A Study of Taiwan’s Total Factor Productivity


Author:An-loh Lin

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ABSTRACT This paper uses data from the input/ output tables of 1981, 1986, 1989, 1991 and 1994 to estimate technical changes (namely, rate of change in total factor productivity) for the Taiwan economy and its 24 industries, to establish their relationship and to examine some of the causes. The paper uses domestic final output as the economy’s output and domestic gross output as the industry’s output and separates intermediate inputs into the domestic and imported components. It also uses the number of labor and capital stock as one set of primary inputs and men-hours and utilized capital stock as another set for comparison. The estimates of the economy-wide TFP% are 2.11%, 4.32%, 2.59% and 2.50% for the four time periods of 1981-86, 1986-89, 1989-91 and 1991-94, respectively, as compared with those of 2.55%, 4.85%, 2.80% and 2.41% obtained from GDP, which excludes imported input. The contributions made to the TFP% by intraindustry technical change are given 94.6%, 65.7%, 76.9% and 84.5%, respectively, with the rest of each accounted for by inter-industry technical change. The 30.1% estimate of the latter for 1986-89 seems to indicate that the industrial structural change caused by the huge appreciation in new Taiwan dollar had a significant positive effect on the redistribution of resources during the period. The contribution of imported input to the growth of domestic final output was over 30% for each period and exceeded the joint contribution of labor and capital except for the period of 1981-86. The estimates of TFP% vary across industries and over periods and imported input has greatly contributed to the growth of gross domestic output for many industries, such as electronics, instruments, chemicals, paper and foods, indicating that these manufacturing industries are still dependent on imported materials for their production. Our results also show that the two sets of primary inputs yield almost the same results except for a few cases. Many factors can influence the TFP% and their importance may change over time. It is found that R&D spending, capital per worker, international competition and privatization have some positive impact on the Taiwan economy. The effect of liberalization was found to be negative but seems to diminish over time. Keywords:Technical progress, rate of change in total factor productivity, resource allocation, input/output analysis