IDEAS home Printed from https://ideas.repec.org/a/psl/bnlqrr/200134.html
   My bibliography  Save this article

Total factor productivity - a misleading concept

Author

Listed:
  • 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," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 54(218), pages 313-332.
  • Handle: RePEc:psl:bnlqrr:2001:34
    as

    Download full text from publisher

    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/9935/9817
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
    2. Kevin J. Stiroh, 2001. "What drives productivity growth?," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 37-59.
    3. Shaikh, Anwar, 1974. "Laws of Production and Laws of Algebra: The Humbug Production Function," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 115-120, February.
    4. Nordhaus, William D, 1997. "Traditional Productivity Estimates Are Asleep at the (Technological) Switch," Economic Journal, Royal Economic Society, vol. 107(444), pages 1548-1559, September.
    5. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057, Elsevier.
    6. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    7. Jesus Felipe & J. S. L. McCombie, 2002. "A Problem with Some Estimations and Interpretations of the Mark-up in Manufacturing Industry," International Review of Applied Economics, Taylor & Francis Journals, vol. 16(2), pages 187-215.
    8. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    9. repec:bla:kyklos:v:34:y:1981:i:3:p:377-87 is not listed on IDEAS
    10. Luigi L. Pasinetti, 2000. "Critique of the neoclassical theory of growth and distribution," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 53(215), pages 383-431.
    11. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 2, number 2.
    12. Syed Ahmad, 1991. "Capital in Economic Theory," Books, Edward Elgar Publishing, number 5.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lukáš Čechura & Tinoush Jamali Jaghdani, 2021. "Market Imperfections within the European Wheat Value Chain: The Case of France and the United Kingdom," Agriculture, MDPI, vol. 11(9), pages 1-21, August.
    2. Sascha A. Weber & Sven M. Anders, 2007. "Price rigidity and market power in German retailing," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 737-749.
    3. Sabien Dobbelaere & Jacques Mairesse, 2013. "Panel data estimates of the production function and product and labor market imperfections," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(1), pages 1-46, January.
    4. Harry Bloch & Michael Olive, 2001. "Pricing over the Cycle," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 19(1), pages 99-108, August.
    5. Perekhozhuk, Oleksandr, 2013. "Moderne Konzepte zur Analyse der Preisbildung auf dem Faktormarkt mit unvollständigem Wettbewerb," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 4, pages 99-106.
    6. Flora Bellone & Patrick Musso & Lionel Nesta & Frédéric Warzynski, 2009. "L'effet pro-concurrentiel de l'intégration européenne. Une analyse de l'évolution des taux de marge dans les industries manufacturières françaises," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 139-163.
    7. Oleksandr Perekhozhuk, 2013. "Modern Concepts for Pricing Analysis in Imperfect Competition Production Factor Market," Oblik i finansi, Institute of Accounting and Finance, issue 4, pages 99-106, December.
    8. David Dixon, Huw & Thustrup Hansen, Claus, 1999. "A mixed industrial structure magnifies the importance of menu costs," European Economic Review, Elsevier, vol. 43(8), pages 1475-1499, August.
    9. Ghosal, Vivek, 2000. "Product market competition and the industry price-cost markup fluctuations:: role of energy price and monetary changes," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 415-444, April.
    10. Cheung, Yin-Wong & Chinn, Menzie & Fujii, Eiji, 2001. "Market Structure and the Persistence of Sectoral Real Exchange Rates," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(2), pages 95-114, April.
    11. Robert Germeshausen & Timo Panke & Heike Wetzel, 2020. "Firm characteristics and the ability to exercise market power: empirical evidence from the iron ore market," Empirical Economics, Springer, vol. 58(5), pages 2223-2247, May.
    12. Luis C. Corchón & Lourdes Moreno, 2016. "Interpreting Markups in Spanish Manufacturing: The Exponential Model," Springer Series in Game Theory, in: Pierre von Mouche & Federico Quartieri (ed.), Equilibrium Theory for Cournot Oligopolies and Related Games, pages 119-131, Springer.
    13. Jesus Felipe & Franklin M. Fisher, 2003. "Aggregation in Production Functions: What Applied Economists should Know," Metroeconomica, Wiley Blackwell, vol. 54(2‐3), pages 208-262, May.
    14. Manthos Delis & Maria Iosifidi & Efthymios G. Tsionas, 2014. "On the Estimation of Marginal Cost," Operations Research, INFORMS, vol. 62(3), pages 543-556, June.
    15. T. Franck & N. Huyghebaert, 2004. "On the Interactions between Capital Structure and Product Markets.A Survey of the Literature," Review of Business and Economic Literature, KU Leuven, Faculty of Economics and Business (FEB), Review of Business and Economic Literature, vol. 0(4), pages 727-787.
    16. Linnosmaa, Ismo & Hermans, Raine & Kauhanen, Taru, 2002. "Price-Cost Margin in the Pharmaneutical Industry: Empirical Evidence from Finland," Discussion Papers 818, The Research Institute of the Finnish Economy.
    17. Jesus Felipe & John S.L. McCombie, 2013. "The Aggregate Production Function and the Measurement of Technical Change," Books, Edward Elgar Publishing, number 1975.
    18. Aileen J. Thompson, 1999. "Import Competition and Market Power: Canadian Evidence," Carleton Economic Papers 99-14, Carleton University, Department of Economics, revised Mar 2000.
    19. Goldberg, Pinelopi Koujianou & Knetter, Michael M., 1999. "Measuring the intensity of competition in export markets," Journal of International Economics, Elsevier, vol. 47(1), pages 27-60, February.
    20. Mikael Juselius & Moshe Kim & Staffan Ringbom, 2015. "Do markup dynamics reflect fundamentals or changes in conduct?," Empirical Economics, Springer, vol. 48(3), pages 1119-1147, May.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:psl:bnlqrr:2001:34. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Carlo D'Ippoliti (email available below). General contact details of provider: http://www.economiacivile.it .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.