Total Factor Productivity of Manufacturing Firms: Pakistan, 2022 Scenario

Total Factor Productivity (TFP) represents the efficiency with which capital and labor inputs are utilized in the production process. It captures the impact of elements beyond mere increases in the quantity of inputs and represents factors such as technological progress, innovation, improvements in organizational efficiency and institutional quality. This study estimates TFP of manufacturing firms in Pakistan using latest available firm level data collected and compiled for the World Bank Enterprise Survey (WBES) of 2022. Data of the WBES of 2007 is also employed to estimate comparative TFP magnitudes. The research also evaluates the impact of few organizational characteristics of firms on the current level of TFP for the year 2022. The study indicates low level of TFP with the deteriorating trend. These results are consistent with the findings of earlier research on TFP in the context of Pakistan. This study estimates close to 9 percent decline in the magnitude of TFP during the period of 2007 and 2022. However, the extent of deterioration varies across provinces and across industrial sectors. The largest decline (25 percent) in TFP magnitude is estimated in Baluchistan province, followed by KPK (10%). In terms of industrial sectors, the notable sectors where TFP magnitude has declined are Food (43%) and Leather and Leather product (45%). In contrast, sectors in which TFP has improved during 2007-2022 include; Machinery and Equipment (56%), Chemical and Chemical Products (47%) and Wearing Apparels (27%). The econometrical results related with the determinants of productivity suggest that factors which enhance the firms’ performance and level of productivity include; use of information and communication technology, formal training programs for employees, access to international market, proportion of skilled production workers and the presence of competitive market environment. The TFP literature suggests that to increase TFP in Pakistani manufacturing firms, a multifaceted approach focused on improving efficiency, technology, human capital, and the overall business environment is required.