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Romeo G. Teruel
1
1. Introduction
approximately 20 per cent of the Gross Domestic Product (GDP) and about 14
per cent of the country’s export earnings. In addition, it employs almost half of the
country’s labor force. Thus, the dependence of the majority of the rural poor on
cent annually. From 1990 to 1995, the average annual growth rate increased to
1.4 per cent; by 1996-2000, however, this declined to 0.60 per cent (David,
Furthermore, the past and present agricultural scenarios seem to suggest that
agricultural importing country over the last decade. This trade scenario is the
posted an increasing agricultural surplus since the 1970s. It has also been
shown that the dismal growth of the agriculture correlates with the overall growth
of the economy. Several studies have shown that the decline in agricultural
2
growth can be attributed to the continued deceleration of productivity (Mundlak,
stochastic frontier approach. The second stage intends to review the empirical
The availability of data on output and input is essential for the accurate
3
measurement of productivity; hence, this paper also seeks to review the
and other important data issues. This paper ends with a synthesis,
productivity (TFP).
relationship between output and input (Antle and Capalbo, 1988). It is also
defined as the ratio of some measure of output to some measure of input use or
simply an arithmetic ratio between the amount produced and the amount of any
further simplified as the output per unit input or the efficiency with which
input implying that there will be as many definitions of productivity as inputs used
particular input or equally known as the average product. Commonly used partial
measures are: yield (output per unit of land), labor productivity (output per
4
Yield is usually used to assess the success of a particular production technology.
living since this captures the ability to acquire income through agricultural
some of these problems, one can use the total measure of productivity or the
concept of total factor productivity (TFP). TFP relates the output produced with
an index of composite inputs; meaning the sum of all the inputs used in the
production process which may include land, labor, physical capital, livestock,
inputs.
5
3. Review of Methods
the change in output, to calculate the relative contribution of the different inputs
used in production to output growth and to identify the Solow residual or output
growth not due to increases in inputs. These major approaches are: 1) the
inputs and outputs, and aggregating these into input and output indices in order
to calculate the TFP index (Diewer, 1976, 1980). It decomposes the output
growth into two components: 1) the growth in different inputs like labor and
production function, which describes the technical relationship between the levels
is the capital stock at time t, and L is the amount of labor input at time t. Given
this production function, the use of growth accounting approach requires the
6
following assumptions, namely: 1) the technology, as represented by At, is
to scale (CRS), 3) the producers are efficient and they attempt to maximize profit,
• • ∂f • ∂f • 2
Y = Af ( K , L ) + KA+ LA
∂K ∂L
where the dots indicate a first partial derivative with respect to time. Dividing Eq.
2 by Q gives:
• • • •
Y A ∂f K ∂f L 3
= +A +A .
Y A ∂K Y ∂K Y
Given the assumptions, the elasticity of output with respect to capital w k and the
∂Y K ∂f K
wK = =A
∂K Y ∂K Y
4
∂Y L ∂f L
wL = =A
∂L Y ∂L Y
•
A
Solving for , the growth rate of TFP is
A
• • • •
A Y K L 6
= − wK − wL .
A Y K L
7
The TFP growth can be interpreted as the residual share of output growth
after accounting for the changes in the production inputs. One of the
An alternative way to compute for TFP is through the use of the Index
Number Theory. This theory describes how to derive a single index for the
quantity of different outputs or goods produced and of inputs used over time
Yt 7
At =
Xt
quantities and subscript t denotes the time period. After obtaining At, the
The difficulty associated with using the index number approach is in the
determination of the type of index to use and in gathering the price and quantity
data necessary to construct them. There are several index procedures that can
Fisher and the Törnqvist index procedures. What follows is the formulation of
different output quantity indexes using the different index approaches. Input
8
quantity indexes can be similarly constructed using the data on input quantities
and prices.
