A FURTHER NOTE ON THE MATHEMATICAL DERIVATION OF TFP SOURCES

Abstract

The main objective of this paper is to theoretically show the major sources of TFP growth and its sub-components. First, we establish a method to link the TFP analysis with the theory of production Using the cost function, the sources of TFP growth are decomposed into scale and technological change effects. Second, from the first source of the TFP growth, namely scale effect, we further disentagle it into 3 elements, which are, effects due to output, price and technological change. To decompose the TFP growth rate, the transcendental logarithmic (translog) cost function is employed.

JEL classification: C23, D24, O39

Key words: Total factor productivity, decomposition analysis, translog cost function