v ?ACTCn l':tClltJC'DVJTY

SL'1Ce ~«Jd \7~t n, ~a\·er~ llttemptl h~\·o been rrz.do to mcMUro

~ mvJ abo k!entlfy t.~ faders aQ7 ... ~mtilil>J fer [,rowth. Th'l ~cvdci)­

rnenu 1:1 tho Utcrnturo en (10':'Ith CCOftOmlcs l1ncc ~C'a rr.c=t.'J ccnflne"J

to lsobtlt:on c·f tho df·:'Ct!l c.t fnctcr rr01.~-:tlv!ty cr 'ted'.f'Je:tl pr~:rcs:s ~~

a:plt=l cc:a:mulatlon conc~~Jly .. 1

Teci''"L"'l!ca! cf).~~o n1 en lrr.Dortnnt ta.~ o! r.ro-:lth h3."J dr~~-n tho

Attention d.~ rnlo:.t 'O's. Stt.."...;1es cf t\trtomovlt: (~''~·• !%2la Solocv (1''7h

f{endfldc (1~51)1 r.~ U~GO)f Otcwn ::nd Po?!dn (1%4>1 r!enbcn (1~62} ")

r.nrJ lotccns.:n r.nd Crillcl:cs (1~61),~ cte. arc z.~r;>c ct tho lrr:pott~nt t'JCrf~

1. unnn. F.U a.d R.C.O. r.!a~-s., "T'htl tht:orJ o:f econorrJc crcr.tt.'-2 1\ Stnc;M• Jhc 1JS:r~mle_.1Sif-.C!t 7~?.?~), l~ti~, nnrl U:t.cr, D.P.,

~~,;'"\:'\ ,f'\.,'t-r ';· .... ~ ... ··~ ............... f~:'\--,.~•1'\ "to,~ wnm <• '''"!tt.,f• .. L· .nt ,-,f ,,C;":{V\,:, c (;f'O .. t,;. f,...;..;,u •.. t .. d,\#'vnf (. :tlN'd, [c- .r~n , .. , ,A."";.J.

2. ,'\~:r;evlt?., M., ct~:esourco t'J".d cutput trends In tM United S~tes st.~~ 1g7o-, l OC#"'N'ln~!; e. t~f':",M'IO'.n Fcerle-rrl'! 1\~~ocht!"'-., 4!:(Z), 1?Xi t:n "LcontJD!c crowth a the Urlt:::.: St:.t;s· • i\ 'iCv:r;,;;;! o:dck!'t ,Atzrtlenq rcm~k: ,revt~v, '2. Sept. 19(}2

Solow, n., "TcdmlaJ c:~ end ::~~rece.w ~cdt.Ulon !ur.ctL"'n", .~! "'.vtm-... sll~~ .... ;.;.""'·' :""' ... ~ ..,le .... J.....,.;t"r,..,~ .... : ....... s .. tn,..t .. l...,~t ... t ... cs.... 3'-J, 19S7.

t ... _.....,...t ., ~ -A -t 1~ _""_.... t t"' • , t·--... ~t •. ..Mt r·~'f"~ ''\.:a!f.s&-,,;I~, .,., Pa·rv~,u\.0, .. V u .. ,, :.,,,, r!l , :"t •. .~~ ~·.··~~· •• ~•£.·~" .• J".~'' Frloccton, 1961.

:.~=set, r;;., "Ccplml rorn-.:tkm lmfl Tcchr.kd c~ In us r.~~­k.ctur1nj't, r:~vlettt c1 r.em,.,m!o tl.nd St~tbtl~ e2, l!i(.Q.

r-..,.:-. .. ,n , • ,.....,_ .. J n,.. . ...,ttl.... ftA. "'"i""''l'••r,... "f t'""'""'-'""~l~""f"l --.. .. !'"!- ..... ....... 1 L•~·t', f ~o .. t L.if~....t • 1:' \\.,.-•·· ~~.. I\ .,.t ... >,...r-~~ ~- '-.: '-'-',.~'~'·•-':;t -'- \."ilU•·,-~\;;J ~-~t··

rcturn!l to zcuk:" ~~vie·, C'f r<:NlOr>:il.-:11 ~rvJ St:~tl~tlc~ tA., 1~6:!. L 1 - I ;,;J

Denl!:on, F., "Source ef cconemle r_ro":lt.'l In t:nltcd States .::.~ U~e c.l~1l\'eS befcto U9t £rm~ftt'."e f~ rm~":"i-: ~~~\'~*'rr:o:mt, Nc·o Ycrk, 1962.

lCi'i}~n=on, o. rt ~nd z. Grl!khc~., ""~he e;~p!::...,~tlcn cf pret!t..'C!lvlt'J C}.0.%1"!0", p~~,, or rcmemtc !ltud!et !~U), 1?67. ·w- p ~T I

103

L"l t!'Js fld1. Tho bas!c dlfkrcncn In tt~ err:p~ lnvcstl~ctkr.s pert:lln

to c!Wcre~ In tiY.! ct!SlJIT'.ptlcns marl-o rc:;ill~ln,l C!~ Mturo ef tcdir .. '">l~;;l-

c::l ~ crrera In rr~ment, nature of tQuts eccamted for, r.w~~3

c! c:rt!rr-:.t!vn etc. iwo ~~c:-: .. -:l conclutlons cere drnT.on cbout t.'lc sl~l ...

=nco of ~tal end Tec!lfdcal ~JI\.'""S! Li YJ'lO tf"tlth ~roe~. Scm~ stt.~lc3

~ t.~t crwth prcspecta C:e,end en eUidency In factor ~ end

~po~J tho ~.tcst..rrt.ptkn t~:lt ctcrwth 13 •costtc~•. •cc.,ltll' n., :1 dor.Jnont

scute0 of :rcr.lth ,as ~ In ot'\er mJr:o:s.

,.1 CONctPT OP PACTO!t ?ROOOCTIVITY

'Prodt!etivltyt b B :X:\r.utL.,:: red cf tho perfcrr..anco cf err; eccno:r.k

cxtlvlty end L'Y~tes t!1o d1ldcnc)' rdatlcr..sh!;» d ln_.""Ut(s) Ct, cut~~).

1"ho conce.,t bcccmo Dflyd.ccl In the ecntcn ct tcchnlccl dfJdency end

b a vab'l cc.nccpt If eccmw.i:: c-'f!ldcncy "f ~~es b rr.ecsurt'X!. In

caer wcrc!s, ec:QnC:rJ.c d!ldenc:y w:es L-rto ao::ount t:-:e telat1ve prkc'

end also hctctt;:;C!'\t'.'lty d l~ut!l t~nd ~-n. Sorr.e of the lrnportmt thoo­

rttltol concep"tl of l'f~t..'Ctlvlt} ac-t p:rti!l! foctcr pr~"'~vltJ end tot:1 :1 factor prcductlvi~;.

~ttlnl F~ f?ttiK'ur.thrlty {P~f!l.t It b ~nflttcd os t=lO ~roc'x:11vlty c!

cno r.:ll'tlctJmr ~ f~etor lnput ~ithcut c:~""ttr.J tho cffcctl 0: ell

ct~r 1actcr L'\;"'UtG en cut;ut. Sl.'iC;3 output b t.~o rc:dtnt c! cll the ln;iUU.

t.'10 fiiP ban tmprcebe rr.ca.suro of produethlty end cbo a bl.esed rne~ I)

d ~cchnkcl pro;::rc~ slnec It lncloccs ~ dft:ctl d ft.~ s-,±,3tltut!en.

,.

4. NIM PrcGucdvlty Crccr~Uen., "pxltet, t~'~ p.Ef).

I,

104

~abl ftstt! ~l<",!lvl~t (TI'P)a Tobl f~tcr rfi>1l!ctlvi1'/ b r.:«o rdlncd

nnd frco from #'.c ~w bbse:.S cn:J re!er:s to t.'le r.roCuctlvlty c.f cl1 L'l;.Uts

put to::;ct!Y~. 11m cfflcler.ey In fo.eter ~ Is t!Zf'.d for c~ end rr.~

metrt cf economic prccrcss-' Differences L~ l·:!vcls z:."ld rntc~ c! m~c in

r.-rv~ivlt-i tiJ'C used ·CS fundarr..cntal mc=.:res d comparative ec:ooorric

pertorm:1.~c.6 f:'roc"Jctlvlty ctiltbtlcs nrc c!ttn c-....cd ns ~ cf ~-tual 7 am1 potcntlnl cchlcver::ent cf tht) ceooomy. FtOC!..~tlvit'J c.s 3 r-1C~-tfe

of pvtr~nthl C·dll'l~r-.c:~t rcfct'S to the lc~l ef cutput attelr~b U t.\e

prO'..!uctlw en-~ cf ~ s~m b eor.;;!ctc!~, ututsc1. It rclcn to

~ pc~le under cp1lr.Jll U30 of a ctven c:ort'Oinatlon of ~ ro.t.'lt-r

t.'lan cptlr;'cl c:or:i~l.~tlcn cf t-~.3 t, prnetl~ teeter ~lvlty refen

to t.'\o mta cf crcr.:th ~ cutput !rom the eame bt:JY'--b of Lv~· Gro\·Tt'l

(s!'Jfts) L, rrocuctmn Utmctten) cnn t~~c pl3CO dt!'lct ty CJffusSM of tech•

n1ca1 knowJettc « Ctbpttoo of e;.rncr oot urn.;scd prnctlcc,. 11~ tho

9 ~JHuslcn of technical 'know~.cwt, Is net ted'.nlcal prozress. conceptu:sUy

ortJ c:.:l." dstL"'Gclsh OOI'Nccn rr.-ovcroonts tot-1:tr~ l:not":n r:~lon btxmd~es

!J. Solot" .. ·, n., •s~. 1957.

G. t~:. 3o.'lnt t'l., "''rotluctlvl~ trend:-J O:Qltill Md l::k."'c,uftt Rflvlqv1 d..fepmmk"! rm S~tbt~ .. 3 (3), 1~.%

1. Peter o. 5tC'In~r., •m., Dfod'tldlvtty rlltlc:4 Some f'J'J11ytlcl'• llmlt:lttons e-n lt:t c::1l", nevt~~, ~f tecM~1k!l m1 St:<1thtk~ 32(~). l9SO.

JL IS 7 •'ti'Mr••

3. ,'l!.-1".

9. I<cnncdy, c e.""'ld 1\,P. Thlrk;aU-. •sun~-s In o;plted econe:nlc.l a T~"mmall t'rC''tCss", !:C(!r,{Jj;.JG, lt:tttrk"ll Z'2U25), 1972.

'\.J ...

105

frcm t.~ ~~lc:l cJ tho prcC!lctk.1l frootlcrn <.'ue to L"1ttcasc L"l tn:r:.-.·k~r,~ •

• ttr., In ~eo It b c:uemely dlfflcull to belate t.~ two cffeeta.

Tcchnkol ~rc::,rcss b ~ld t3 be n:uttcl, If tnctc.r pro.1cctlvlt'J c~1~cs

without clterltl\1 L~ f!".e.tnlncl ~uc:tlvll'J rok:tl::mSi'IQ ~•10fU li~ !nctc.rs.

fcchnlall r:rocre~ rn.ly bo ~bodied Cif dbc:':'~ In ~ lt b en"'bodled

In ccrt!L1 ~uts cn!y then ~ prcx~uctl\it; d th~.c ln;;t.th t11ll ~~se

end 1n $UCh slttmtlcns tA";e rado cf mnrelMl ~uctlon of l:.,uu wW niter.

StK:h tcchnkcl pr~rt:5s b ~Ucd e1 ~utrt\1. Dlsom!A~led t~

pro--.:r~ which CCCUI'$ <!t..~ t~ ~rcanlS1t1oncl dle.nces and lnst1tul!cinl

rclorrr;" is neutral in n:nure. In real cltmtlon, m:t-.nlcll d'~e m:ly

be bot.'l crnbod!cd nn1 (.k.err:!>Ct..!icd c..'l1 t'lcsc df~d' en.., a!~ M bobtcd.

In C!'fietcl, Tedmled pr~ ls measured by us1n:; L~~ nurr:bcrs,. pra!uet• (';,.

len functlcn r.n.1 eo.st ftmctlo.'l. ·-' ~c Index ncn-~r C:'lvtco.eh, n r.-.r.ro

conventlonnl o.pr.ttoxh, b O;;~oprkta If tfl'J f.iild~lYL"U pro:.\tctlon ~~~tlen

b homc:;cneO\:$ ef detfco enc.10 te~.nlc:31 pro:re:ss b neutrnJ, rr.ta'frets

e.rc cor;~~tltlvo end returns t~ cenb oro ccn!lbnt. "ll¥-;n c,nty c~:2ct (!ctc:rml­

n:tl~ cf the ccntrl:)tnlon cf techr'Jcal chance to output~' Is pc:-~!c-.11

• • 1 •• ...... !1:11 •:11 IIWA 11 1 ........ ~.11· 1 ............. 4iratls:c:SUA 1W. Itt II I 11 'lb410:it.

•

f1 ~(.~

10.

Fer c:m;•;~Jc. ocob c.!fc-ttl u·c sl.c•ll~ to tt~t cf tcc:!1nbl ch~n,;e, vler:L~ the teo~ prcercss es c.. .. ll1ts o: tho rw=uct~on fcnctlen In :l ttto factor <:a3et t.'l'O mturo of technical pr~ b ~ on th~ bas1s of th~ ~ovcrr.cnt of th~ J~ &~ Its pcnltlon.

