Total Factor Productivity Growth, Technological Progress and Technical Efficiency Change: Dimensions of Productivity Change in Yugoslavia, 1965-78

The usefulness of decomposing total factor productivity change into the 2 distinct elements of technical progress and technical efficiency is proposed. Previously, important productivity gains and losses attributable to changes in efficiency with which a technology is applied to production have been neglected. While the 2 elements are not entirely separable, this approach advantageously combines the best of these 2 views of production theory. Review of the Yugoslavian economy since 1970 illustrates the benefits of this analysis. This paper finds that changes in technical efficiency dominated technological progress from 1965 to 1970. From 1970 to 1975, deterioration in efficiency acutely affected the economy. In several sectors, the poor performance is indicative of failures in investment planning and implementation of new technology. In areas that have experienced increased efficiency, the success is primarily due to acquisition of foreign technology.