Total Factor Productivity with Energy as a Factor of Production

Nazif Durmaz, Farhad Rassekh and Henry Thompson

No auwp2025-10, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: The present paper estimates total factor productivity TFP for the United States with 74 years of data including primary energy as a factor of production along with fixed capital assets and the labor force. The inclusion of energy improves the empirics of the neoclassical production function. In differences of natural logs, energy doubles the explanatory power and reduces residual correlation as well as heteroscedasticity. In addition, energy reduces the mean and variance of the Solow residual leading to a slower cumulative effect. In the growth accounting literature, to calculate TFP, the weight of 0.3 is commonly assigned to capital and 0.7 to labor. Our estimation suggests that these weights should be adjusted to make room for an energy weight of 0.07.

Keywords: Economic Growth; TFP; Energy (search for similar items in EconPapers)
JEL-codes: D24 E23 O47 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-eff and nep-ene
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