Let Q1 • r: (L1, r;1• t 1) end Q2 • !' (L~, ~-z- t.j be tho t:r\:'C,_~CtJ':n

functlom reb~ to r.erleds t 1 and ta- r:'cctor prcrJUdlvlty b s::fd

to bo posltlvc, If Q2 ~ Q1 t!~ 1 .. 2 o 1.1 r~·if\~~ = K1 for t 2 / t 1• The cost ft.:.nct!en c;>;:rc.::c!l Is not dxusscd here. tr-n U ~ functlon Is not here~, but herr.ot~ then ~ c.~cs c.f f:lctor prcductlvlty arc \':llld, but lt Inc~ cffoct:J cf ~. See Chrlatc.~ L.rt., nc~u c.nd rr.c~e:':".mt ef f',:rl~ltt.~l pr.o-~vlty'•, C;~f'rle~n :Jonm~l t't J\rrlc:nltt~J r:.coc~~lel '~~ '"" A PW o I •• on

C<h"'rtd • • • •

106

11\0 f!!~~ cf ~:ltlC!'t ~ c;h~ko et -:-~~)'!t:; nro t¥1 ~;o r~~,~~~:"i':.:S

L·nrel-JC,:f !n tho ccr.strt:ctlcn of L~e: mrr.t-cn c! e:~ate ~.lt;ut c'11

LV..tt3. "l't:-:e recent OC\T.nec~ ln c-.~""rlt.: tMcry ef .1:-~~ r.tm'll.."ers pro~"d

r~ l:l:l:f\ts Into the nature of lrn1~~4ns ;:rccccJ ... ~~.12 '"~ rrocuctton

ft."netlcM c~;rc1-d'l ~llotlS for d"Jtm.TJe lntet=tlen b$".re:n technl=l pl'o:'ICZ3

eryJ ~1t::l c.ccumubU.:n t:~U~l liv..!c:" tl'..!r:;~tr r.;:;,ro~'\ t.tY.O n?t pcrrrJt tt-~

c..,mc-. Tho c~:nptlcn c1 ne-..stml technkcl ,r~rc:s ~ bo rd~~:yj•

A fat~ stt.~!cs rovo dc3!t ~,·t:!l r;;c~~:r:cnt cf tho ccntti:.;utlca o1 non­

~ tec.T.lcat ~ to tlte crowt:l of o..:t;t;t.13 In f,>r:'JC~.J, tc-ch:tk~!

ch~;.:o b ~~ed t:. !lO rt:utrfll.. And ~?tlen cl e...~~ -c% ~cl

tec."1n~Gnt prcr..Jc~ \Uhcn It ct:lsts l:n'!l t::> bl~<-:1 c~It;l~'ltbn cf ~.o ~•­

bution eJ technJeol dltl'ce/1/.:.ctct Input e.."¢::mslen to "~ r.-ro~:Jth Cif oot~ut.

5.2 tmttr::,:t'!A."JTS C·P t'ttODUCTrnTV

l\ t:oo·,·;J¢c!G" c!x"..tl1 thQ ~:ttrr-Jnmts d prcductlvlt'J b cf ~

LT.~"'K:e· 7urth~r. tcUtces ct crcwth cna ~:ltbl \-ntlo.tkn3 ln (:<f'O-...~ctl­

~· t~\~ c:mer;ed t.G a c:entral ur<.lfyinJ then".o ct Cftr..rL~ t."\eery e.~

u. See, rtutu~n, v.t!., •contrt.-utle!t cf tec!1nkal prc:;:rc~ to fcrc11 G!.;t;Jut l,;n-;:P,.,Ce!lrn""! c;J I'~b nnzt Stntl1f1SJ .:s:tJ.h lt'SG.

12.

!J.

~~. C!".rl.Mcn~cn, L.n. c~, UCenJu:;~t~ cfu~Uty ~-n~1 the tmn~/.k:\tnl J~Mlt.'m:tlc r'fOC~tlcn fu."ldlcr.'-', r:c~·mr.~etrk<l Z!', 1~71 tt:-d ~; r • ·no I :n· ntre.""tSCem..-ent:J la::cr!t:mdc pr~· ;t iron crr,«t, J!t;Vl'1w of

~~i)'l'" ."WJ ~!';!tJ'JtJ!i:j 'r.fl)a J97S. ........ ..._ tt ' eo- ~ .t\ ,

107

develcprr.ent eccnomlcs.14 Pnx!uctlvlty Is dfected by VMlous factors end

tfm!j.C bctors cnn be tro:ldly clas:;lU~d lnto 1) CCencmle f~ctor~1 U) Tech·

m!t"?lca! fnctcrs; Ul) t:um~n cnplt:l!J and lv) Instltutlonal ft.ctors.

Eecr.omlc f~tors lnc:h:d<! ~rices, m\d ether ttonorde Incentives/

dls!nccntlvm; such r,s wtst~ks nnd qu~tt;~, ttixcs end de\'{!l~;>rncnt of

n;arfcets etc. n-,e rc!e cf ~Ices In c!eve!opmt:nt cf tra~ltlonll e:r.rlcultt:re

Is studlcd thrcu;;h their lnil~.nce en sllocatlcn et ntoUrees, lr.:cme

dlstrl'.rutiC'n end ccpltr:.l fr..rmnt~on. 1 ' It~ rol!1', thoc ;h lmpert<3nt ls fGL--r.d

to be llmlted. ~en of mukets, removal of rntrket lmFerfectlcns

etc.., wUil~provc the pro-....tuctlvlty.

The ro!o ef techr.olonlcal ch3ntes In eztlcultt:rcl trans!orrnatlo::m b

~ell c~tt\bJJ~'lo:t. The tt'JChnolc3kal pre:~s1 cmho6kd either ln fixed

capltll.l CEYJ/or current !n~uts has cccentmtfflJ IJ'CV:,·t~ ef a;rlcultt:r.JI output

\'!/hid\ lnltblly res;:onderJ to lnJ::;.otlon byut. The p~rfermar.c:e o! new

S<~l L'l ecnJcnctk.n wlth other Inputs f!:fTK':d cut to bo fructucc:; ~ocr"

"~= rupp!y of lrrl1at!on ls asrur~. Thus, technelozy ccupled with lrrl~at!en

~ ccccntuated tho Gt"cwth cf eutput u.d also t'u\t cf proe.JCUvlty. It ls

cl~o '-~:;(;~"d that be-:ldcs nc::;.avcU:l~IUty of w~.t.'<::r, the 'rl~kJ' r,:::~ocbtcd

with the use ef blo-<hemlcal t~.nolczy (modern Input&} ~d ns ccnstrclnts

llf. Hayum!, YuJlho and V.~;. Futt_:.n., "A~rlct!ltural Proc!U<:tlvlty <11ffo­re~:s as-r.o~ cco.mtrl~"• A~k:e"\ r:c~o,.,lc rtevl"!W l;.C(!), Oecemt;cr 19iO.

1 ,_ I, ~..:!Ucr, Jo';m, ';':., tt'J11(~ functlon1 cf v:;rlculturd prlt::c.s In cconoii>k: c:!evc-kopment" lnrll:'.n lotlf'l":1J cf Ar;rlcttlfur."ll fc<'f\Ord~'J 2~1), l%~.

108

fer £Lic~tkn of r~· techno!ozy en IMger sca1e.16 Further, thi! lncomp:.1ta•

billty o: the ncv1 t~Cd'.nole~ (e&pltal lnter.sh-e) wlt.~ tho ~ulan etn:ct\:fe

dso hlnr.!ers tho diffusion of techno!O:",knl lnnov~ttcM.17

Transfer cf hlzh ~uctlvlty technolezies end also dffuslon of

!)est practice t-.::chnlquc:t moo som~ cf the lrr:portt.nt rJ\d ldcntltled :curc::!l

cf zrov!th of preauctl•lty.13 Investment In Res~a.ro'l end Dcvclopr;!C:n't mny

lead to ce~ dfldcnt tect'.nolc~les &n.d abo procluetlve &bsorptlen cf

wrpJus :Znctcrs. tnstltutloncl f~t<'t'S - bnd tr:n\!1'C rystcm. cre<'!lt 5)'Stcra,

cxtcnslcn syst:m etc., - ~vc pla)~ n rr.a)or rel~ In ~sorblr.3 ~~nlcal

cM.n;:~e. The role cf thcso ~;r~.rkn ir..stltutlor.3 In lass dc\·elepcd cou."\trles

b not very dfeetlvc p:utly <!~ to the -"XIo-cconordc ttructt:rc. Tho

lr~ffccth·"C lnstlt-o~tlcns m:ty t~ Ul cutc:orr.c cf b:.dm~ of the eccncmy

cr lb cor>!-c;;;t..K:occ.19 Tita relative lrnpcrt0nce of tr:c:hnolc~lcnl fcrtt3

wnt.-s lnstltutlOMI fat:ters b 5tlU unre!~lved. D.:mtwola lc!"entlfled ~

fect~s rc~pordt>l~ fer UT.n:?formlri;:; a st~-n3nt ~3riculturc Into a ~lnJ

eccr.cmy, thrcu:h o process of ellmlnatlcn a.~ cor:cluded thot ar.;oo;~

the ln~tltutlcn.'ll, c~o.-nlc: er.d techncle:;lcal fc.ctcn, the lntter pl:l~'Cd

a major ro!e. It Is contc~~ th~t tcchnkal d'l~n<1(" h a pro-cendltk,n

16. n.nJ, K.r~., "Some Qtresttons ccncemL~ cro~'th, transfcrrr.atlcn cr.d plcr.nln~ of o::;rlculturo In tho de\-eJopin3 countrlest•, ~N.~r.ml C'f J:kV\"'kiJ)nlf"Ot rJ:-nr.lng1 1%,.

17. ICSSR., "Attnn3tlve-s 1. A~"'rlcultvr31 ne PtmU• &hen, )cw r~cLi, l·no.

lS. Uslch, S.C. t!n(1 v.·::. f.:utt~n., "EnvlrcnrnC'nt~l, tcctmo!oi1le~l ~nd lnst!tutlon:!l focten ln the growth cf rice procuctlom rhiUpplnel, n,allond end Tlll;:nn", FM'i R~~J'Ch ln!rtltutt! ~tt'<!!~ 7 0), 1~67.

r

19. D:mto:.·w, M.L., Pref~tery n~te to lntenutlon::sl tcrclnnr on "CcmpM&• tivc f.xpcrlent:C$ e! Ar;rlcultw"l'd Oc\~lepment In l)evclopL"'lJ Coontrkt', Nc~ Delhi, 1972.

109

for e!fectlvo tmplcrnent:.ltlcn ef lnstltutk.n3l rcf~3 a.'1d ccenemlc r.cU·

cles. 20 en the oth~ extreme, lt ls .l!fgl.~ t!1:!t ab~rptloo c% technolo:')e

cal lnnovntlcn:a Is ccndltlcned by th~ L~tltutlon:l factors r.nd the latter

uocer-wcnt modlflcntlon3 in the llt;ht of tcchno!et;k:ll doveloprr.ent-21

Slnce cr~-1th hes taken p!t1ce under different ccndltkns of lnstltutlt-n~t

set tt.?t t~ c;;rcrbn lr.stitutlens rn:ay not be a l:lrlcus constre!nt to the

cr~t~'"l f'lCCC'"'"wS. It Cot':S not ITrN~n, lnstltutlofi:ll rcfrrrr;S r.m lrrclcv~nt

to c!evelcp:r.ent. 1hcu:h, lnstltutlcnal chen~es ru-e ~t a pro-c~ndltlcn !cr

at!t·;>tlc·n ct no;; tcchneloz;y, tt.e Rk.-cc:;sfuJ dlffusl~ requires wtltutl~ ??

re!crrr.s (fer beUer/fuJ!er utllbtitbn of rcsottrccs).a.w

!'J ~:~ASU!U:r.mr.:T C:' FACTOR Pl"t\.1ilUCTiVITY

Cno oJ the d.l)edlvcs of prcxh."Ctlvlty me~mmt ar.d croiysb b

to build up noo utUlS<l lnfcrr:-.ntlon useful for fermulatton af do\-elopment

pcllcle:. 23 ~ an cn<=crsta.m!ln:J of proa~tlvlty h~lp rcs~lvll r~:my bsL~.

Thera ru"O ~\-ctal f;re....~-ctlvlty rr.c~~ &nd utUlty cf ex~, rnensure

<!lifers fror.l tho other r;incc lt'.fcrt:"liltk·n cc,ntcnt h not the &'Jn!'!. Thc~..c

mensures ca., be ~..tped Into tVJo catezctlC$ • Part!31 and Total pr«t.-ctl•

vlt)• rncnsurcs. Tho p.,rtL."ll productivity lndlccs nrc comr.uted followlr.J tho

20. D:m~1abt ~.:.L., "From S~.atlon to trowth", l~l~n F.cc~emle letlrr~l 18 (~), 1970.

21. tcssn, •.r;..clt", t~:o.

22.

23. ~to.

