TFP growth in Turkey revisited: The effect of informal sector

In this paper, we aim to contribute to the growth literature by presenting evidence that the presence of an informal sector might significantly affect both the level as well as the course of the total factor productivity (TFP). To this end, we develop a framework where we can compare the TFP in Turk...

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Bibliographic Details
Published in:Central Bank review 2017-03, Vol.17 (1), p.11-17
Main Authors: Atesagaoglu, Orhan Erem, Elgin, Ceyhun, Oztunali, Oguz
Format: Article
Language:English
Subjects:
Accounting
Business cycles
Capital stock
Central banks
CES production functions
Economic growth
Economic models
Elasticity
GDP
Gross Domestic Product
Informal economy
Informal sector
Production functions
Productivity
Quantitative analysis
TFP growth
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Summary:In this paper, we aim to contribute to the growth literature by presenting evidence that the presence of an informal sector might significantly affect both the level as well as the course of the total factor productivity (TFP). To this end, we develop a framework where we can compare the TFP in Turkey generated by a one-sector benchmark model to the one originating from an extended model with the presence of formal and informal labor. Our results indicate that, over the course of 1950–2014, the TFP generated by the benchmark model generally underestimates the productivity of the formal sector and this underestimation is mainly observed and is widened after 1980. Moreover, we also find that the substitution between formal and informal labor significantly affects this underestimation.
ISSN:1303-0701
1305-8800
DOI:10.1016/j.cbrev.2017.02.002