TFP does not measure “prospects for longer term increases in output” since, among other reasons, (1) new GPTs tend to be associated with up -front costs and downstream benefits, and (2) there is no reason why the TFPs associated with successive GPTs should stand in any particular relation to each other.
There is reason to suspect that TFP does no t adequately reflect the increase in a firm’s capital value created by R&D activities that are realised through sale of intellectual property rather than exploitation by the developing firm. Yet these are often technological advances created by the use of valuable resources.
TFP does not adequately capture the effects on the growth process of those technological changes that operate by lowering the cost of small industries and then allowing large subsequent increases in their sales and outputs.
TFP does not adequately measure the massive amount of technological change that gets embodied in physical capital where under some circumstances the change is recorded as an increase in capital rather than as an increase in productivity.
When full equilibrium does not pertain, as in the midst of any lagged adjustment process, the marginal equivalencies needed for successful aggregation do not obtain and it is likely that some of the increases in productivity of labour and capital will be recorded as increases in the quantities of labour and capital inputs.
New technologies often lead to large up front costs of R&D and learning by doing and using that are incurred in the expectation of future benefits that will be missed when current outputs are related to current costs. The amount of this activity may vary with the life cycle of GPTs and other major technologies and, these variations will affect measured TFP.
Neither TFP nor externalities adequately measure the technological complementarities by which an innovation in one sector confers benefit on other sectors¾benefit for which those in other sectors would be willing to pay but do not have to do so.
Low TFP numbers for the Asian Tigers do not mean they are in the same boat as was communist Russia; they are quite compatible with successful technology enhancing policies and technological transformation of a country through domestically generated or imported capital.
TFP is as much a measure of our ignorance as it is a measure of anything positive.