Total Factor Productivity in the Ecuatorian manufacturing sector: firm level evidence

Abstract

The purpose of this research is to analyze the production of the Ecuadorian manufacturing sector and generate a measure of business productivity, provincial, regional and industrial activity in the period 2007 – 2016. As a result, it is estimated a production function at firm level with the traditional methodology in a simple empirical framework in Cobb Douglas style with traditional inputs: capital, employment and raw materials. For this estimation a dynamic model such as GMM-SYS was used in such a way that the problem of simultaneity and endogenity was minimized. Once the production function was estimated, the total factor productivity (TFP) was calculated. As main conclusions we obtained that the major input contribution to the firms sales revenue was the consumption of raw materials, followed by the number of workers and finally the net fixed assets, we also found that the TFP presents a growth pattern that coincides with GDP movements throughout the period; there is evidence in favor of a positive relationship between the TFP and firm size and the region in which it is located, in addition we obtained the most productive provinces and manufacturing subsectors of the country.