ON THE MEASUREMENT OF TOTAL FACTOR PRODUCTIVITY: A LATENT VARIABLE APPROACH

Rodrigo Fuentes and Marco Morales

Macroeconomic Dynamics, 2011, vol. 15, issue 2, 145-159

Abstract: Despite the important role that total factor productivity (TFP) has played in the growth literature, few attempts have been made to change the methodology to estimate it. This paper proposes a methodology based on a state-space model to estimate TFP and its determinants. With this methodology, it is possible to reduce the measurement of our ignorance. As a by-product, this estimate yields the capital share in output and the long-term growth rate. When applied to Chile, the estimation shows a capital share around 0.5 and long-term growth of TFP around 1%. Capital accumulation tends to explain the growth rate in the fast growth periods under the econometric estimation more than the traditional growth accounting methodology.

Date: 2011
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