Criticism
Growth accounting exercises and Total Factor Productivity are open to the Cambridge Critique. Therefore, some economists believe that the method and its results are invalid.
On the basis of dimensional analysis, TFP is criticized as not having meaningful units of measurement. The units of the quantities in the Cobb–Douglas equation are:
- Y: widgets/year (wid/yr)
- L: man-hours/year (manhr/yr)
- K: capital-hours/year (caphr/yr; this raises issues of heterogeneous capital)
- α, β: pure numbers (non-dimensional), due to being exponents
- A: (widgets * yearα + β – 1)/(caphrα * manhrβ), a balancing quantity, which is TFP.
The units of A do not admit a simple economic interpretation, and the concept of TFP is accordingly criticized as a modeling artifact.
Read more about this topic: Total Factor Productivity
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