t
( )
y = y1t , y 2t ....... y kt for the k different outputs produced in an economy at time t =
p ⋅y
0 1 ∑P Y 0 1
( )
i i
0 1 0 1 8
YL p , p , y , y = 0 0
= i =1
k
p ⋅y
∑P Y
i =1
i
0
i
0
( y1
)
k
YL p , p , y , y = ∑ si0 i0 9
0 1 0 1
i =1 yi
pit y it
s =
t
i m
where is quantity i’s nominal output share. Eq. 9 shows that the
∑p
i =1
t
i y it
k y1
1
p ⋅y
1 ∑p 1
y i1 −1
−1
( )
i
= ∑ si1 i0 10
0 1 0 1
YP p , p , y , y = 1 0 = ik=1
p ⋅y
∑ pi1 yi0 i =1 i
y
i =1
The Fisher index, on the other hand, is computed by getting the geometric
average of the Laspeyres and Paasche indexes. Finally, the Törnqvist index is
defined as
(
0.5 si0 s1i )
( y1
)
k
YT p , p , y , y = ∏ i0 11
0 1 0 1
i =1 y i
9
One can either use the economic or the axiomatic approach to decide on
what index formulation to use in constructing quantity indices for output and
input. The economic approach selects an index number formulation on the basis
production function in which all inputs are perfect substitutes in the process.
the other hand, a geometric index like the Fisher index exacts the Cobb-Douglas
production function.
properties. The index that satisfies the most tests is the “preferred” index
formulation. The axioms or desirable properties used for the test are as follows:
1. Constant quantities test: If quantities are the same in two periods, then
the output index should be the same in both periods irrespective of the
2. Constant basket test: If prices are constant over two periods, then the
10
3. Proportional increase in quantity test: If all quantities in period t are
4. Time reversal test: If the price and quantities in period 0 and t are
Diewert and Lawrence (1999) noted that among the index number
formulations, only the Fisher index passes all the axioms or desirable properties.
Both the Laspeyres and Paasche indexes are found to be inconsistent with the
time reversal test, while the Törnqvist index does not satisfy the constant basket
test. They also noted that using a more extensive list of axiomatic tests, the
Fisher index formulation continues to satisfy more tests than the other index
formulations.
Like the growth accounting approach, the construction of the output and
input quantity indexes using the different index procedures requires restrictive
cannot be used to evaluate their reliability because index numbers are not
11
3.3 The Econometric Approach
estimation.
function or the production function or a dual function like the cost or profit
function. The estimation using the primal function involves the derivation of a
other hand involves the derivation of a system of input demand and output supply
characterized by its cost or profit functions, provided that these obey certain
regularity conditions. To better understand the idea of this theory, the duality
between a cost function and production possibilities set or production function will
be discussed in turn1.
1
Between the two dual functions, cost function is frequently used in productivity estimation. Antle
and Capalbo (1988) pointed out that TFP estimation using profit function is not straightforward.
The link between TFP and cost function will be discussed in the latter part of this subsection.
12
3.3.1 Duality Theory
production functions can be extended with the inclusion of the duality theory
under the assumption that firm chooses input quantities in order to minimize the
cost of their production process, given the prices of these inputs. The duality
said to describe the firm’s technology. On the other hand, if this firm has
minimum total cost of producing the level of output Y given the vector of input
prices P defined by C(Y,P), then its minimum C clearly depends on the underlying
production function f. The duality theory establishes the duality of cost as well as
More formally, the dual relationship between cost and production (or
transformation) functions implies that the minimum total cost of producing Y given
the production possibility set T = (X,Y) and a vector of positive input prices P that
13
correspond to X, that is, C(Y,P), can be constructed from T with C having the
following properties2:
(a) C(Y,P) is a negative real valued function defined for all finite Y ≥ 0, P ≥
0k.
Similarly, given C with properties (a) to (d) above, the production possibilities set
T with properties (i) to (iv) (please refer to footnote 2) can also be constructed
from C.3
By Shephard’s lemma, the total cost function C with properties (a) to (d)
above is related to the cost minimizing demand function for input X through its
first partial derivative with respect to the input price P. Suppose the first partial
differentiable in P, then Cp equals the total cost minimizing demand for input X, at
(Y,P). Moreover, if there is a unique cost-minimizing demand for input X at (Y, P),
2
The production possibilities set T has the following properties: (i) the set of producible outputs
Y* is nonempty; (ii) for each Y in Y *, the input requirement set X(Y) is closed and for a nonzero
output not contained the zero input vector; (iii) there is free disposal of inputs, that is, if an input
vector X0 can produce output Y then a second input vector X 1 that is at least as large as X0 in
each component can also produce Y; (iv) the input requirement sets are strictly convex from
below, that is, two input vectors X0 and X1 are in X(Y), then for a weighted combination of X0 and
X1, for instance, X2 = λX1+ (1-λ)X0 where the scalar λ is 0<λ<1, there is an input vector X 3 in X(Y)
such that X2 is at least as large as X3 in every component.
