Development Accounting and the Rise of TFP
IMF Working Papers, April 1, 2010
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- Development Accounting and the Rise of TFP
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Bibliographic details
- Authors: Reda Cherif, Rabah Arezki
- Published: April 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451982787.001
Summary
- The paper presents evidence that the contribution of differences in total factor productivity (TFP) to income differences across countries steadily increased between 1970 and 2000.
- The authors verify that this finding is neither imputable to measurement errors in input factors nor dependent on the assumption of factor neutral differences in technology.
- Conclusion: Theories explaining cross-country income differences based on institutions or on forces that are constant over time, such as geography or legal origin, should be reconsidered in light of their consistency with the rise of the explanatory power of TFP.
Key findings and evidence
- The contribution of TFP to income differences across countries increased steadily between 1970 and 2000.
- Robustness checks indicate the main finding is not driven by:
- Measurement errors in input factors.
- The assumption of factor neutral differences in technology.
Policy implications and interpretation
- Explanations of cross-country income differences that rely primarily on institutions or on time-invariant forces (for example, geography or legal origin) need to be reassessed to account for the observed rise in the explanatory power of TFP.
- The results emphasize the importance of mechanisms that can generate rising TFP differentials over time when evaluating development strategies and growth models.