Total Factor Productivity as a Measure of Weak Sustainability
Analysis of agricultural production generally ignores the undesirable outputs (such as soil erosion) that are jointly produced with desirable, marketable outputs. In this paper we present preliminary TFP results incorporating national level data for off-site damage costs of soil erosion for broad acre agriculture between 1953 and 1994. Following the approach introduced by Repetto et al. (1996), our revised TFP estimates provide interesting results. When we assume that damage costs per ton of soil erosion are constant, our TFP estimates are higher than estimates omitting the undesirable output. This result can be explained by the fact that the rate of soil erosion grew more slowly than output increased, or the rate of soil erosion declined and agricultural output remained constant. Defining weak sustainability (i.e., allowing substitution between natural and human capital) as non-declining TFP, our results indicate that Australian broad acre agriculture is sustainable. Note our results are only preliminary because there are other externalities that we do not include in the analysis and the existing soil erosion damage cost data is very weak.
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