3
Please see Diewert (1971, 1978) and McFadden (1978) for the proofs of these duality relations
between cost functions and production possibility sets.
14
equation representing the output supply and input demand functions which is
when there is an increase in output per unit of input due to the use of improved
changes in input quality and the introduction of new processes and new inputs
(Antle and Capalbo, 1988). This production function shifts or the technological
change can actually be investigated using the duality relation by estimating the
dual cost (or profit functions). What follows are discussions on an econometric-
based productivity measurement drawn mainly from Antle and Capalbo (1988).
function is given by
12
Y = F( X ,t)
where Y and X are the aggregate output and the aggregate input vector,
n
∂ ln F /∂t = d ln Y /dt − 1 /F ∑ Fi dX i /dt 13
i =1
15
where Fi is the marginal product of Xi. Under a competitive market where price
equals marginal cost and inputs are paid in terms of their value of their marginal
n
14
∂ ln F /∂t = dlnY / dt − ( ∂ lnC /∂ ln Y ) ∑ S d ln X /dt
−1
i i
i =1
where Si = Wi X i ∑W X
i
i i is the factor cost share and the term ∂ ln C ∂ ln Y is the
elasticity of cost with respect to output indicating returns to scale. The primal
rate of change in output minus the scale-adjusted index of the rate of change in
input.
In the case of the dual cost function4, the dual rate of technological change
respect to time and by invoking the Shepard’s lemma. The dual rate of
∂ ln C n
d ln Wi ∂ ln C dInY d ln C
− = ∑ Si + − 15
∂t i =1 dt ∂ ln Y dt dt
Eq. 15 shows that the dual rate is the sum of the index of the rate of change in
factor prices and the scale effects less the rate of change of total cost. The
relationship of the primal and dual rate of technological change can be shown by
4
The advantage of this so-called dual approach over the primal approach (use of production
function) is that the derivation of the output supply and input demand functions is much simpler
and easier. With this approach, it is not necessary to go through the sometimes bothersome
algebra that is involved when solving the first order conditions as required in primal approach;
one simply has to differentiate the cost function with respect to prices. Also, the cost function in
general has factor prices as arguments or as independent variables rather than factor inputs as in
the case of production function. The cost function, therefore, allows the use of input prices, which
are actually exogenous to the firm instead of endogenous variables such as input quantities
(Binswanger, 1974).
16
the total differentiation of total cost C = ∑ Wi X i with respect to time and by using
Thus, the primal and dual rates of technological change are equal if the
that the primal and dual rates are equal if and only if the technology can be
The derivation of the primal and dual rates of technological change can be
transformation function
(
Y1 = F Y 2 , X , t ) 17
∂ ln F 18
R1
∂t
where R1 is defined as the revenue share of Y1 in total revenue. Here, the rate
by getting the time derivative of the transformation function and by using the first
17
condition, pi = ∂C ∂Yi . The dual rate of multiproduct technological change can
be expressed as
k 19
− ∂ ln C / ∂t = ∑ ∂ ln C / ∂ ln Yi R1∂ ln F / ∂t
i =1
k
to scale, ∑ ∂ ln C / ∂ ln Yi = 1 , the primal and dual measures of the rate of
i =1
• •
and the conventional definition of TFP = Y − X , which is the growth in outputs
not being accounted for by the growth in inputs, is shown by the following
equation:
[ ] ∑ S d ln X /dt
• n
TFP = ∂ ln F /∂t + ( ∂ lnC /∂ ln Y ) 20
−1
−1 i i
i =1
Under constant returns to scale, the measured growth rate of TFP is equal
to the rate of technical change. As previously mentioned, for the single output
case, the latter measures the marginal shift in the production function. On the
decreasing returns to scale, then the TFP growth rate captures both the technical
18
Similarly, it is also possible to show the link between the dual definition of
C = g ( w1 ,........., wn ,Y , t ) 21
• • wi xi •
B = C− ∑ w − ε CY Y 22
C
where B = ∂ lnC ∂t . Eq. 22 indicates that B is equal to the change in costs minus
the change in aggregate inputs and the scale effect. Following Ohta (1974), this
equation can be further simplified by the total differentiation of the cost equation
wx wx
C = ∑ i i x + ∑ i i w , or
i C i C 23
wx wx
C − ∑ i i w = ∑ i i x ⋅
C C
• • wi xi
− B = ε CY Y − ∑ x i
i C
• • 24
− B = ε CY Y − X .
