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Total factor productivity - a misleading concept

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  • Angelo Reati

    (European Commission, Brussels (Belgium))

Abstract

The paper criticises the concept of total factor productivity as a measure of technical change and economic performance on two grounds: (i) theoretical, because it shares all the weaknesses of the neoclassical production function from which it is derived, (ii) its relevance in helping to understand the present technological revolution in computer and information technologies, since it concerns only disembodied technical change. The practical conclusion is that total factor productivity is more a measure of "noise" than a genuine indicator of technical progress. In spite of the above drawbacks, total factor productivity is still widely used in empirical work on technical change. This is all the more surprising since the alternative concept ofproductivity of labour not only avoids the above mentioned criticisms but is theoretically superior to its rival concept because it captures the true nature of present technical change.

Suggested Citation

  • Angelo Reati, 2001. "Total factor productivity - a misleading concept," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 54(218), pages 313-332.
    • Handle: RePEc:psl:bnlaqr:2001:34
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9935/9817
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    References listed on IDEAS

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    Cited by:

    1. Roberto Cellino & Anna Soci, 2002. "Pop competitiveness," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(220), pages 71-101.
    2. Rossitsa Rangelova, 2002. "Medium-Term Forecastings of the Economic Growth in Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 3-29.
    3. Vincent Victor, 2019. "The Role of Bargaining Power: How Unions Affect Income Distribution," Potsdam Economic Papers 06, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.

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    More about this item

    Keywords

    Factor Productivity; Production Function; Production; Productivity; Total Factor Productivity;
    All these keywords.

    JEL classification:

    • 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
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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