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A Theory of Total Factor Productivity and the Convergence Hypothesis: Workers’ Innovations as an Essential Element

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  • Harashima, Taiji

Abstract

A theory of total factor productivity (TFP) is needed to explain why substantial differences in international income have been observed. This paper presents a theory of TFP that incorporates workers’ innovations. Because workers are human and capable of creative intellectual activities, they can create innovations even if these innovations are minor. The creative activities of ordinary workers have been almost entirely neglected in economics even though the importance of workers’ learning activities has been emphasized by the theories of learning-by-doing and human capital. I examine this creative element and show that innovations created by ordinary workers are indispensable for efficient production. A production function incorporating workers’ innovations is shown to have a Cobb-Douglas functional form with a labor share of about 70%. The production function offers a microfoundation of the Cobb-Douglas production function and more importantly indicates that heterogeneous parameter values with regard to workers’ innovations are essential factors of the currently observed substantial income difference across economies.

Suggested Citation

  • Harashima, Taiji, 2009. "A Theory of Total Factor Productivity and the Convergence Hypothesis: Workers’ Innovations as an Essential Element," MPRA Paper 15508, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15508
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    Cited by:

    1. Harashima, Taiji, 2015. "Why Has the U.S. Current Account Deficit Persisted? International Sustainable Heterogeneity under Floating Exchange Rates," MPRA Paper 67177, University Library of Munich, Germany.
    2. Harashima, Taiji, 2010. "Sustainable Heterogeneity: Inequality, Growth, and Social Welfare in a Heterogeneous Population," MPRA Paper 22521, University Library of Munich, Germany.
    3. Harashima, Taiji, 2017. "Wage Inequality and Innovative Intelligence-Biased Technological Change," MPRA Paper 82337, University Library of Munich, Germany.
    4. Harashima, Taiji, 2012. "Sustainable Heterogeneity as the Unique Socially Optimal Allocation for Almost All Social Welfare Functions," MPRA Paper 40938, University Library of Munich, Germany.
    5. Harashima, Taiji, 2011. "A Mechanism of Inflation Differentials and Current Account Imbalances in the Euro Area," MPRA Paper 28121, University Library of Munich, Germany.
    6. Harashima, Taiji, 2014. "The Representative Household Assumption Requires sustainable Heterogeneity in Dynamic Models," MPRA Paper 57520, University Library of Munich, Germany.
    7. Harashima, Taiji, 2016. "Live and Let Live: Sustainable Heterogeneity Will Generally Prevail," MPRA Paper 71887, University Library of Munich, Germany.
    8. Harashima, Taiji, 2014. "Division of Work and Fragmented Information: An Explanation for the Diminishing Marginal Product of Labor," MPRA Paper 56301, University Library of Munich, Germany.
    9. Harashima, Taiji, 2017. "A Theory on the Economic Impacts of Immigration," MPRA Paper 78821, University Library of Munich, Germany.
    10. Harashima, Taiji, 2015. "A Way Out of the Euro Crisis: Fiscal Transfers Are Indispensable for Sustainability in a Union with Heterogeneous Members," MPRA Paper 63025, University Library of Munich, Germany.
    11. Harashima, Taiji, 2011. "A Model of Total Factor Productivity Built on Hayek’s View of Knowledge: What Really Went Wrong with Socialist Planned Economies?," MPRA Paper 29107, University Library of Munich, Germany.
    12. Harashima, Taiji, 2012. "A Theory of Intelligence and Total Factor Productivity: Value Added Reflects the Fruits of Fluid Intelligence," MPRA Paper 43151, University Library of Munich, Germany.

    More about this item

    Keywords

    Innovation: Total factor productivity; Experience curve effect; Convergence hypothesis; Cobb-Douglas production function;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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