What is TFP?

What is Total Factor Productivity?

The combined effect of factors other than employment and capital increases within growth is called Total Factor Productivity.

Scientific researches and field studies show that economic growth is also provided by the influence of the reasons other than employment growth and capital investments. Innovations that increase added value provided by intangible capital items such as human resources, organizational capital and information assets, inter-firm relations established as an outcome of the social capital, acquired industrial skills and increased employee motivation constitute a part of these reasons. Institutions, markets and regulations that determine the business and investment climate, the effectiveness of business models and the formation of domestic demand also bring other causes.

What is the Situation of Total Factor Productivity in Turkey?

Total Factor Productivity plays a key role in the establishment of healthy and sustainable growth, forming the source of the economic growth that cannot be explained by labor and capital increase. However, contribution of Total Factor Productivity to the growth in Turkey is limited and the country has not been able to make a suitable development in line with its potential.

In the 10th Development Plan and in the Turkish Industry Strategy Document, the importance of Total Factor Productivity is strongly emphasized. Increase in productivity is critically important in terms of increasing production capacity in the economy, improving competitiveness and accelerating growth. Only 0.2 points of the average growth of 4.3 percent in the period of 1981-2012 is due to the increase in Total Factor Productivity. For this reason, in the period of the 10th Development Plan (2014-2018), it is aimed to achieve a high and stable growth without increasing the current account deficit by increasing the competitiveness with an efficiency-oriented approach. Within this scope, in the Program for Increasing Productivity in Production, which is one of the priority transformation programs of the 10th Development Plan, the aim is to improve productivity perception, improve production processes, increase added-value and contribute to the target.

Furthermore, in the Turkish Industrial Strategy Document (2015-2108), the emphasis is on increasing the national and regional policy development capacity in the field of productivity and on the productivity-based transformation of the industry. In order to provide this transformation quickly and effectively, it is important to understand how the Total Factor Productivity is taking place in manufacturing industry and to determine the public policy framework for eliminating the obstacles to this increase.

The productivity gap between large-scale manufacturing firms and medium- and small-scale firms is remarkable in Turkey, when compared to other countries. While large-scale manufacturing companies in the EU are 1.8 times more productive than small- and medium-sized manufacturing firms, this ratio is 5.1 in Turkey.