TFP and Economic Potential of The Tunisian Economy

In this paper we try to measure and to explain total factor productivity (TFP) growth in Tunisia over the period 1983-1996. We do not measure TFP growth by the conventional Solow residual. Instead we define TFP as the shift of the economy’s production frontier, which we obtain year by year by a linear programming method, a sort of aggregate DEA analysis. We then decompose this aggregate TFP growth into a Solow residual, a terms of trade effect, and a shift in demand composition. We also proceed to a decomposition of TFP growth into individual factor productivity growth rates: those of labor, decomposed into five types, of capital and of the allowable trade deficit. We find that potential TFP has grown by 0.4 percent per year over the whole period. But, it is especially after 1991 that TFP has grown. Before that, it tended to display negative growth rates. Labor turns out to be the most important contributor to total factor productivity growth. Only in the last period did capital play an important role. The Solow residual was the main driver of TFP growth. Changes in the terms of trade and demand composition were detrimental to TFP growth.