110

lnc:!ex m.:n:ber appro<Jc:~. !n c~.~0 cf tct"l fcctcr ~Clductlvltj•, t<:::lt:cs

t:~ c! dlvbla L"\dc: tr..m".ber, t:-:-:t procuctl~ !c.~Jon n;·~rc~ch h elm fol­

lowc.:t fc.r th-'l c:rtlr••.ltlcn. Th~ theore11cal :!..~t!l of t'lc:e ~:xt~s

ere d~ 1n t~l fcU~h<ln.1 nr:ctlofi:J.

!">.. PARTIJ\L PACT4.:n. I'R01)tJCTI'J17Y

Th~ ?nrtk!J pr«!uctlvlty me~ lnclu~~ proeuctlvlty tn~!!ecJ e·f

d!f!crcnt f~ctcra cud\ r.s !and, ~. cnplbl, etc. The ~ cemm..."n indor.

~d ln t.'le c:-.rU{'!r Uteratr.rra b t."!:1't d !::'x~r pror.\1Ctl\1ty lndleat!r.;;

output pd" (per...cn) l:lbour dey cr per penon hO".:r. Tho:! eo!!"p~l$005 of t!V!

loclccs ovcrtk1e end $p;:cc t\..'Zf.C!:t t~ frt:lt.....,!n:~~:i d l~hct..T mttc: (1Jftc­

n:n1 drcu:n~"\Ce".... A ch~ • .,:.e ln bbeur (:rCX:uctl\•lty merely rcfk:cu the

c~r;:~Jr"':;d dfcct of ch::u~::;e:; In - l) efflcienC'J wlth ~lh!eh ~our end

o't!1et lnpct:; ue c::.cd L--. thtl r'f¢<.!l_!Ctlon t>roccs~J 2) omoont ef tnn;;lb!e