Combining Eq. 24 with the conventional definition of TFP, the dual cost function-
• •
TFP = − B + (1 − ε CY ) Y 25
19
Using Eq. 14 and Eq. 24, one can show that − B = ∂ lnC ∂t = ε CY ( ∂ lnF ∂t ) .
In the case of multiple outputs, the relationship between the shift in the cost
( )
• •
TFP = − B + 1 − ∑ ε CYJ Y . 26
the use of functional form for econometric estimation. The functional form,
The functional form should also be consistent, i.e. it must be consistent with the
appropriate theoretical properties that the function must have. In the case of the
compliance for linear homogeneity in factor prices, concavity in factor prices and
appear in a linear fashion in the function as well as in the output supply and input
particular function.
5
See Capalbo (1988) for the detailed derivation of the link between the primal and dual definition
of productivity and the conventional TFP.
20
There are several functional forms that can be used for estimation: 1) the
1 1
ln Y = α 0 + ∑ α i ln X i + ∑∑ α ij ln X i ln X j + β 0 t + β 1t 2 + t ∑ γ i ln X i . 27
i 2 i j 2 i
•
technological change, the TFP ∗ is computed as
• • ∂ ln C −1 •
•
∗
TFP = Y − X = − 1 X + β 0 + β1t + ∑ γ i ln X i . 28
∂ ln Q
•
TFP ∗ = β 0 + β1t + ∑ γ i ln X i 29
•
TFP ∗ = β 0 + β1t. 30
21
As shown above, the cost function-based TFP can also be derived by appealing
to the theory of duality. Specifically, a translog cost function can be used and
specified as
1
ln C = α 0 + ∑ α i ln Wi + ∑∑ γ ij ln Wi ln W j + ∑k β k ln Yk +
i 2 i i
1
∑ ∑ β kl ln Yk ln Yl + ∑∑
2 k l i k
ρ ik ln Wi ln Yk + α t t 31
1
+ α ii t 2 + ∑ α it ln Wi t + ∑ β kt ln Yk t.
2 i
Applying Eq. 25 to the translog cost function given by Eq. 31 and assuming
•
TFP = α t + α ii t. 32
confidence intervals in order to test the reliability of the model estimated. This
aggregate output. Furthermore, if the flexible functional form is used, then the
use of the econometric approach would also mean the imposition of fewer
and the index number approaches. The major disadvantage of the econometric
approach.
22
3.4 A Distance Function-based Malmquist Approach
index does not presume that production is always efficient. Hence, the
Malmquist index of productivity can be broken down into two components: 1) the
changes in efficiency (firms getting closer to the frontier) and 2) the changes in
derived as follows:
set, P(x). This output set P(x) represents the set of all output and input vectors
that are feasible, meaning that output vectors y can be produced using input
vectors x. For the sake of convenience, assuming that there is only one output
y
d O ( x, y ) = min δ : ∈ P ( x ) . 34
δ
23
If y is an element of the feasible production set, P(x), then the distance
function d O ( x, y ) will take a value less than one or equal to one. In particular, if
feasible production set, otherwise, it is greater than one and located outside the
set.
DOS ( xt , y t )
M OS ( x s , y s , xt , y t ) = 35
DOS ( x s , y s )
In particular, they defined their productivity index as the ratio of the two
output distance functions both using the technology at time s (the base period).
period s. On the other hand, the denominator is the output distance function at
measures the distance between two data points of a particular unit (e.g. region or
country in two adjacent time period) by calculating the distances of each data
it is also possible to develop the two output distance functions based on period
DOT ( xt , y t ) 36
M ( x s , y s , xt , y t ) = T
T
DO ( x s , y s )
O
24
To avoid arbitrariness in the choice of benchmark technology, Fare et al. (1994)
orientation, should be the geometric mean of the two indexes given by Eq. 35
1
DOS ( xt , y t ) DOT ( xt , y t ) 2
M O ( x s , y s , xt , y t ) = S T 37
D ( x , y )
O s s O s s D ( x , y )
The value of M0 will indicate whether there are positive or negative changes in
from period s to period t, whereas if the value is less than one, then this shows a
decline in productivity.
