Katerina Melfou, Athanasios Theocharopoulos, Evangelos Papanagiotou
Total factor productivity (TFP) growth is a widespread quantitative economic instrument used to evaluate the performance and sustainability of agricultural systems over time, which has proven valuable for policy measures geared towards fostering agricultural development. Yet, there are more dimensions to be accounted for when aiming for sustainable agricultural development than the production side of an agricultural system namely, the issues of environmental protection and resource use together with the question of social responsibility. Consequently, objections have risen in the recent decades, regarding the suitability of TFP growth to reveal whether a rural system is progressing in a sustainable course and alternative tools that attempt to remove the bias in measuring changes in productivity have been proposed. The objective of this paper is twofold; to review the conventional approaches in the measurement of TFP growth and to discuss the necessary amendments in TFP measurement so that it can be a more comprehensive index of sustainable growth and thus conducive to agricultural development. The amendments which incorporate externalities and resource quality issues in productivity measurement, produce alternative measures to TFP namely, ‘total resource productivity’ and ‘social’ total factor productivity. Another approach is to construct sustainability and productivity indices separately, and then join them together so as to broaden the evaluation of agricultural systems.
Keywords: total factor productivity, sustainability, total resource productivity, agricultural development, externalities.
JEL Classification System: O47, D24, Q01.