c:l~ltal ru-.d 01hcr lnput3 crnp!Cj~ wlL"' b..."''UFJ end 3) c.ver~zo c;uallty cf

~~~.24 rcrth~t·, tho c!f(.Ct$ ('If other tnn:;lblo r:o; -:.·ell c' lntc..,;:l:lo

t=ters per \":crk:t" c%3o ln!lt.~ t.'"t!s m~~ff.

~ p~rtk:l ptoG'uctlvlty mc~~t!tcl cro J!kcl~ to he bbSczd tJr.co crro:n

of rr.:::rurerr.ent creep L"rto t.~ L.,Co::T.. fer ex:mrp!~. \":e 1~3\'e two l~L~J

cf tn~;r • stdllcd ~ un~lUod - c."\d In n::.;rc~atlr..:; totill a=cu:, ~et:h!$ hnvo tt' be tJm. Let t' 1 end "0 2 t~~ wct~u, 'CTh:n::

2tt. SoJor>-;t:.n l1.:.~~rJcr.nt a •A. !TIP~r r.n rr,rJct\vlt¥"1 l'f(:nt!cc·H.~.II e! lndb, Nev1 Dc1~ "1!-:~'J.·

111

L • ':J I La + \il L2

t::Wed end cns!!Ule-J v~ed~eu

t"'l ....... \.12 ... 1 /

~ l'.crc L 1 end L2 represent t."1e

Then, kbot!T f.-todt!ctl~J lnGa (AL) Is zlven by

As. s Q w~rc Q Is th~J c~rt;;tJt

2;= ~~·a La I

Due to ncm-a~Ulty d C~b.t U L b c~tcln:'d by ww:d:;fite:t

&tm~miltlc~ t.".en ~ t.rUI bo bl=ed upo:ltll'cls. U ~tatlvo chJnces

ln cutpul Q are not occet.l!it~d for• thlm rr."~suro af ~ t>:lU !lc ~nwud

b~-ed. S.o AL' In ~al falls to take care cf th~ ~uclltntlva lr~·;prc'l.-c­

rncnts t-,oth In Jcl)our lr.yu1 .md cutpU1 end the net effect of ~'lese b~~

\·:hk!l ere Ia tha rcv~rse (lrcctlc.i' b t:r!tn-':iwn. 1n.c p-rohlcms ere &lmUu

n."'ld e\-en mere complex L"l en= cf cnpltal prc<!uctlvlty lrn!es "'t~). So

too utlUty of fA:>.nhl pret~uctt"*' mc::1.3urcs b llr;Jtcd tut lrJcrrr.ntlcn frcrn

any ene of the me~..sre helps L"l cn-:!cr-st::.l'ldl~~· «' lntcrprotln3 ct~n.

AncU'.cr ll:-nl1atlon b ~.:lt prcrwUCtlvlty rm:a::t:red 05 n ratlo c! ou~t

tJ C'*-:! an,ut ~C<S 1'101 (';li'A!tC C0USltlcn. Thn ntttr..~.rntcr r .. o; woll t.3 rlcr.cr:ll-

nater rr.:sy be effected by teeters wMch ere lnt.k-pei'K!~nt e:f cac"l ot!Y.:r.

So fr..r cnd~rst."mdtn: produetlvlty, nU t."\e z:.r.:trt cf forces dfectlnn ct.l't¥Utb)

o.nd l~>Ut(n) - ~lrectly l1nd/cr lnd!reetly - f'u.·wc t~ oo cc:l~lt!crcd, I.e.

the ausd t~:wtrd nnd ef:eet=J fcronrd llr!:::~ h.n~ to b~ ta::en Into

ee~c-AJn't. Too dnpll) tnelccs 1\L• ""' etc., hU to r;t"evldo tl'lo real c~

u.,lfcrm trem! In pf'C<t!t:ctlvlty. Fur~a,ern"Jc:e, when t:roc!1.:ctlcn prcces:~

lnvehres mere thi:n one lr.put, use cf a!n.:;lo fru:tor, ~~·hkh tlt test rei!cet:l

tho nvcr~~:;c r-rce..:ctlvlt'J cf lt.3t tcetor, t{"fVC1 n Jlttln pt1";c-sc. So,

a ccmprehenslvc w..:~ lnccrperaUn;J Ql1 th~ fectm's, thou:h rr:ore ce:r:plex

112

In tem., of lnform~tton ~:r!s but lc~1 com~!ei: b ccnt~nt t~r rne:lnin:; b

in.,ra tr.JCflll fer un{krs!O::~ng tha f3CtCf'l behind ~ pt'ocl!eth·1tl'• 2'

,., 101 t.L Pnonucnvrrv 1w;xcr:s

tt b better ~ to llirJt prcc!udlvlty tm:exe3 t..~t v.:r~ert to

rnnn~o ch:;,."l:;o !n dfldency to n corr:~rrlscm d eutput ~.;lth a

dnnJo resacrc:c. 'l'f'Y.J hroo~cr tho cc.wr~~o ct rc:·~..li'Cc:, r,r:x.. ...

r:llly, the he:tter 1s tho pr~vlty rr.en::ure. Tt-.e t=t rnc:l..."UU'e

b o:·.o thnt eornr~rc!l Ot!f;;ttt ~;Jth the ccrr.bln~d t:~ Cf all fC:".oJ_~•

ccs -

Solo~'\ F~rle:1:u.

Tho total prcx!t:ctlv!ty ln~e~ b en impr(VJernent o-ver partlnl produetl•

vlty Inc!~:: dneo the d"a,:et ... ~"'ltltatl\"0 = well n:s c;urutbtlva • L"l .. ,<!

l~t!tl c~;n bo nccct!!'lt·:-d fer, ~t!c~st cc.ncc;.tt::.!!y ••. , U10 tot.l! ~actor

prorJ~tlvlty 1rn!c!l retcn to a:tput per unl~ c! tzctcr L~trts. Tho '::cy t,";c

icetct3 of pr~uc:tton tre r~rc:ntcd ~ric:~ from err~ ;:rooxtlvlt"/ r.:c~sm·o

to tn~tht,r. In r:~n::rol!, eU t."lc:~ l~ccs uo ccr~trt.:ct~ en th-:1 e~s-.:mptlon

cf tcch."lk:nn ch.l.~zo b r.cutrnl. 'i"otll f<lc:tor proc'ucth:Jty b c,n ~\·i:"rc::o

ccncc~t iihkh EU'.:~u:Y:~ th-3 LiOVcs::t:nt c!oil~ thu CUf\'C l!S ""'en as ti'le

t~lfts In t.~ curve. n~ h dlffen frem tcdmlol pr~re= etr.co tt.-o

br..er refen to s.~lft:; a., pror!u.:tt~n ftmctl~n. Tot~l f~ct~~ p·oc-u:th'!t'J

e.1n e.bo occt:r wl1!1~'ut tccr.nlc~ prcrur~

25. So!omnn, Fn')rloi:nt, ~!~. 1%9. ZS. So;:, C'.c·.~L···G• TG a.fY-1 rtf! Stavertsro, (ed) t 'T~uctlvlt! ~ .. f"!f.!\t-'!'1'!m~

.. !,~ r;jfiluffl;~ ITYft~strl~.~ Acec;mlc: P_ress, !;~~ Vert:, i~Ji, n.~d A'll~ G , ··•.l.t • lho th~ r ...... 1 mc~"~Tc."~nt d tct::t fcetd" productlvltyJ .'\ St'l"Vcy", :tcum:~.l of !:t::cJVJ<:<le Ut~,r~~Jro :: (2), 1~70.

113

Aa.cr.a the prcY.!uctlvlty Indices. f~enclrlcl~•s, !iobw'3 mYJ O!vl:h

(tot~l prc<ueti\ity) lr.rliees nro briefly dlsoJS:...~ hcrea

l~~m'rlds'! Tntnl froduetlvltv toc<':''l27 t Th~ cs:u:-;•~·tlc:4~ ocMrr-1 thJ~ rr;e~o <!re: I) Perfect CCC"'r"'-"'tltlon ln fectcr m::r~et!J Fact::rs ue poJd

t:'rdr r.~:lf[.ln~l ~--ro61Ct'J11 1~. !t\Ctor prices reflect fru:tcr prdt:ctlvltL.~

U) ~ lrnplklt ~cOJctlon Is l!lleer homc-;:;e~l.!!l c·f <kr,rco one, lt'3.

c·~lttnt return~ to G'=t!!c pre\~. Tho subsUtutlen be~-een tedet' L~uts

Is perfect o.nd It b ~(.pt:f'Y.!.~nt of the !nv~l t'f ~;mts. lll) The teehr.Jeal

prc~ress b ncutr~

!n ca,e of 2•lnputs, tho pr<X!uctlcn fur.ctlcn Q b ddlned by •

Q a A f(I:, L)

Applyln~t Eulcr'a theorem •

Q et t,~ K • fL L

114

\;~ro fK and fl .. Indicate tt-.e ~ productlvltles cl caplW ~ /akow--­

respectl~Jy. Slm:e fum flrr;'!s ue cperatlnJ In p!:rfcet 1t:.etcr r;nrf~ct?.,

then·

PI< • fK e:nrJ l·'L • fL

where *'K end PL arc prlces of capital and Ju!x;-ur

Q • Pic K + Pr.. L

Th':n p~uetlvlt)· tnt!~ W Is zlvcn by

A 0 p···-· I ()

Pk r~ • P~ L

27. Kc-ocrlck, J\1 c 0 oxJtR., J%1.

\;here rC Mel P~ rclcr to ~ yeu prices d ~~lt31 end lclJe'.Jr

tc:!:i,CdlV\11Y•

The ~ove ~C3 b crltlclsed by Octm:r ~ It b bJ:r~ en l!i'ltcn:l')f.l

P.:'!;;umtlt!c-r:,. 2s Jt !1 r.clnttc out ot'l:lt ~ of i~ t.Wes ltr.c~ of

~tcr frlces will )'lcld b-:tttcr e:.Ur~~to ~!nee tho fcrrr.j:r Is mere Sh.,lo

ccm~d to tho btter. Aceordlnz!y, tht1 meal!~ KeOCr!~< ID':!t!Sute

b t)vr:n by •

A c Q/Qo

~~.'.~LL h~ r: ~ 0

t.ftr:ro !\~ r:nd st r~ rc!?tctivc!y t."ulrc:. d c~l~,l tmd ~~ur L'1

ti-:e b~ Je31•

5~!·yv's f~.;~, c:-1 Tc.tnl l::'l.ctr,r l'roo~ttvt~29 t TI';n r:~ml'\tk.nl LT.~::r• A I • I G .,_....,.._.!.~ t""

lvlf'\"' , .. ,............_,.,41 •-~- !1o- ... • .. o ,.~u .. .,.,!,.... to .. , .... ...-.r-nt•~41~ ,..,.,.,."'"'~• .-..~ ....... ~ 1 l"'-' ,,,-:;;an .• tJ&W\ ~ 41.,..~.~ ..,.... ~:.~.., -.;.:.r't:"""'-'.-•· ·- u .;;- ; ...... ,; • ..,....,..."" ""'., .. ,.'\..y• 1..il-• ~tr~

to:hrJrol prczr=3 b :.zu::~-:d to bo Hld¢~ r.eutnl m-.d ~rcc!u..-tlc:a function

Is Ct!:.-~CUJ!O.!·

Q # f (t·:, L, t) = J'.(t) f (:<, L)

Q • ,\ K~ t. b -::f'l.::ro .:l t.: b {".to t.h:::rc~ cf c~lt:!l ~nd kxt:r

~Uvet;. Ta!.U.~ le:r1L1rns on bot.~ tides.

*' •• .._.,fza• LAaldli:c..,.,.... -~

~:!. Cm·::'l:t, C. t "On to1:tl pr·~-\tctlvlt"t tn1 cll th:lt", ~ou~~• cf Pt"Utk~t ,rconor;,x. 70, oec. 1~6.2. 1 ;a cl~ ~:.;csted t!~ecse oi a ccorretrfe cemb['tltlen c! fnctcr Lvm lns·te!'.d cf t:rlthrn~tlc ~.

29. So!c-:1, R-, 0~_t', !9 ~7

115

IO'J Q • l~i ;\ + a k3 t< + b to~~ L

DWerentl::.tl.'\3 t."lo e...""<m! ~.mtlon w!tl"l rd~e to 't' • ~J."'J..!!. = d f~ 0 + 01 d iss 1$,. + b d le:J L d! dt dt d1

! CO o ! dA + A .£!S. + !l .ill:. Q clt A dt l< Gt L dt

!l A t~ .,.L Q •-,.;• tl;<• ~~r

0 AA t,.t'! t:.J fn d1:icrctc CO:Ct A ~ 0 -...:,:. + b _,..,;:. ~ o A T K L

~ ~.s ~s~ lQ ~. ~

S!nco 5..,.. + SL • a + b • 1 ""'

l:tt ~~ = f l1nd k = .It

b~i

'fhcil * . ~ratt -~t ~ •~ 111:) A(t) ~rks b C·~tttr-Q'~d by u~lnJ the fel!cwin._"; forrr.uln •

A (t + 0 s P..(t) ( 1 + ;ag>. ) 'A'It.'\ A (o) sa 1

Then for cerr.~utt1tlcn cJ A(i) eerles, a end b arc to be c:stlr.~tcd c.n:S

~ r;o :tl'PfOO.ehco c.ro fellc~:cd for c5tlr;~tl~n ot n r.nd b. A~~JmL'1J

th~t ~ v-rfcct cor.'1;-ctlt!on Is prov~~' filctor s!1orcs c2 ~lUll a.":d

~ocr can be ~usa of= ettlr..tltcs of n end b. .\lt~rrutlvr-~;, proctuet•

lo."l tt..T.ctkm l'!."1·:"llysl!. cc., bo ttrrkd out and thc:rl p:;.rur.;~tcrs ~ estlm~~

t.btbU~'illy.

~-~~~~~ , >; · 1 · u N rv r ~::;--:..,_,

~ , - t .r:··: "' 111!. .·~ '.~

- .. , . (-·.

·v ~ ~,

•I / •/

. '·, ... ;,.r"'

116

Tho Keoor!-d~n ln1c~ b 3 l.n~ ln:!ex end t.~ cutters from

th# llr:-Jt:ltlcns ,- . rclatlns to t.ut !ntjc:~. L'1 a cynn...~lc !;crX', lt ccrr;pcrc3

cutpt..._ obsen-ett at cny period t.1th t.'\c eutput that cocld have ~n o~Ubed

hcd tho t."d~tn c·f prtA"'\lction retnlrw.J tho ~ ye~ efildenc:b It rnny

?.>c Ct!cled ~.at Solow's r.:~nsuro b nn lm;:-rovc;:;c:nt L"\ ~l sc:n3 tt-.. 11 tf".:)

f~eter lhMcs ue not ccnst=nt tut ccn~ c.'"la.~lno·

t,lvhl:) f!Y.!eJ, nf Tcrtt"1 r~ctt>t rr~·rctlvl~;t30 1 r'lvl:h lw!cx Is h~~1 J $1 I

en b);necer~ou., Ttn."lsJoa prcduetlon functlcn :mel In the ccntlnuous c~~

It. b dc!L1.e1 c:1 •

QS c r.xp [ L. nat ( ~t ) '<o Qlo

w1Cf'e Qt and Q11 are tot:ll ocJtput ~"¥.! c-1.0-yut cf 1 th ere~ L"l

tlr..o pcd~ t and n11 ue vlctf\ts. o ar.t.t t ~ for t~ end cu:rcnt

yc3s. '•' ~cnot~ t~l tt:·.-:~~ dcr1~1l~-c-. 1\nd

nit • Ph Qlt 2- Pat Qtt I

J.e. cutpu~lnevem..~ c.'lcre ef 1 th crcp

ThG itrnQvl~ t?;'·fC:tlrr.ntton. in tho G~ c~, b tlven

by •

lc,J Q t 'LP,tt 103 ( Q It ) -· -Qo Qlo

JO. Sec co·dnr;. .. fG r:.nd Rl! ~t:::v~~~~n, ~. l~S!, r.;-.. 1 Jorgcn::K··n1 o c.1'\d z.-; Cri!Uc:C~:.., '!:-1=1f.', l%7.

117

Whr~rt: Rlt • V.lt + Rlt • ! 2

~~ tott.l lector prc.....tuctlvl1y lr.czx ls r,lven by -

A(Ct,t) • A:·:tr,::;.,."'\to cutut J:t:"',~~~ • ...,._..., - . I V;·· f<"~· "t·.) ~~~,ut TOC·"'< ~"~~ ··~·,- .. •·r .......

\.t:~rc loz

.. ";";hero ~'"t

xt Xo

:: L J

-cjt lo.;

•- "''"' ,,..C"re, ... ~ l~""'·Ut ... ,,,..,.., .. ...... &;) Wt. .. ...a;_v U.,..,,.,. .),.. •~ . ._......, ..... we,;.

4,t

:a! v , .. jo

nnd !'Jt h th~ level of j th ln:;ut In ~rlod •t•.

C)t o CJt + CJt • l

2

'0. h~ CJt refers to sh:ue of ! t.'l ln;>t~t.

y

·~·Ms Jj a ch.11n th'1~~ lr~c~ ru'\d It mc~~urcs procuctlvlty ln tcrrr.s c.!

tl~~ rl!tl:> ef r;ro,·,th rat~ of (e:':r:;rer.~~tc) output to t~rowt:-t r.1te t-!

(tan""P('''<.ttc) ln~ut:;. UV" 0 •

'-£ NEO-cLASSicAL pnooucncN r-ur-:cnoN a co:..:cr.PT Aa~o Pnc?etnt:.S

rrocuctlon function Jr. a t~no!o:;l<:al r~!utkm~~Jp bctw~ll fnctct3

of pm!t..<cden c."'\tl output. cenfrontln.":; a (fum) flrm. Tho entreprer.eur

