Post on 14-Feb-2017
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Total Factor Productivity:
Concept and Returns to
Research
Praduman kumar
Professor, IARI
• Total Factor Productivity
• Q=f(X1, X2, …..Xn)
• Q=f(x1t1, x2t2, ….xntn)
• Q=f(x,T)
• TG = QG-XG
• TFP Index = Output Index/Input index
Approaches for TFP measurement
• The parametric approach
• The accounting approach
• Non-parametric approach
The parametric approach
• Production function O =f(x,t)
• Cost function C=f(y,t)
• Partial differentiation with respect to time
gives technological change estimates
Production Function
• Estimate the production function for improved technology
• Estimate the production function for local technology
• Decompose the difference in yield between improved and local technology and its sources.
• Sources of change are:– Due to technology
– Due to change in inputs» Labour
» Feed
– Estimate benefits (value of input saved under improved over local technology)
Decomposition model
Y0
Y1
C
a
b
c
Fish input
Fish yield
X1X0
Y0 C = Yield gain due to improved
tech
C Y1 = Yield gain due to additional
inputs
Improved tech
Local
Tech
0 0 0 0 0ln ln lnY DCP V
1 1 1 1 1ln ln lnY DCP V
1 1 11 0 0 1
0 0 0
ln ln ln lnY DCP
DCPY DCP
% in yield = % in yield due to improved strain +
% in yield due to additional inputs
Decomposition Model
Local strain
Improved strain
The Accounting Approach
• Divisia-Tornqvist Index is used
• Construct input index
• Construct output index
• TFP index = output index/input index
Ref Christensen, 1975
•Research,
• Extension,
• Education,
• Infrastructure,
• Health of natural
resources,.....
Area Growth
TFP Growth
Input Growth
• Land
• Labour
• Fertilizer
• Irrigation
• Machine
• Seed
.
.
.
.
Yield Growth
Yield-Area
Decomposition
Input-TFP
Decomposition
•Input Prices,
• Output Price,
• Technology,
• Institutions,
• Infrastructure.....
Data requirement for TFP
computation
• Quantity of output (commodity) produced
• Price of commodities
• Quantity of various inputs used
• Price of inputs
)Q/Q( = TOI/TOI2/)R+R(
1jt-jtj1t-t
11jt-jt
Total Output Index (TOI)
Total Input Index (TOI)
/2)S+S(1
1-itit
)x/x( = TII / TII 1it-iti1t-t
Total Output Index
TOI (t) = TOI (1).TOI(2)………………TOI(t-1)
Total Input Index
TII (t) = TII (1).TII(2)………………TII(t-1).
Total Factor Productivity Index
TFPt = (TOIt / TIIt )
Trends in Rice TFP, All India
70
80
90
100
110
120
130
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
Year
TF
P in
de
x
Growth in total factor productivity of rice in India 1975 to 2005
Growth of Growth of Total factorRegion inputs output productivity
growth
Eastern 1.20 1.98 0.78
Western 2.37 2.54 -0.75
Northern 2.39 3.82 1.37
Southern 1.62 2.68 1.12
India 2.05 2.72 0.67
Annual growth in TFP and real
cost of production:1975-05Crop TFP RCP
Rice 0.67 -1.01
Wheat 1.92 -2.28
Maize 1.39 -1.30
Jowar 0.63 -2.06
Bajra 1.04 -1.86
Barley 1.38 -2.07
Gram 0.16 -1.01
Arhar -0.69 -1.11
Moong 0.53 -0.90
Annual growth in TFP and real
cost of production:1975-05Crop TFP RCP
Soybean 0.71 -0.84
Groundnut 0.77 -1.11
Rapeseed & Mustard 0.79 -1.99
Sugarcane 0.41 -0.36
Cotton 1.41 -1.62
Jute 1.28 -1.73
Sources of TFP
• TFP =f( Research, Extension, Markets, Balance use of fertilizers, Sources of water, Rural Literacy, Climatic factors)
• EVMP® = Elasticity of research stock*(Value of output associated with TFP/Research stock)
• Generate benefit stream . Research benefit lag.
• Benefits will be 0.1EVMP, 0.2 EVMP,….
0.9EVMP, 0.8EVMP,……, 0.1EVMP
• Compute returns to research Investment
Annual growth in TFP and real
cost of production:1975-05Crop EVMP IRR
Rice 2.02 29
Wheat 4.03 38
Maize 1.85 28
Jowar 4.28 39
Bajra 2.29 31
Gram 2.84 34
Groundnut 0.71 18
R&M 0.89 20
Cotton 4.15 39
Contribution of research to
crop sector in India:2005-06Particulars Value
Contribution of research to selected 9 crops (in
crore Rs)
1552
Share of the selected crops under study in value of
output (%)
41.4
Research contribution to total crop sectors based
on selected crops (in crore Rs)
3748
Research investment in the year 2005-05 (in crore
Rs)
2814
Returns to research investment (%) 33.2
IRR to Research investment 1985-86 to 2006-07 46.0%
1990-91 to 2006-07 42.0%