An analysis of total factor productivity and economic growth in Pakistan

Abstract

The broad aim of this paper is to find-out the contribution of Total Factor
Productivity (TFP) to economic growth of Pakistan in the presence of human
capital and check its sensitivity to share of capital, proxies for human capital
and length of period. The study used Growth Accounting Method for this
purpose. The study is of a different nature in sense that it has used three
different proxies for human capital and the calculations of TFP have been
made by using different shares of labour and capital. The results show that
TFP contributed 38.47% to Gross Domestic Product (GDP) per capita in
Pakistan during the period 1971-2008, with education as measure of human
capital. The contribution of TFP to GDP per Capita increases irrespective of
measure of human capital when minimum share of capital is used. It increases
to 46.72%, 57.08% and 24.14 % in case of education, health and Research &
Development (R&D) respectively. However, in case of maximum share of
capital, the TFP becomes 20.99%, 27.80% and 6.3% with education, health
and R&D as a measure of human capital. The study suggests TFP to be an
important determinant of economic growth in Pakistan, hence, the
determinants of TFP needs to be explored to attain sustained economic growth.