(ftrmcr) t-.:.5 to ~o a C:ecl!.lcn rc:tLnUr.J the c~olc~ cf fnctol' combln3tloo'J

em! !:~t'rrrut love!!, undet a rJven tedlrtr.J!C~Y• n~ prop~r'Ue~ o1 the r.eo-

cta~l.all ~reduction ~tlon In th: ccs,.~ cf tt,;o ln;uts tl'4! dlsc-\!~r.

In t.~ls tectlcn.

118

Let Le~r (L) rr.d Cc;;lt<lJ (!\.) &r~ the tt•o lnpuu amdt!ered 1n the

pr«cctlon pftleess pre!!t..'Cln1 eut;.ut (~). T~ un(,crlyln.; procuctlo.n preo?s:s

is rcpr~t<:d ln cyrebol:; ~ foU~ :

Q • r (L. t{) - ,M,I

It b aszumcd that F ls ccntlnuc-.zs and 3lleast twice attcr•!ntl~~lt: ..

with rc:,;x:ct to L ~r.d K. The lrr.pr.lcntlcn ei contlnulty ~rr.,tlcn b

th~t a tlven level of ~.:tput c:m !:>11 prc<t.t<:~ by c.n Llflnlt~ m.mbcr d

cc~;blMtlctU c1 L tnd 1{.

It b clso esStJmcd ll~t (.'-5.1) ·~tlsfy t~c follow-In:~ prc;x;nlc-!.

o) ,\II ttw lii;"AJtti ~ro neetcd for p~uetlcn ef out?tJt•

l.e. Q a o 1f L • o c.nd/~)f K • o

Q " F (o, I~) = F (L, C) o P (0, C) :a 0

b) The rraalfml pred•.x:ts of t.'1~ f~tcrs c.rc p-osltlvc l

• .,. rlQ > 0

d.

and ~~ ; c

c) The mut1lnal prce ... -cts "'Ul be dlrnlnt~~L.,:3 w tho f~ctcr lo?Ut lovol

lr.c~...,. Tho Be:skn n-.atrb of s:ee:-.d-ort:cr v::rtbl d:rlTntl\'a cf

(5.$.1) b nr:1;etlVt.~ :scn'll-ddlnlt:'!, t,;!llch r:nzur!!3 t."l~t J:;oquc.nts c.re htwln.J

preper c:-..trv:.ture.

119

2 I.e d "· 0 - 2

rlt

d fti < 0 d"'" ...

L (-'(o.) 2.-

l... d 0 c1 .. ,

end~ .. - • "?- 0 'l... .:H ... dt.;

d!.. ~K

c,:\d d) 1'ha L cr.d 1~ axes are ~ptote:~ to bot;t~ts c: ~.1

a. e. c.U' '0 a:- .. nsL ~ ..0

~,..,

.....J:..~o C3 f<-7o0 di'

'Ih~ four-lmport:..',t pmu~eten of prc:It..:c:tlcn fur.ctlon ere

I) P.ott:rn! to scalo cr tcnl'l pru-~mctcr (r.'l)

2) Oa.stld-:y of eubstltutlcn ( c:r )

3) ::ffk:lcr.cy pt,.nrnotr.:r (A) end

4) Cll.plt:l!•!nten!lty p'!l'nn"'~t($"' ( ~ )

Jl_~tm1 t\l r~~J.~. rrl.""rf'rr.et!!,_ 1 Th11 prt'A!uctkn function (.1.6.1) b !'..lid

to be h~~e~s o! ~cr;ree 'ra' U

F ( >- L, '). i'{) o ). m F (L, I~) : > rn Q

'Siv,:ro ). ';;> 0

·I. c. wt'.en ;ill th:! L-:r-ut3 :ro lr.cren!:d by n ccn~tnnt (p-=lth-el

ft'ct:'r, th~ ccrrt!s~ocln3 ch~o ln output b given by t.~ rt.t1~ns t~

t::al~ pntnr::Mert m.

m • 1 -> Cc~-;t:".nt rr:t'.,.rns to Sc:!la (CR!,)

m t> I = > ~nt:rc:lS!rc Ueto..:rns to !!cal:: Uru;)

l7l < l -:::::: > Occrc:~ln;; Hct1:ml to S<::lk (DRS)

120

The production !unc1lon can c;:."t>lt · c.1lffcrc·nt rctuml to scnlo phc.~

mcna al0fl3 the production p:1th (temporally). U flrms are operotlna

unck:r ens. then

P ('>~L, >-K) • >F (L,t~) •> Q

for a11 >- ""> o

and tor a. rt (L, I~

Tho ~ssumptlon:J of constnnt rcturr.s to scale Is usually mruf:1 ln

empirical lnvcstlgatlons. Cnet of ~~ ree.--ons fc!f not cor.~lderlng non•

constllnt returns to scalo Is tho dlfflculty In flttLtote It In tho frum~1ork of

pcrfed competition and mcr3lnnl product fnctor prlcln3.31 tn c.~.nslon

pf'~ of thB economy, as5Umptlon of IRS b mere appreprbte. 32 "Leunlr.:;

thcGry" nlso provided a bnds for non-cr.ts, by SUJ;ic-stlnr.; a way of formttl­

lslng the relatJcn between IF.S end technical pronr~..s (TP). 33 Productlen

functlOM 'l';lth IRS cnn bo devised '"~here tho effects of IRS cnn bo nssumod

to either reduce or strengthen overtime.

Ansumptk..n of DRS In the context of eglculturc ls ~tlflcd dua to

tho existence of a Srd fec:tor, viz., land whese supply Is Umlted.34 In the

oosenco of TP, DRS to a f~or wUI ndvcrscly mfcct tho cr~-th of output

31. H:mn, FU and nco Matt.ews., "opstr, 1964.

)2. Slznlflcant correlation bct";;CE:n rate3 of r,rowth of productivity and output Is observed lnc!Jcatlna prevalence of L~S. See Salter, t'EG 1 "fr«uetl1&{ Md Techn!cnl menno", carr.trk!co University ~ Lcndcn, 14: (2nd edltiCn).

3.3. Arrow, KJ 1 •The ccooomlc. lmpUcntlon~ of Jc::m1ln;~ by dolng", Rcyt~1 of r:conomlc Stu<!les, 29, 1%2.

.so. M~e, JE 1 "A Neod~cnl Them of f!copgmtc Grcwlt!f, Urr.Jin Unlver:lty I~ London, 1%1.

12i

of c11d rm~:;nl~u:hL_ 1!3 effect b rcb1cd to rcl':.tlvo !l.'pcrnncc d th:lt fnetcr

(l:nd) ln tl1'3 &:f~JCtlen prccc!S.

,"i·~~-st~ldJ.Y...S:.f ttt'ttrtltutlm ( a- ) : b en l:npcrt:."lt ccr.ccvt C:\-e ..

l~cl by Bld~' (1?32) cmt rc!rrs to. tt!o propcntcn,:lt' d'.::.t1~~ In tho r~tlo

of ~er L~ In ~..= to a c.a..~c In rn~-:lnll rato of tz.cl~n!W

.... " ..... 1 .... ·tl,.,.. (~ .... T'') ..,.::~: ..... ., ...... u _...j, i.-<{:\i w. If tztlt:ll (X 1) end ln~OL'1' (X;} ere tho two m,ut3

1n tho r;roc!cctlon procce'..s t.~cn, t.~ rcbtbr.::!1l;> ~t'Ht.~n the r~tlo c!

~pt.t r.nd MftTS b rcprc--.,ented bl the c.ub,tlt' .. "tlen curve.

d lo3 (X 1/ X-} a- 0 3 1,.._.., (f .1<.>1'(.:)

--.... e.i,A.,-. fiJ

b n r.-:.~.?.Mlvc L<c::.~trc of t:m rchtlv~ ('c;~n \:.-lth vvt~lch ~n:'!

L~ ~.ay he ~Jtuted for arcther v1hlle tr'~~.lnl e ccnstt.nt ~ ...

Th~ u- cnn btl a censt~"\t er n \':lrl~lo t.."'ld It en."\ Ul!~o v:tlues 0 o: 1 cr M"J

other r.urr'ber L'l ew former cr:.sc. Tho fcmUy of procuctlcn !unctk·n:J. era

ctn•~51fle:S en tt-.e b:t~~ of t.'iJs pU3meter, \1%., Ccnst.lnt Cbstldty of

Su~ntltutlcn (C!:S) ~"ld Vu!r:')Jo [b'lt!City ef Su"i5tltt:tl'On (VC!S) r.roc!ut:tlcn

functlons.

rn c:~:.;c ct rnorc th~n f\;;o ln;,utr-, o:rt:r~ulj~tk~ wcr-l ctterr~pt~ by

noblr.50tlt H!cl~ 1\Uen end Mef'edden, ~,:e:lde a.'Y.J other&

.. ~!.ffjd~nsv Pr;r:~r.t~tcr (At 1 This pr:.r:;rr;otcr rC'fkd3 tho Ct·ntrlliutk-n

of tec."'lnc!~leal prc:;l'et"..o to output crcr.rth- Th~ e..Ulcl~ o1 (farm) firm

llr.f-S"O\'t3p oven -w"hc-..... other rx)ftr·tct~rs of the r.rod'...:ctk.n frnctlc.n rcmntn

coo~t:!:lt, owl:13 to rel>~t c1 ir'.!crler te"JlrJqt.'e3 by tu?erlcr te" ... hr.c!o-

· tl~ t.c. cne:r tho new tccr.nol~;;'~;, tho ruyut per unl1 of Inputs tJIU

1? ') - ... /).;

Ir:r.rG"X'• Tho t.-tlllty of thb p:u-nmo:tcr (A) Ues !n C:etc~lr.!r.;; t."l~ rel.!tl~

t!~Ut cl t!':".> f'!"OOJCtlon !u~~Ctfon. 1"hb pnrnmctcr ern ol~ bo ~rc:::c:l

u o fune'll.."'n cf time (t)

A • A0

!(t) •

.., t· .... - ""' ... 1"nl""',. ........ ,.,. , .... v~ !!("'~ rr~ft ..... !.! ...... !f1· ·rJ··n"" .... --...... ~"'· r~., \~ .. ·""'• ~ ••o ~a ~ t.I.WI ... ~ ...... """"~ • "' ~· ~ ........... ~ ..... '- .. 41..d:\aU..A•l.. .• , . ,. •• j ~-. ...

Crr:lt~1-lnt-~1"~1:tx pnr£!r:..,ct·:-,r ( S ) t Thb i):',r~r::ctcr t-~)?s co:r.;:trL.,:

tht: capltm-tr".J."13 b!es or capl'bl 1.'1tenslty of v.!rk't!s pr\Xuct!cn sy!ltcsr·,s or

t:d:oolosk:s. H!_:hcr ... ~ of t.'lb pu01meter lmplles :lew rcpt:.cernent o1

~ltll by l~ur.

S..7 ACCRf.GI\TL! P!~CDUCTION FUNCTIONS

Th~ co.~-: of prc:l-JCtlon functlen Is c~entb!Jy a r.1!a'o-ecoiY.m~k:

c.n·l ~d the prcpcn!\'3 d tt.c mkro.prc..1uctlen fu~ler-3 era c.."3cd In

to-, ccmtructkn o! e.;:r:r~et~ prc.v..!m:dQn functlcn (Arr-). "'n !net ll!~;.:.r~

r;nt:J pr~"!uctL.-m functlcn d:.e5 no1 havo a ccr.ce~t\:31 rc:llit"J cf lt=s 0":-'I".J

lt Cf>~fJ~c:l C.~ a CCl'!3'Y..jt!O:i'!eC' O! ~"l" f::;J'C'.Vth ffOCf':::cs Qt ~ri~Ul mlcto-

ccor.:mtc ~vcls end Is not c. c:austll dc~rnlr-'!."t of th~ ~1\h p=ti.h of M

ccon~r:l;t'.3S Hcwavcr, ln e~:;;lrk!ol rc:eM'dt, It Is u~3lly ~med t.'lnt

l'l"""'re"'!'O...... ,.... ....... ,..,.,..,."""" f""""tl"'"" ...... ,...... !"\_... "..,_,. ... ,.r• PI•~ ~. ........ ~,. ....... ...,..~ ,..~·.-·rL>­~ .. ;~ .w~•- 1'"·""'·-..-.wv•• ..,.,r.... .~ •• '-\l .... w t.:lN .~,_..,._... ,. ~- •~'"'-u·"-,.0-•'-._ .... -"""";J c.•,; .. ,-"---

C3~ To h:J.ve a r.:=ntn:lut lntera:retutlen c~ (f:ctcr) ~tlvlty,

s:rc;x.'t ~.:;;:.rc,~atlc.n of fr.etc!' b;u~s ts c!t!,lr~.~ti'. A nu:-r.~r t't t'Jeh;,~Uy

dlf!crcnt (mlao) pr~..:ct.Jcn ft:net!er.s h:lve to b~ ~z~ateJ to url~

n1 t!'"te r.~,rc.:;nto funetk.n. Tho c!~hntt!)l~ h::.u."! b ~;hc1hcr c-,::crc-zr.tcd

• ~ f:'.- w.,..,,..,.,, I'\ I "£:;-17" Jt"170 p 11fV _,.,. .... ~ .... ''h ..• !Wil"6f tl4 --r;:l'~,; • • ~ • • ·~·

12d

rcl!tlcn trtt<•;ccn c~plt11t L.~., ~~ cutvut In ~e term!, reblns t."le

technknl reJ:1Uon;J C>t·s-:.~vro ~t r::lcro-l.':!V~I, \1~., tcd'J"Jecl ~~tltut~Uity ., ..

ber.:c=n '-..,ltcl u.:t tm:cur In the prce~tkn prccc-::;;, .... ·'

1/.rt Q t:,'l the ~:;r.rc~ntc r:re~en !unctlcn. The:l

Q :s F «<. L)

\',t~::ro t-\ t'ln..1 1. t.r:! c.~~3t~ .:r.ibl c.nd ~=r fn7..1ts and

Q ~ 2:=. o1 1 K tt 2- K1 en~

1:1 bl !. • z. La

bl

ltl, % ••• n ere l~lvlrn.:~l f~rrn flm!' ..

In r.rc....~c, tnpuu L end K are ~~ed to be ho:n~~..:s C.D!;rer;~t~s I

r-'1·J too p;;rmnctcr:; c.f :1~rc:r.t~ r;roc.t:cttcn f~-tloos oro fairly;' s=to

c-.. -:r tlme. [\'eft ~>ml~ a ~'-'CI:l":;!ilr.al l'f<X~uctbn :u.i'Ctl~'l nnd hor~.o-

r.;t:'r:~oos cr.~l~.l cc,ocf:t, r.::;rc:tltton ef cutput ({') ~ Lv~s (L and K) cv:r

pn.~~....-:tlon t.T.lU <!cm::.'1d very !jtfLr:;cnt con~ltk~~.37 t:!~:r tK.o;~ t;-!C'U:~

cut the r.:ce=ry amdltlcns fer e~atlon In c:.-~'i~ of pr~uctlon functlcn

\-:lth two f~ctc.r lrt;illt3 cn.1 opcmt!!'i;! tmt!cr cc~~.nt rctt~ms t.:l GC:lle. 'n'..q

lnclude 1 (1) TC1:.'1nlc31 c.hc.rt;c~ ere c3;>lt.:!ku~ :~ntln3 typo und (2) cll

C:"f'!t~l itc~e; r.ro pcrtecttJ tubstltutnble. ~to t-~ t:e~on:tr-atcd th:lt If

bhc-Jr ~.:vJ e;,.:;>ltal e.rc rr:cns~ed ln d!lclCitCy ul"Jt~, t.Y.n t.'!e 1nterc d

tcd'.nkn.l ch..-,.n.::;.e nt tM bn:le c=~JCtlcn unit level t~W be ~'ed at the

b:;r~r~.nte:) r;~~ro-1-:lvd. In ot~r wert~,, ff t-:c~nlc~l chJ.;)~l~ ::t rnlcro-bvd

M. Se:t i~en.'"led-J C :l.-,d b.P Thlrh.~ "prclt:., 1972.

!7. Fl:~r. F. U"fhc C'::bt~~ d t.:XfC'(;:\tC rrcducti:n ~unctlor~. £.t!?£~ r~trk:'\, 37, Oct. l~n, end !:&:i~(-~J JB ~id G ()fCutt., ·~hoo!d QZ~fe"'"y3~cn s:rlcr to c:.tl:r:.atlcn ~ t;'l~ ru!::". f',t;vhw f\f rccno; !ks f'nd Stntistle!, Sl (!}), 1%?.

12~

Is purt~ly capi11!l•nugrncntln3 (Solow-ncutral), or purely bbcur 4~n:entlr~

(}tcrrou-tleutral) cr toth l~..zr end c~pltal t.ugn:entln:_; (:tlcks-ncutr~\1), ov ll:lt

so Is tcd'.nkal cn:msc at tt-.o m~o-le\-el...... r;·hm caplUI Is tlf!terezeneocs

end other Inputs nre hor~~cn~OJ, Sok:.v~ has w;scsted thG fcllcw•lnz pre•

re~lslte for the existence ot cz3rc-;:,ato a:;~lbl stock i.e. ~ rr.GrgJn.-:tl

rnte ot tcchnlc:al substltutlcn tatwec:n apltd of 4lftJ two vlntage5 s~d

be lnd-~pe-ndcnt of lahc .. ur fc-rce.

