Building a New Testable Model to Estimate Total Factor Productivity

Andrew Smithers

Published: June 2017

A new model to measure Total Factor Productivity free from the flaws which exist in previous models; appropriate data are used to test it. The model distinguishes between the contributions made to investment and growth by changes in technology and other non-technology variables. A key constituent of non-technology variables is the equity hurdle rate; since 2000 this has dramatically changed and thereby stifled investment and productivity. Reform of current management bonus arrangements is found to be essential to obviate the risk of economic stagnation.