Measurement and Decomposition of Productivity Change in Pakistani Firms

Abstract

The main objective of this study is to measure and decompose changes in productivity and efficiency of firms using the annual data covering the period 2001-2020. It also observes whether the productivity and efficiency of firms have been increasing over time. The study employed the data envelopment analysis-based Fare-Primont total factor productivity (TFP) index developed by O’Donnell (2010). The estimates show that total factor productive efficiency (TFPE) progress is major component during the examined period which decreases the negative impact of technological regress. In addition, the estimates show that the TFP of firms increases over time in Pakistan except 2019 and 2020. Further, our results indicate that firms have to focus on technical efficiency because it is major factor that influencing the TFPE progress, and reducing the positive impact of mix efficiency and residual scale efficiency. Furthermore, the results demonstrate that on average, the TFP of automobile assembler industry is greater than automobile parts and accessories, cement, and sugar industry. Finally, the estimates show that changes in technology have significant impacts on the TFP. Overall, the findings recommend that the government is required to provide incentives and cost-effective technologies that enhance the productivity and efficiency of firms because productivity enhancement is a prerequisite condition for sustainable economic development.