The necc~ and sufilclent condition for ~xlster.ce of an .e..!l'f'.r~ate

prodt«:tloo function 15 thM mlero production functions shculd be llddltlvcly

s..~able ln their factor components. In case of mere th~n tY.tO varlnb!e'•

too ocgregate production exists 1f th~ thlrd varl&ble Is ~tlmally allocated

to all vL'ltages tt!1d cohort!J, l.c. the marr,ln.:1l r-rocucts c! the third v-Jia·

blc U.culd te ame 1n all cases. 3' ~ of the commcn prcblems In C'te

cas3 of nc-o-clnsslcal production function b ~t th:rc ~y exist cample-

rr:entuity l'et\'.'een th'l third v~rlt!ble and t.'le othf.!l' two vurb!)J~z. f"t;rth<:r,

thil cssumptlcn cf (relatively) ccnsbnt rate of technlcel chan~e and als!)

too coostnncy of e!~stk:lty of tlbstltutlon r:-,~y not be t,:-n.-~blc.

AssurrJnz that aurc~nte proCuc:tlcn functlcn exists, the next c..--pect

b cbout Its th;'lpc. The ~hnpe of ~ggre3et~ proc!uetlon fcnctlo:'l ~cpcnt.s

on how the capital Input ls dlstrlliuted In efflclency units. t-hen ar3fezate

prcductJon function's sh:lpe varl~s du~ to dbtrlbutlonal ch.'m~O!It then Its

utW~ cs a bnsls fer k~-run {",rowth thecry Is c;uestlormb!~. In feet,

,~.

39.

Snto, K c ttThc cxlstcnc:c. of an aggrc0ate pre<!uctlcn fu.iCtlon with capltll and Jnbcur at,;~ree:,otes•, (mb:,co) 1%S'.

Demt P StL~m 1 "On ceruln prcblems cf 3::r~rerratlen", lnt('rnatlen~ reenomlc Revl~ .... t(3), 1?57.

1 ') ~· . L.J;)

spedflcatlcn of ar,g~at'l production function should be mede en the basis

of 'type ci technlcnl prC"Jess envls~ed. 40 It ls commented that time­

series flt of ezgrcgnto prod\lc:tlcn function t-Jculd te misleading. Further

lade of perfect knowlcdzle about the functional forms of mlcro-produetlcn

functlons le~s to sp~lflcatlcn errers. In s--'Ch ~e, e:mregatlon may

result In m~nlflc~tlon Gf spec:lflcatlcn errors. 41 Also, If few firms

are im:fflclentJy cperatJna t.~n th., fitted pr~uctlon function u~c!rt1·

mates 1he output powbUltles ur.der the thccrctlcal produc:tlcn fur.etlon.

The t.'tird important aspect of ec&regate production function Is

the stubillty nnd consistency of parameten (estimates). A number of

reasons have been extended to explain the 'blas' In the time series estl•

mates of the parametcn ~2 and tho mcst Important problems are a l) slmul•

tanelt}1 2) ldentlflcatlons 3) elestldty of sub~tltutlon; •> rnnrglnaJ

produc:tlvlty ccndltlonJ and ~ cstlm&Stlon. It is pointed out thllt slmul·

tanelty be'tW'ccn ln;>Uts end the-Ir prices, and rnls-spcclflcatlon of ndjustmcnt

lazs bct\\oecn Inputs end output(s) yield bl~ed estimates.

AMther Ci)mmon ~cblt::m with tlma serks d;1ta 1s thet of cteuc~s

of ftef:dcm to ldent11y an:J to kolatc the pure effects o! the pararn.,tcrs.

Vill'lbtlons In ~;tcgate data nro not slpdflcnr.t cnoush, In general, to

dlstlr~ulst, one poro.:!uctlon fu.'"l<:tlon fro:n another. A ntJmbt:r of fa~ors ere

flO.

.1. 42.

DeckmE.tno, ~~l ~nd R Sato a "A;JSrc;;ate production functions Md types ()f tt."Chnlcal prcgreu : J\ ::.tutlstlcal :.mll:;s!s". Ar"~lc~ r:t::onemtc nevlew, VIX1 r.~arch, 1%9.

Grunfeold, Ychuda and Zvl Grlllea"'lt';S a "Ia a~rcgatlon necessarily bad? Review of Feo~rplc;_!' orKt ~t~tlstlc!J, 41(1), lS60.

Na<llri, M!: "£££!!", 1970.

128

~onsi'o!~ for thb problcr.1 of lrlentlflcntlcn. Or.c of tho rccsons Is

the lnclu:lcn of n...., a.d o!d c:!pltd 1n the e~~~ate c:lta. If tt."Chnkal

ch~n:~e Is t:ssumcd to bo embcdled In new capital, and If cld apiUll

retains Its productive capacity, e.nd fcrth~r new lnvcstr,,ent b bcL13 rr;adc,

t~n Isolation o: ~c effects of er..bcdled and c!lsemtedlcd techn!ccl chen:;e

b a t!lf.flcult tn!k.43 Vnrlatlons l:l tha rnto of t~chnlcal ct.an:;e o\-er tlmo

end lnter-actlers of tcdmlcal cllU;nze wlth t;i<: p-!lr3:n(:t.:-rs cf proouctJcn

functic."\ such 43 clnstlclty of wbstltutlcn ( o- ) are some of ti~e ot."ler

r('n~' le~~lns to tM r;tc~J~rif cf ldcntlfkatlon.

Tho (W'a.-netcrs cf n~~ate predcctlon ft..~"'tlcn d!"fenc:s en the ir..b

'lnt::r• and •tntra<bss• d.1stldt; of ~u':!stltutlcn. t\·::n If tht~~ clt15ti•

cities uo coMUnt It ~es not emurc comtz:ncy of L~ perernetcrs.

Thus th~ st~~Ulty cf the pnramctcn ls related to t!~o c:,sre;;iltle."\ scherr.~.

',/hen reference Is rr.~de lt) rn:r&lnal prCY..!~tlvlt:f c:oneltlon, lt lmpllc'

the roJctlt.n bcf"i;c.::n pdcc~ of f-:1C1or ln,.uts &nd teeter pro~crtlcr.s ~z:.o.

cbted with 'test preetlce• techrJques. nut t~ c!:tta emp!~yed ln prxtlc~

corrc~c~:; t., tho '6l\-craz,e r-rGCtlco' ted-.nlc;ue, cr.d If ft.etor r..rc?ertlcns

ot rvest-pra<:tk:c' differ frcn •.svaage-pmctJca• et,nl!Jc01ntly th~ rc~ultcnt

biAs would Zle btr;e. In other wcn!s, the rnar,nltu(!e of b!es 1s e function

ot th¢ d~;>:.rturo In f~cter pro~nlor.s.

Plr.3lly, c~tlmatlen of ~~erezate prcc!uctlen fun::tl~~ r~~ prcb!em~

du~ to no."l-Jincnr relMlenshlp between Inputs nnd cutput. The ttncai~atlc.n

~3. lorz~, 0\i : "The emt:eelment hypot.'u:sb", lcumal cf rolit!e:Jl ,reenomy. F'ebr~ry, I$'G6.

12'1

13 one of tho ~ual prcctlccs and such on npproxlmatlon may result In

b~scd estimates. 'Slmultcnelty' also catr.~es problerM of estlmntlcn.

'-! f!STI~.'lATION CF PRODUCTI'ON FUNCTIONS"

A number of productk:)n func:tlcns hav~ been used 1n cmlmatlcn of

fcctor procluctlvlty such c•J Cob!>-Oouulas (CD), Ccmstant Elastlclty of Su~

stltutlon (CES), Variable f:J4stlc:lty of Submtutlcn (VES), and Tronscenc!ental

~nrlthrm'!IC (TLCG) fU'.lct!ons. Tho VI!S and TLOG functions ere highly

flexible functlcns end ere complex also. Ccbb-D~ 1s the most pcpular

function followed by CES. The CP.S Is highly rcstrlctl\·'0 1n ~ of :r.cre

than one output and more than two factor Inputs. Its t.dvnntat;o over CO

ls that It does not restrict tho value of clastlelty of substitution porn·

meter.'' Tho Cf!.'i function wes modified to ec:commodate more than

two Inputs. 46 Cabb-Douglaa prct!uctlon function assumes tho eJastlclty

cf substltutlcn to, be equal to one. Tho study used CD nnd Ct!S

128

44. There exists a large body of Uterature on estimation of production tunetlons. Seea Kmenta, J. Elements (\f ~conomctrlc!J, Mac~~Utan Company, New York, 1971, Crld3e, lLt AppU~ Econometric!!, North• Hollnnd PubUsh!Jm Corr.pany, Amsteream, 1?7h nrown fJ (cd) .J11s

and :mofrlcal Anal sis of Procfuetlon Colum:,tn Unlvcrslty Pross, Nt.:w York %7. Kmenta, J 1 .. On Estimation of the CES Pro­duction J"'unctlon•, ,lptematlonal rccnornlc Review, t(2), 1%71 lohnston, 3 1 .!'£snomeyk r..Jethods, McGravJ-t-Iill r~ eo., New Y«<t, 19n; 't?elte"" A.A., ''Prcc!uctlon end co:t ftmCtlcrw An cconcmctrlc survey", Eccnorr.etrJea 31(1 b. 2), 1963 and JntrUUzator r.,.,.o., "Econometric f/todcls, Techniques nnd AppUcatlon!S*, Prentke-ifall, 1978.

4.l. John t~~ c."\d FhWp f:e!;&m., "Relntlve ~~~~ ~h~rcs", ~.:=~.~WM St'.:dles In CccnerrJcs, :.~.xr.:fikm, Lonc:on, 1~76.

~5. U:!n~;a, H.,uProdtlctlcn functions ~vlth c•·n':'it\\nt d35tlclty of ru'.:>stl• tutlon", R~vl~·;:;,r d rc.,:Y..rr•lc Stu<!Jr.:s 2?, l'G2~

fur.ctlcn and Its wrlant:s viz., UZil\VZl I and UZ3Vl3 n, to estimate the

c:ontrlbutlon of factor productivity to output Cfomh. Since the estimates

c!)talned wlt.'l CD function beilt the proper tl:;ns, the rcsult3 of Cobb­

Oou~bs production iunctlen ere lncluc!ed In the pre:ent st\.tdy. 1be est!•

matlon of e-n r.-roouctlon functkAl 19 dlSCU53Cd In brief.

Let L end I~ bG the labour and capital Inputs ~ed to produce en

output cf Q. Let A be tho cffk:lcncy pnr~rr.ctcr then, the C-.") function

* b given by

Q • A L3 Kb c0

where a ~md b arc perameters end u 1s the error term It Is a:zsumed

that •u• Is dlstrir;.uted norrn~Uy with rr.cnn zero tmd \-crlanco o- 2 I.e.

u "'---' N ( o, r:r--v ) end errcr term 1s not corrclat~ t-llt,~ t.<w Inputs

I.e. L f.: K. TcldnJ louarlthms en both sides, we tet

log Q : Ia:; A + e log L + b l03 I~ + u

Thl, Is llncnr In lc~nrlthms tmd the p31'amctcrs cnn be ~tlmated using

crcUnary least SGUC!I'CS (OLS). If tho cfflc:lency parcn'otcr b e;cprc!::led

as a funct1cn of tim~ sny A r: A.0

e} ',then

103 Q • Jon A0

+ > t + a 1~ L + b log !< + u

whcht.. >-' Is the rate of tec:hnlc:al pro~esa or rote of erowth cf

factor productivity.

• This function cen be :;r·ncrl!ll~ fM more th~ two ln;;uts.

129

'-9 t.,EASUR£P..:E.~T OF lt-lPUTS AND OUTPUT

The mccsurcmcnt of lnr..utG end outpu't(s) become:J o trlcky problem In the

case of e:;rlc:u!tuto bcc:auoo of the fol!owlnr. reasons t-.;hlch arc two-fold.

Th~ prct!uctlon process lnvclves sufllc:lent tlme ~ ca~lna divergence

L, f'X-.:>:\ntc and rnt:f?Qst situations. The rcJo of w~thcr In doter'mlnlnti the

Input-output relations 1s sl3n1flc:nnt and thus the mr'nsure d proeuctlvlty

Is hl~hly r.ensltivc to wrhlbWty In dlmntlc condltlcr.:s. Fer emur.ple, under

fair weather condltlon, the sam'!! Javel of Input yJc!ds more output.

Thus (Cctcrus Pm-lbw), given the wenther cycle, tho productlvlty ~,w be

overestimated <1urlng u.cendlnJ phn5a and underestimated dcrln~ dcsccn<Un:;

p}ulsc. The second problem Is non-avnllcbWty of data on (exm::t) utlllsatlon

of tr.puu c.nd prices (\':ll'lt-ty-wJsc). f~urthcr ncc:oontln~ for qtnlltntl\"Cl

c:hances 1n respect of inputs end eutput3 Is another d1Hk:u1t tzmk. F<.'i"

Instance, the nutrient co:r.pcsltlcn r.'lay bo slznlilc:nntly different 1n ~ec:t

cf v-...rl0\!5 varletl~s. And v1hett"K!r 1M price dlfferentbl reflect3 the

Qtmlltatlvc dlffcrcncc:s or not ls a moot question. In what foUovm, a

brief account cf the mea.o:urcmcnt of inputs end output Is hlghllghtL'1z

:erne of the lmporumt problems. 47

fl.7. Fer meaS\.-rement problem' ~clflc: to a~lcult'Jre • See Subre.hman• f3rnt S and N P~Jn:opnm Rno 1 "Total FgstfT Pnx~uctly1tx Ill A~rlculturct Conc;spts rtM me,acsurcmcnta; n paper prc5entcd nt tho 66th Annu~ Conference of tho Indian fcor.omlc Assoclat­lon, O~alorc, Dec., l?33J Christenson, LR "opclr, 197J I See t<ennedy, C mv:J AP "ll'Jrl\\~ "opclt", 1972.

130

r.~ost cf ta'ltl go?tth ~countlro3 models dlfler fT'..:lifWJ "'lth rc::pcct

to tl1e s~..JflcntJon of the produetlen fcr.ctlon ood measurement cf the

