. Hence, our arguments cast doubt on the need for a theory of TFP.

Suggested Citation

  • Jesus Felipe & J.S.L McCombie, 2004. "Is a theory of total factor productivity really needed?," CAMA Working Papers 2004-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2004-12
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    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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