Determinants of Total Factor Productivity, Technological Change, and Efficiency Differentials Among States, 1977-86

Significant differences in the growth rates of total factor productivity (TFP) exist among states. In this study, the sources of differences in TFP growth, technological change, and average efficiency levels for states in the period 1977-86 are identified. Rather than focusing on just the manufacturing sector, the present study is concerned with TFP growth and technological change for all (aggregated) sectors. Results from the study indicate that policies to attract manufacturing industries and private capital will increase TFP growth, primarily by increasing technological change. States with lower levels of production efficiency can move closer to their production frontiers by improving the quality of the labor force (education, for example), attracting private capital and, in the case of states with very large metropolitan areas, by encouraging the decentralization of economic activity.