eonventloMI inputs. •~ ~ relatlw lmportanc:o of mc~:urcmcnt pro.t,lcm

over tho proper spccltlcatlen of tho productlon tunetlon cc.n be appreciated

ln tho foUm-.Jlfm stntemcnt of Nadlrl 1 "In fact the evidence suo;ests

that spcdfbtlon of the fcrm cl the a:nreente proc:uctlon function b

of s~ondary slgnlflcanco and contrlbute1 very little to the ~lanatlon

of the "resldua1".49 Some of the problems essodated wlt~ tho mCC$ure­

rr,cnt of ln;>trts end partlculnrly (iWlntlfle~tlcn of tho c;tWltatlvo Improve­

menu In respect of the three baslc lnptrts, vlz. capital, Jnboor and Jnnd

(!fO dl~d L"l brief. Tho eompcslt3 factor ~ ccmprbJns of hetero-

geneous COH1tonents belongln;; to dlffcrcr1t Cf.C Gl"OUP3 mKI wlth dlUcrcnt

producth'e efflclencles Is sensitive to the cholce of v.-elshts and t.'le ~~ere­

r;atlon ~anl!)m a~c·ptcd. lil effect, tho factcr ln;>ut (eomposltc) lr~

rr.alnly ccmlsts of :

- Growth of too factcr Input In physlc.."\1 or wJoo tcrmst

• average rate cf Improvement In qualltJJ a."Kl

• effcctn of structural chnnnc-s Jn the fnc:tcr Lvut tuch ns q;c-

structure cf the cohort of labour er ccpltal ~

()3. Some of the Important wcrtu ue of Solmv, R. "opel!", 19.57a Abramo­vitz, p,;. "Cj)Clt", 19.$1 Denlscn, cr., Why prc~rt!) rat~ rllffet: t Postwar E crlences ln nino west. cet.'ntrles". The crcddn.;s nstltu on, Wash ngton, %71 Jorr.cn~n, 0 ;md Z GrlUkhc~

"S?S!!,", 1S67J l~cnald< lfl, "~, I9!J3J PaslneUl, LL c "On concepts and measures of chnnt;es 1n produc:tlvity", n,..,yt~ c:f Eeonorplcs {II: S~"tlstl~ 41(3), 19~ t,~:Lnel, BF, "ooelt", 19(,<.'; Usher, o. "No tcchnbt chn~e, no crowth", In The P,~n~~r;'it'nt pf f:conomlc .Growth"• rnsU DfuckweU, CX:ord, l~;:HJ.

49. Nedlrl, r.n, "rPSlt", 197tl pp.l1G9·70.

131

r.•ctl~"n!ment ~~ c~~~~h Glwn t.'le mtcroz~ru:OU1 rm.tur~ cf C~-~!t~!, It b

r.ot p-o~ible to mn!,;o com~~ ln temu of physlcN t:nlb end t:'lus It~

to oo measured In monet~ry unlt$. To c~prc::s In real terms, tho v:\Jue

of capltd ccods ot current prices have to be c:!cflctcd by on ar;pro:~rbtil

prJCQ l~c:t. 5o Dr"Oblcm3 ci Index numbers, Viz. cccrezatlcn, chcJce

of base year, osslcnr~lent cf wc~;hti fer loolvl~u.ll ltcr.:c, etc., croci)lnt"

this rr.e=n-c. Further, probloms of c:mre~:ltlon era of two types. First

typo ~~ab wlt.~ cr.crer;ntlon ef ru~tcms cf tho fcctcr end tho ot~r

rclates to comb!nlnz tv:o er rr.ore factors cr f~ctor servkes. Hmo.rever, the

uc~ral proct-~urc to ohtaln n cornpo;;ltll mNlSt.'t'O cf fcetom ct fnctor

croup:s b to asslzn wel~ht to eech diverse crJantlty by oome vrucatlon

cooUldcnt. i'M wluntkn coeUlclcnt ITh"Y be tho prlcn for f~ scrvk:c3

or tho factor shares (ns ta'le case mey tJe). Tho content of the cr;nrcgntc

Index nnd clza Its Interpretation Ylrtu3Uy ~ upon th~ d'lOkc cf

wclgbU and the arzrcuatloo ru!c (urlthcrratk: or .:;comctrlc). Copl~!

mensure p~'"'3 the problem cf lnterpretntlon :dnce lt eor:-.prl= cf rm:ny

hctcmzenecw ltcrn3 cf ~lffu~nt vlnt~;e3. At!::}znr.1>:nt c·f ~:tl \"Jcl:.')lts

to capltcl Items of different Yin~~ o.nd of wry~ prcduetlvltles, b an

crrcneo..!S pi'OCC'!:!. ~n !cct, wdzbts 'vhlch t~.rc propcnlcnt'!J t3 their pro­

ductlvltles shculd be e.sslcned to make the ec~re:ato me=Jre ~T-ore tr.eanlne· Mt for examplo, under too nssumptlon of perfect competition fn.ctct

prkes can be used as wclehts. Cooaldernt!on cf 'm5t• cf t1"1o capital stock

or tho value of the c:npltnl*a eontrlbntlcn to output b yet t'raethcr dcf}nt~")lc

Issue. The latter 3!'pfe>ac.\ tat:es ~ of lmpro~mcn~ In capital clfldcncy

due to teehr.o~bl o.dv~ Ti".e former t.r.~xh t:e:lts ~ntlty' ef

132

• capital as a separate factc.r cr n:J a p~t cf tcchnolo3fcal Frocrcss. Th~

studies ~ \"rlth determlr.:mt!S of ecooomlc :zrowth czm bo acr;rcruatcd

c:'l tho bnsl!l of the~ t-;;o t~~.t!S tlnd t.doptlon cf cno fer t."te ether

Is m:cly to yield ccncluslooo whlch r.my be contradictory In ntltt.Tc.

further, m!)ltnl r:-.crun.:remcnt :hculd tcl:e Into ccccunt th~ utlUsatlon

end the depredation ~u. Most of too !;tlJdlc~, n~:umc ttmt tho flow

•• of e;,plbl nef'Vlecs Is proportlord to tho stocl: of cnpltsl, \":hllo $0mt'!

ttudles ad}t.tstcd ceplta! S!oc.l< by rata of uncmployncnt. ~

The b3SO year/perlcd ccmldered tor con:structlon d .Input series

should be · · normal. If relative prices nn.~e d lndlvlt:'.tcl components

remcln unalt~red over t."lo period, then choice cf base ycu ls not a problem.

Cut, H factor prices or fr.etor th:rcs vr;ry c:!lftcrcntly over t1me, crowtta

~tes of L.,ut series ~cregate) may dlUer \t'lt:'l th~ ~ of ba!o

year. Thu,, th<' u~ of Laspayro•a « P~~Y's lndlecs ~ocs not hcfp

t:enStn:et!on of true !nput series. Further, they m3y not ilCCOmn1ocbte

ne\'; (o!d) lnputa. ot~$1:1 Index 13 prefcr~te slncc lt Is chnL"l~ Index. 51

• .. A.ccerdln3 to thls approach cepltal content Is C$5Utned to be prcport• lcMl to tM cost cf the item.

'l'hcre data problems ere mora pa-tlncnt In the caso of a[irlcultt~ • Thls assumption Is also n:ade use of In respect cf •taoour• Input!. Adjustment of capite! fer ~es ln Its utlll&\tlon lnc:r~ Its contrlbutlon (C$tlmated) to output.

.50. Sec Solow, RM., "F:pclt", 1957.

~_, rationale behlnd st..'Ch adJustment Is that theSe studies a..t'!Sumed that capital and labour adler unemployment to the same dezree.

51. Sec U!.hcr DM P 1 "$:spdt", 1!:3C pp.70oo2j, !or t,~ oppreprlatcness n."'ld llmltatlon of different Indices In t'lc wcasuremcnt cf tedm!caJ cllno'13e•

133

I! rate C~f cncmploymcnt of ~ forco 1s rr.crc (less) 1hml t,'lat of capital

stock, then It ~"lder (over) cstlm3tcJ cuplt,1l utlllsat!Q-'1• t:urthcr, 1n c:a:e

oi ~lculture, precise estimates of 'lal.'OU&" use' may not be avcl!zbtc md

tht.-s ccplbl stocl: odjustmcnt thrOitz:;h this rr.ethod may le'ld to c~

results. The rate of undcr-em,loyment of Ja.OOur b c:-.;>ectcd to be mere

the.., that of enpltal, given tho cppcrtunlty costs c:f labour and cnplt31.

'Cnpltcl' !f;;ures were clso ooju:rtcd by flttln,:; n trend line to capital•

output r4tlo for fuU employment yetU"s. n1en ()!)served c.'l~es L"l output•

ln!>cur rntlo (ncc:eptcd as truo values) oro rr.ultlplled by trend wluc:s

cf capital-output rntlo to derive t.'la scrbs cf c.:J.pltll•mx:ur ratio.~

Capitol centrlliutlon ls e<;ually SCn$ltlvo t(') tho rnta et dcr.rcclatlon

employed. There 1s need to c:!btlnzu1sh bm.oeen eccnomlc 'obsolesc~•

and 'phydcnl dctcrloratlen•. GcncrnUy, It b ohoolo:u:cneo th3t dotermlncs

the depreciation factor rather than physical dctcrlcratlon or productlvo

life cf tho capital r.ssat. So flcr:~ of serv1co c:ontlnt:e L"'a rplte cf h belnz

economically obsolescent. A~pllca.tl~n of dc~i'cclatlon nl.tow:mco m~cs a

blnsed estlmata of the r.et rnQSUI'C cf Qpital r.nd or-e hns to ma!:e aUow·

ence!l for phytk:nl dctcrlcratlon rather ttmn ctv-..oltJSCcnco to dcrlva tln

eccurnt<l measure of capital (net). Physical a:ntrllrutlon at ~l'bl ~t

may rer~aln constMt thWJJhoot it3 ccon,')ITJC life du" to Improvements

In human capital. nut dt.-a to "'fcb!em! of om. often, me:lSure cf 1(10$3'

cnpltal Is used 1n the Gt\H'llcs. furt.'lcr, e1pltal stadt tw to bo ndjusted

for Improvements 1n Its elfJclcncy. So, 'Capital' measured Z).t constmt

prlce!l but unadjusted for Improvements 1n cfflclcncy and clso for utUlsatlon

wW te-nd to uoocr cst1r.1ata the contribution of copltcl to growth. 53

52. Sea Massel SF., "~• 1960.

"· lcrcc-nsr.m, D and Zv1Crllllcll~ "rnc:lt", 1'~7.

134

flo ...., r::mbodlrpent H)T9thcsl~t ··or nccomrr.odattn:; chml~es In qucllty of

e. capital, tTJo hypo~ need spcc1a1 mention, viz. dls~mboc:!lod end cmhodicd

hypo~scs. •Jlth tho ::.dvent of technical pro:;ress, QCC:ordlng to dbefl'.bcx:led

hypothesis, all vlnt:'JGCS of elplt!!l shnro c-qu:llly (In technical pre~ The

embodied hypethesls rely en v~e a.pprooch to measurement of capital.

It b cttucd th3.t cmbot!lcd moc!e!s of tect-.nled precrcss represent :1 rr.cre

reaUstlc view.~ Accordlnz to t.~s hypotht:!sl!, oow knowledge (tcchnlcal)

ttn be ~mho(fl.~d mly L"l ~~ c:lpltal goods D.nd thus new Item$ t.'lould bo

welzhted mere In rclatlcn to the older one3 end ro tho o:;e-structt:r('! of t!lo

capltnl stcck haS o betllln3 en the crowth. ''

nlUS err.bodlcd rmx!c!s provld~ a Ur.!-t ~~tNccn c~pltnl end tochnienl

e:w-..;:c. However, 1t b not neccssuy thnt all new kr\o..-J!edze s.'wuld bo

en:bodled In •Capital' t;oodl nor ~n lln onlfcrm rntc of tcchnolor;lcnl ch..:.nr;c

bo cppUed fer the vcrlcus capital ccocSs. The main pre~Jcm wlta'l emboc1l•

tneot hypothcsb Is that the •ee.pltnl• ntoc:k h~<s to be t'djustcd !or the

effect of technical p~ss nnd thereby leac:tnr; to measurement problems.

The core of tho cmbc<.1imcnt hypothcsb b thn.t n~w ccpl~l'3 proc!uctl•

vlt'J wW be hlghcr than ~t of tt~ old capital, but lnspltc of cdv~

In (new) tc-d'inleru ~-nowlc<1Je '~hero exists a &tt..., batt.;ccn ttvc·r~o tcd'lrdqJo

(old capital) Md best'1)ractlce technique ~~ cnpltal). 1bls Is maln!y

• There 1s a consldt-1'ab1c oody of Utc-ratura on this a~)cet nnd lt 1s beyond the scope of this study to rev~ all the t-Jorks.

~. Solow, lU.t t "TcdmlcaJ pi'03rcss, mpltal fcr~"ltlcn, ~ economic growth", Arncrlc~.n E~nomle A~~latll'}n r .. ..,p-.-;~_, l%2.

,,. See :Jorg{.'flSOO, D 1 "The embodiment hypothesis .. , ~1mal of Political, ,Economx, 7f;(1), 1%6.

135

duo to tho cxlstcnca ef fl::ed cn,ltl)J and problemn Ol.SSCCiated with flQW cf

lnforrr.atlon as well as ooopdon of 1nnovatkns. Thus, ccc.nernle1 h:I.\1Mr;

tho cmr.o rate flow cf best practlee teehnlques, may have dlffercn~ growth

re.te.1 of productivity ow~ to diffcreraCC$ In tho level of repJaccment

Investments. So an economy whoso average ~e of ca;;>ltal b lower wW

hll'Vl! higher productivity. J\a:erdlng to ~ter, tho be:t practlco t~

at e.ny dmo point refers to the latest n~-altnb!e tcdinolonY embodied

In cn%)ltal toodst end suitable to beth economJc and technlcal ccndldons. !6

o~vlou!ly, the best-practkc t~.nl~e varkn over tlr.i-3 t!ui! to technotoeleat

