Determinants of total factor productivity in Pakistan: a time series analysis using ARDL approach

ABSTRACT

This study examines key determinants of total factor productivity (TFP) in Pakistan for the period 1970–2018 using the auto-regressive distributive lag (ARDL) bound testing approach. The study conducts a time series analysis on macro-economic indicators namely foreign direct investment (FDI), trade openness and human capital and aims to identify whether these factors impact significantly on TFP. TFP is a measure of the productive capabilities of factors of production (capital and labour), and is crucial in relation to economic efficiency and economic growth. The study applied an ARDL bound test to analyse the long-run and short-run relationship among the variables, and also a Granger causality test to consider causal relationships between the explanatory variables and TFP. The results suggest that TFP has a long-run relationship with FDI and human capital.

KEYWORDS:

• Total factor productivity
• foreign direct investment (FDI)
• trade policy
• human capital

Disclosure statement

No potential conflict of interest was reported by the author(s).