Total Factor Productivity

Total Factor Productivity measures the portion of an economy's output growth that cannot be explained by growth in its measured inputs of labor and capital, and is generally interpreted as capturing technological progress and gains in the efficiency with which an economy converts its inputs into output. Economists commonly compute it as a residual after weighting labor and capital's separate contributions to output, and it is treated as one of the principal drivers of long run growth in output per worker, accounting for a large share of that growth in typical economies. Comparisons of total factor productivity across countries are used to help explain persistent gaps in income levels that input differences alone do not fully account for.