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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
Date of revision:
Handle: RePEc:ltv:wpaper:200903
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