TOTAL FACTOR PRODUCTIVITY : CONCEPT, MEASUREMENT AND ISSUES

Abstract

In the world economies of today, one of the most important factors of growth is improvement in total factor productivity. The experiences of the developed countries confirm this fact. There is strong competition for a limited amount of capital investment with the opening up of many economies in Asia, like China and Vietnam. Competition for foreign investment will be even more intense especially for small and open economies like Singapore. Thus TFP growth is becoming increasingly important to the economic growth of this nation. Generally, it has been concluded by the studies done that the TFP growth rate has been very low. When compared to the industrialized countries at a similar stage of development, Singapore’s TFP growth is less than half of theirs. It is only by focusing on our TFP growth that Singapore can stay ahead of the other Newly Industrialised Economies and reach the industrialized countries' productivity level as quickly as possible. In Singapore, the field of Total Factor Productivity has not been thoroughly researched on. The main objective of this Academic Exercise is to review and evaluate the studies of TFP growth on Singapore. To accomplish this objective, this AE will be sub-divided into three main parts. Firstly, the definition of TFP as well as sources that determine TFP growth will be covered. Secondly, the different ways of measuring TFP will be derived and a review will be done on four studies of Singapore TFP growth. Then the assumptions made by the studies will be tested by running a regression on the possible production functions of Singapore to decide on the best model to measure TFP growth. Finally, the last section discusses the related issues of TFP.