A Theory of Total Factor Productivity and the Convergence Hypothesis: Workers’ Innovations as an Essential Element

MPRA Paper from University Library of Munich, Germany

Abstract: A theory of total factor productivity (TFP) is needed to explain why substantial differences in international income have been observed. This paper presents a theory of TFP that incorporates workers’ innovations. Because workers are human and capable of creative intellectual activities, they can create innovations even if these innovations are minor. The creative activities of ordinary workers have been almost entirely neglected in economics even though the importance of workers’ learning activities has been emphasized by the theories of learning-by-doing and human capital. I examine this creative element and show that innovations created by ordinary workers are indispensable for efficient production. A production function incorporating workers’ innovations is shown to have a Cobb-Douglas functional form with a labor share of about 70%. The production function offers a microfoundation of the Cobb-Douglas production function and more importantly indicates that heterogeneous parameter values with regard to workers’ innovations are essential factors of the currently observed substantial income difference across economies.

Keywords: Innovation: Total factor productivity; Experience curve effect; Convergence hypothesis; Cobb-Douglas production function (search for similar items in EconPapers)
JEL-codes: D24 E23 J24 O11 O14 O31 (search for similar items in EconPapers)
Date: 2009-05-31
New Economics Papers: this item is included in nep-bec and nep-eff
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/15508/1/MPRA_paper_15508.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15508

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().