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  4. Total factor productivity as a performance benchmark for firms: Theory and evidence
 
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2003
Book
Title

Total factor productivity as a performance benchmark for firms: Theory and evidence

Abstract
We propose using Solow's macroeconomic approach and the concept of Total Factor Productivity (TFP) as a microeconomic tool for analyzing individual firms. TFP long used in analyzing macroeconomic growth among countries, is a useful strategic performance benchmark for individual firms. TFP calculations permit managers and investors to partition labor productivity growth between two sharply different underlying causes: capital-deepening (higher capital per worker), and exogenous technological change. The TFP benchmark can be computed from readily-available information in financial statements. The structure of the paper is as follows. Section 2 presents a simple version of Solow's model, suitable for use in individual firms, and provides a numerical example. Section 3 gives detailed total factor productivity calculations for the 20 largest firms in the world. Section 4 provides three case studies of total factor productivity growth, for Intel, YPF (Argentina's largest energy company) and Merck. The final section summarizes and concludes.
Author(s)
Grupp, H.
Maital, S.
Publisher
Technion - Israel Institute of Technology  
Publishing Place
Haifa
Language
English
Fraunhofer-Institut für System- und Innovationsforschung ISI  
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