Explaining Output Growth Using Total Factor Productivity: Evidence from the Philippine Agricultural Sector

Abstract

This study investigates the performance of the Philippine agriculture employing the methodology of total factor productivity (TFP) using the available data from 1961 up to 2005. Total factor productivity was estimated by using simple growth accounting model. The weight on each input was determined using Cobb-Douglas production function with the assumption of the existence of competitive equilibrium. The variation in total factor productivity was analyzed by considering the effect of political changes and agrarian policies. Results show that TFP’s contribution to output growth has been relatively marginal compared to the share of input growth. This suggests that growth in the agricultural sector was largely dominated by the increasing share of inputs undermining technological growth in the agriculture sector. In addition, there is evidence to show that political instability has negatively affected agricultural productivity. Results imply that policy makers should design relevant public policy enhancing productivity in the agriculture sector and these approaches should be coupled with stabilizing the political system.