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In the last three decades, the contributions of total factor productivity to GDP growth in Portugal were lower than the EU28 average

22.01.2021

Economics in a picture: In the last three decades, the contributions of total factor productivity to GDP growth in Portugal were lower than the EU28 average

The expansion of total factor productivity (TFP) reflects the ability of an economy to grow over and above the accumulation of inputs like capital and labour and it is typically obtained as part of a growth accounting exercise. If we assume that every economy can have access to the same technology it is possible to estimate an international production frontier and decompose TFP as the contribution of technological progress (shifts in the frontier) and efficiency developments (changes in the distance to the frontier). The technological progress corresponds to more productive techniques, for example associated with innovations, while positive contributions in efficiency correspond to improved institutional and organizational arrangements, i.e., more efficient use of the current level of inputs and technology.

The results of a growth accounting exercise for the countries of the European Union (EU28) suggest that, in the last three decades, TFP's contributions to GDP growth in Portugal were lower than the EU28 average. This performance resulted mainly from the evolution of efficiency, which presented negative contributions in all decades, with emphasis on the period 1999-2008. The efficiency levels of the Portuguese economy were lower than the EU28 average in all periods, which highlights the fact that there is a large room for improving the use and allocation of resources available in Portugal.

 

For more details see João Amador and António R. dos Santos (2020), Inputs, technology and efficiency: The Portuguese economy in the last three decades, published in Banco de Portugal Economic Studies (Vol. 6, N. 4).

 

Prepared by João Amador and António Santos. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.

 

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