adwnccment. ct-.anges In fader prk:e5 and elas!lclty of substltutlon.

tt Is q;!ned thnt 11 matters llttle \''flOthcr the mod~J und~r ccnsldc­

ratlon ls on embodied cr disembodied cno since tho growth of total fcctcr

J.'i'(,.,:\t<:tlvlty c.1n ~ lnt~rprctcd In terms of r.-!Tcrs of mea~~arements with

reterenro to caplt.t\1 senlce5. Thus ~dn3 clmost lmponslble to dlsdn­

t;uls.'t whnt eor.stltutc$ tln lnerc~ In prodt•etlvlty from tM cnw of

measuremenu. 11 So the tssue, viz. Isolation of contrlbutlon:s of Increases

In quantum of capital ar.d lrnproverr.ents In GlJ3llty of c:npltnl to ~

In produetlvlty growth, rernalns untcsolVt.'C!. ~

!5. Saltc..r, Wf!G,, ~t 1%0. ,.,. lergenson, o., "£..1Xlt", 1966.

53. Eullcr works of Kelder and Amr.l employed •teehnlc:al ~ress• func:tlona and attempted to IGe!ate the effects of capital docpcr.L"l!; ruld l:r.pro~ments In cfflclcncy of capltn!. The fc·rrr~ postulated a rebtlonshlp between rate of BfOt'~th of ootput t!rd rate of grOt".rt.h of capital. Arrcm assumec:l technlcal prez~ functlon as a func:tlon of c:umulatiw lnTestr:'lent. f~, N a "A model of economic crowth", gcon~rclt;_J~J!fl.~" 67, l9.s7, a.~1 Arrow, I< 1 "Tho «;MOmlc lr:~;,?ll­catlons cf Icarnlnf, by <k~, ~cv!~w of r:ccmomlc Str.~dle9, 29, 1%2.

136

1\ model lncorf!Crtlt!OG bot:~ types ~Y be r.n Ideal ono Md \':t-ould help

In db::rlmlno.tl."(; the ~~o hypot.'leses. It b StJimtmed to Include nn cxpoocn­

tlcl time trend rcprcs...-.ntlnJ dlSC"rnhodlcd hypothcsb D.tona wlth the factors

cf predl.~on end treat tht'! residual 03 tho ccntrl!::utlon of crr.bodlcd

tce~"llcnl prcgrcss. Altem.'ltlvely, a rr.cdel ca.., ~ deve!~ to estlmam !/)

t.'1e ccntrlliutlon of ttJ.:1 two typc!l of tcchnk:nl f.lO:rcs!l si~..Ady

t-#:10\-et £UCh models ho.\-o t:J aceommO"...ate· tho lnt~~on eftcctz •

• r/'e~!JJ.!I"cment cf Ln~m Ucaally l~'>our lr;-.,ut Js rnc~~:rcd In terms of

tW:e ef labour terce, or 1'\Utnber of emp!cyed persms or total number

of pcrsen hours. 1'hc lr.1provcmc-nt5 In efficiency of In~ C3n bQ eonsl•

dered In terms of level of ~tlon end ~e c!btrlbutlen of bbccrcrs

(co.'lttt). Th~ level of ccfuc3tkm Is ccncrruly me~ In terms of number

of ~reors of schoollnr;, or ettillnment of e<.'ucatlonnl JcvcJ.60 HotvCVt'ft

\~rl~tlc.'lS ln c;ut\llty of e~tlen ~ .. ...,to to lr.clu1cct to r:tn!co them~

ment c:omptct~. ..

nut Gt.t.:ntlfJCltJcn c·1 t."lb r:q>cct Is dl.f1fet!lt. The

rclcv:mc:o of £;::o-cU=trlliutlo."l ~~.:r.ctcr ln the context o! cff1denc:y of

sr;.

• 60.

H

-· . ---See Solow n. a "Tedmlccl ~ress, QPlbl forma~n end cconor.l!c

umvth", rrerlc~ r.ccncmlc ~.-!~· :.!cy, 1!"S2. lntrUir;ator, t.U.l t ncm cd tcct.hlccl ctmn;;e end proc!uc:tlvJty In ~ Unltt.d Stntcs 1~29·1~~"• navkt'r of Eecr.oml~ lt St!1tl1-tlcs, •7(1). 1% !J.

M.ost of the prob!crrns ~ In connection ~lt~"l the ffi!""~ mcnt of c:ttplt\1 tU'C also Ct"Pllca!>lo to bbour.

!.if~et. Dcn!oon BdJt:-stcd ~:ltn m b.boor fer cr .. mllt'J lrnprO\~mcn~ He used vJt!'f'}!: rati!!i tor educated <!.'1d unct!ucutcd 1aXIur for conversion of la::oor Input. Den1:on, CF : "P.ceountln;, fst SIC\"rcr Ec~mte G~1~t The UrJtcd S~tcs In the l971J's'~. b1ookin.:~s L•stltutlon, ,., ~L'\1tcn nc 197S.

Th-3 Un!t bctvre~n c6Jcntlon and ~w!czkal pr~~ ca..-. bo ea!Uy apprcclated since education lncre3SeS the stock of lmo-.-Jied~e for future. CUt tt-.c emct c:ontrlbutlon cf hurr-=..'l enpltnl to ~ of eutpct 13 not po~~J!)Ic~ to mco.surc.

13'7

!~ b that lrr:provc:r.cnts In cdt:c:Mlen b n=ureed to benefit 'tl~ nev1

cntrMts of ~ laboUr force. J\ccordin;::t~o H tho avcnl.ze...a:;o of the

lctlour fon:o b hlcher , lt 1s m:ely to compr~ n mora skilled and thun

• a more productlvo \";c.f'k·fr..rc:c. Cut M mto of entrJ of now ~1or!~cro

b ~me e~ t."lo drcpc'.Jt or e;clt rate of ok1 workc.~ f,~cc~ln.J tho t\\'Cfn~o

n:;c coo rt-.c ~{;O..(.trueturo co. ... ~-n, then Its clfect en b...~ qu3llty mey

not be stn!flcant. FurL~, lra th~ ~s·:::nc~ d b1provcmcnts In tho ~

ct cm..-catb..,t tho lmprov:ments In t.'te nvcrczo <."J!\Jlty c! 1~1" ere

e<;Ulva!cnt to dJscm~l·~ tcea'lnolcJlctl pro:-;rcts. Ar.cthcr rn:t.jor probJ~m

ln mensuremont cf bbcur Input b tho uttllz=ltlcn of ~o !~ur power

which cnn be t'!CcompUshcd by t~dJU tho ~ r.um=x:r of worl:er hour:s

empl¢Jed. nut en hour of lo!>cur ~~!CI" ln t\Jo c!Hftrcnt pcrloc:!s r.~y not bo

cq..!<ll sL'lCc the er.td tr..ount o1 cffcrt put L~ It b not measurable.

nx: utllls3Ucn of .bbour &"JVlccs Is n functkn cf went~cr condltlons, crop

r.li.,d tcehoolcz;y mb, Input ~ (ccmplementary end substitute) etc.

If prc00ctlon fwtCUon 1s Cob~Jlz3, otY.! If ccpltol o."ld Jnbocr ere

t\~j~'lOd for impro'lr"'3m~nts !n eff1denc:y, then ~ nccoun~ ~tlen

(1n dlscrcto term!) b os fc!Jowt:

~ t:::. A o-. >. I, 1o >. K o.- >. L o. ·-x-· r• 1( •

sil!c o..)Lt::.ti • + • 6 Af:Ab

~..:here a tlncl b ere cutpttt el=tldtles of ~our mxt ceplUll ~vely

GV+bet!

• A J~o-JI"Cr rr.ny tum cut to be met:! productive with e.ge ns ho t;3loo t;:<p<.rlencc end become!; more e~'""'CinUscd. Tho ngo.dbtributton par3.-neter Indicates the net cffnct of OOtJ ~~<IUs \--cr.rus c;~'icncc.

138

A L end ) K stand for anno..!al growth r~te3 of (net) GUallty of labour

and ccpltal respcc:tlvely

6. a end ~ !'l denote chnn~s In th~ avcrl'l:;a orr,o of 'Jabcur' and 'apltnl' .. lnputs.

6 Q nnd 6 A lfl411~ta ~cs 1n output and total factor produetlvlty

respectively •

.!:!!!l• The iletua.l acreage u."ldcr cultlvatlcn represents tho quantltatlve

aspect of l:.nd. Investment on l3nd lmpnwement/<!~velt~pment affects the

GUallty of bnd end there b a dcnrth of occuratc data en fu.-.ds Invested ..

publlc tmd private fer land lm,roYement. Investments in ptili!Jc Infrastruct­

ure ll'<c lrrlgntlon Improve the qoollty of lnnd. In tcneral, cbta on lrrl·

cated end unlrrlr..ated land are being used to crrlvc at Jnnd Input ndjcstcd

for qualitative Improvements. Tho r.et returns from lrrlznted and cry l~s

foru the baoo for convcnlon of lnnd Into stnnd~rd ru:rc~:;e. Th3 ratio of

net returnsJ howovert may not remain tho same overtlm~ owlna to dlant;es

ln technolo:JY• prices, cllmatlc coMltloo:;, etc. Further ro.tct cf erosion

of soli and ateo the c;uallty of merzlnal ltmds affect the ratio ood t;'lus

t!'lc ro.tlo of net returns wo~s nt best as n pro:<y fer ccn\-ers!on.

Mc~rcmcnt of Out!')m{s) a As $fAted earlier, the ll3flculture prcdactlon

involves a tlr~ 1~, thus makl~ agriculture wtncra~la to ~xogcmous

fnctora JU:c weather. Usually, rclnfall Is ccnsldered cs proxy variable to

weatt¥-r. In crc:!cr to smoo~ otttput v.:rles for ralnft-.11 cffccu, a trend

** In cnsa of cn..,ltal, ~b lndlcntc char.,:;e:; In the c~P cr d1sttJnce ootwe<:·n average and bc!t prnctlce tc1:hn1Guc~

139

cquatbn cf cut;tut b fltt~<i •lth rnlnfClll ~ mn:)thet exp!a!".atory \';3l'!Wb.

Jon Qt r: f <t. r.,_,

\".'hcrc- Qt b autput 1.\t tlmo "'" ln 'Jee.ts. R.lt b e."'r.-c•.mt of rcln!aU

in 1 th selxn of yc::r •tt. Th~ rcs~un;>t1cn (bn~Uclt) In ~"tb C?Pt'CaGl'l

b t.'lat effects of rclnf3U ere slmU::u- to ncutrcl t:-ct.nlc:.ll c:h:~n;c.

To tct on r.fi~I'Ci~atc mc~!rurc of cutput, th~ lndl\i~ crcp o-.stput!l

are rriUlti;>Ued by prices cf ~;ectlve c.rcy~. In re~et cf crops \'Jith

rllffcrrnt l:loos, v".rlcty-t!lso cutput should ~e muhJptled by the ccrrcs­

pendlrc set of price!, to aet a rcUnbl~ r.mn~urc cf out-""jJ\!1 L"l v:llu-a terrr.s.

0u1 c2ta en output•wrlety•wbe 81"1 not awllable. rurth'.:r, ~de~ crr:;>loycd

In bullclf')t~ t:p tho outr,ut scrlc1s lli'O r.ct (.-,ertectly) w:lzhted n~"O

prices but Fum HMvest Frlce-s « reate r·rr.~~t Price~ 1\nd tho to:lc

bct'llnd thelr uso Is t!".3t tun: cf egrleulturrll ~uce/mnrk(:tro s'Jrp!us Is

sold In post-harvest txrkd and \~uatlcn c.f eutpU1 a~ tha pc:'J: rr.:uitet

prko ytet= a better estlrnt,te. Furthermcre, ccnTrchcr~lv~ tlrao-Eitrk~

rota 00 mzrt~ct tr:1n";t:et)entJ of ~lfforc.nt D-:;r1cultur:ll ccmrnedltles ero not

avalbb!o Uor each taJul<a) ·to cori'puto t."leo wcl;ht~ n\-c~~;e prlco.

llnoth~r prrolem uhlch ls ted'.nlall In nnturo b that cf t.'le t.'Se

o! M lnclex num~. Jl,ppJbtk,n ()f Ln~yre's i~cx ~fr;(';unts to \':llt.tl"l

tho output nt b:l.to ye:tt prlces. U crop chlfts t:J!O pbce (c.tue to price nncl

oon-prlce factcn) nt n lot("r period, men thb Index clv:::3 n mls&:o.dlns

pk:ture, ::."\d it canr10t eccommoc!ate t.'le new cte?S, U e.ny. It rc!lects

the tn:c ~lttt-.1tlon ~f r}ri~ movements of cll crops ere cldn. Prcbler..:~

ere sl:nllu wlth rr!S~t to the usc c·f Pila...4t.Chey ln1c:t. Olvld~ inctc;; c:m

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solve r.lOSt of the v~lems dnce CUI'I"eftt prices (revenue Ghares) ore

teken Into ~ou:'lt In th!! eor.stttlCtlon of an &CtfCcnte lndox. tlivbla index

1\::s en adclltlonnl edvantane of being en exxt Index rar.Jlrlr!J lt~s~ restricted

61 c.ssttrnptlons.

Aneth~ probl~m encountered 1s t."'te apccUlcatlon of output \~rlebJc,

I.e. to use liross output or value :2.ddcd, In tha m~ment of productlvlt'J

growt;"l. The latter Is obtained by cxclooli\1 lntcrmc<tbto or current

Inputs frcm the former. Ombslon of Intermediate Inputs was crltldsed

c!t.!'l to tho foll~wln£,; t

- Sc~Wty condition should be satisfied for ~ vnlue .. Add~ functloo, I.e. Intermediate! Inputs must he St.>pMnble from pt'lmary

Inputs, (lend, lebour). Ti'Js Imposes sowo restrlctlcn on the

faetor substitution relations whlch nmy be unreallstlc.

- Use of va!ue-edded lm:>Ue' that effects cf tcehnlal pro~~w3

en current Inputs are nU end a!su~ that tcdmkal pr03rcss Is cmbOOlcd ln capital, labour and land.

- Production functlen b £U:'posetl to e.~plaln the entlre procfuctlon

process, usc c1 value-added rr.ay net btl Ju$tllled.

- 't7lth technical oovarn:cment, tho usc of lntcrmcdbt!J Inputs Jn

aglculture Is stendlly lnc:reasln3, justlfylr.;; the e~~roprlatenes:s

cf gror .... 'l output as tho vnrJ.ablc.

61. See Hulton, C.R. 1 "Dlvlsb lndax rvJmters" Econemetrlca 01, 1973. Dlvisln Jndc:' b c~:nct for ~.)mtgcncros trt.nstc~ ~·ro...."'uction function (TLCCPF).

141