Total Factor Productivity and Economic Growth in Pakistan: A Five Decade Overview (P & R Vol.1 Issue 3)

The evolution of total factor productivity (TFP) is a key determinant of the longrun output growth. There is substantial evidence available that shows that the countries that managed to boost their TFP grew at a much higher rate and for a sustained period. This study presents an account of Pakistan’s output and TFP growth rates for the total economy as well for three main sectors, viz. agriculture, industry, and services sectors. Box 1: What is TFP? In the growth accounting framework, total factor productivity (TFP), also known as multifactor productivity, tells us how productively the economy uses the factors of production to produce output. TFP is that part of the GDP growth that cannot be attributed to factor inputs. TFP may also increase economic growth by allocating inputs more appropriately and efficiently, resulting in production getting very close to the optimum combination of inputs and outputs.