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Measuring Total Factor Productivity and Variable Factor Utilisation: Sector Approach, The Case of Latvia

  • Ludmila Fadejeva

    (Bank of Latvia)

  • Aleksejs Melihovs

    (Bank of Latvia)

This research constructs estimates of total factor productivity (TFP) growth for six sectors of the Latvian economy for the period 2000-2008, using a sectoral quarterly data set. Estimates are obtained by controlling for qualitative changes in production factors and assuming a mechanism for capturing changes in the utilisation of labour and capital. The paper delivers two main results. First, the use of indicators for labour and capital utilisation intensity allows for minimisation of fluctuations in the TFP measure and makes it less output growth dependent compared with the Solow residual approach. Second, the comparison of both methods shows that the estimate of the TFP growth obtained by the Solow residual approach might be undervalued for manufacturing, electricity, gas and water supply, wholesale and retail trade as well as hotels and restaurants, while overvalued for the growth in the transport, storage and communication sector of the Latvian economy.

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Paper provided by Latvijas Banka in its series Working Papers with number 2009/03.

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Date of creation: 13 Aug 2009
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Handle: RePEc:ltv:wpaper:200903
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  1. Robert J Barro, 1999. "Determinants of Economic Growth: Implications of the Global Evidence for Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 36(107), pages 443-478.
  2. Aleksejs Melihovs & Gundars Davidsons, 2006. "The Role of Production Progress and Human Capital in the Economic Growth of Latvia," Working Papers 2006/03, Latvijas Banka.
  3. Good, David F. & Ma, Tongshu, 1999. "The economic growth of Central and Eastern Europe in comparative perspective, 1870 1989," European Review of Economic History, Cambridge University Press, vol. 3(02), pages 103-137, August.
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  9. Robert Dekle, 1994. "Technological progress and endogenous capital depreciation: evidence from the U.S. and Japan," International Finance Discussion Papers 485, Board of Governors of the Federal Reserve System (U.S.).
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  12. Charlotta Groth & Soledad Nuñez & Sylaja Srinivasan, 2006. "Productivity growth, adjustment costs and variable factor utilisation: the UK case," Bank of England working papers 295, Bank of England.
  13. Dale W. Jorgenson & Kevin J. Stiroh, 2000. "Raising the Speed Limit: U.S. Economic Growth in the Information Age," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 125-236.
  14. Susanto Basu & Miles S. Kimball, 1997. "Cyclical Productivity with Unobserved Input Variation," NBER Working Papers 5915, National Bureau of Economic Research, Inc.
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  16. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  17. Basu, Susanto & Fernald, John G. & Shapiro, Matthew D., 2001. "Productivity growth in the 1990s: technology, utilization, or adjustment?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 117-165, December.
  18. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  19. Konstantins Benkovskis & Dainis Stikuts, 2006. "Latvia's Macroeconomic Model," Working Papers 2006/02, Latvijas Banka.
  20. Nicholas Oulton & Sylaja Srinivasan, 2005. "Productivity growth in UK industries, 1970-2000: structural change and the role of ICT," Bank of England working papers 259, Bank of England.
  21. Hulten, Charles R., 1986. "Productivity change, capacity utilization, and the sources of efficiency growth," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 31-50.
  22. Nicholas Oulton & Sylaja Srinivasan, 2003. "Capital stocks, capital services, and depreciation: an integrated framework," Bank of England working papers 192, Bank of England.
  23. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
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