D T ( x , y ) D S ( x , y ) D S ( x , y ) 2 38
M O ( x s , y s , xt , y t ) = OS t t × OT t t OT s s
DO ( x s , y s ) DO ( xt , y t ) DO ( x s , y s )
Fare et al (1994) gave the following interpretation to the two terms on the right-
DOT ( xt , y t )
Efficiency change = 39
DOS ( x s , y s )
Technical change = DO ( xt , y t ) DO ( x s , y s ) .
S S 2 40
T T
DO ( xt , y t ) DO ( x s , y s )
From Eq. 38, the Malmquist productivity index is just the product of the change in
relative efficiency that occurred from period s to period t and the change in
25
One can estimate the distance functions necessary in the computation of
the productivity index based on the Malmquist approach using the Data
oriented and does not require the specification of any particular functional form to
entities called “Decision Making Units” (DMUs). Under the DEA context, these
DMUs are compared against each other because they can individually identify
and vary their inputs and outputs. In this case, comparison is relative, meaning
all DMUs are compared with best performing DMUs. DEA is a methodology that
does not use central tendencies. Instead of fitting a regression plane through the
surface to rest on top of the observations. The distance between the observed
data point and the frontier measures the relative technical efficiency of each
DMU. DEA is deterministic in nature and this approach does not differentiate
DEA, the frontier is defined by searching for the maximum possible reduction in
26
input usage, with output held constant. While, in the output-oriented DEA, it
seeks the maximum proportional increase in output production, with input levels
held fixed. The two measures will give the same technical efficiency scores
under the assumption of constant returns to scale (CRS) technology, but will
In the single output and input case, the basis for the inefficiency
Output 41
δ= .
Input
If some DMUs are compared using the δ, then the one with a bigger δ is
considered a better performer or more efficient because less input is used for a
terms of efficiency.
is expressed as
27
z
∑v k yk
δ= k =1
. 42
m
∑u
j =1
j xj
The numerator and denominator describe the sum of the weighted output and the
inputs. The reciprocal of the efficiency score is just the ratio between the
under the constant returns to scale assumption, the reciprocal of the relative
∑u
j =1
j x ji
min z
∑v
k =1
j y ki
m
43
∑u
j =1
j x ji
s.t z
≥ 1 i = 1,..., n
∑v
k =1
k y ki
vk , u j ≥ 0 ∀k , j
setting the denominator equal to a constant usually unity. The resulting model is
given by
28
m
min ∑ u j x jp
j =1
z
s.t ∑v
k =1
k y kp = 1 44
m z
∑ u j x ji − ∑ vk y ki ≥ 0 i = 1,..., n
j =1 k =1
vk , u j ≥ 0 ∀k , j
Every DMU has to choose input and output weights that minimize the 1 δ , the
reciprocal of its efficiency score. Thus, the above model has to be run n times in
order to calculate the reciprocal of the efficiency score of all the DMUs.
Generally, a DMU is efficient when the reciprocal of its efficiency score is less 1,
max θ
n
s.t ∑λ x i ji − x jp ≤ 0 j = 1,..., m
i =1 45
n
∑λ y
i =1
i ki − θy kp ≥ 0 k = 1,..., z
λi ≥ 0 i = 1,..., n
where λ is the dual variable or dual multiplier and the variable θ is the factor by
which DMU p’s output should be increased in order to achieve efficiency. A value
of one indicates that DMU p is efficient relative to other DMUs considered, while
a value higher than one indicates relative inefficiency. The ratio 1 θ coincides
29
Following Färe et al (1994), under the assumption of constant returns to scale
[d ( x
t
o t
p
, y tp )] −1
= max θ p
n
s.t. ∑λ
i =1
i, p
t y tk ,i − θ p y tk , p ≥ 0 k = 1,..., z
46
xtj , p − ∑ λit , p xtj ,i ≥ 0 j = 1,..., m
i =1
λit , p ≥ 0 i = 1,..., n
[d ( x
s
0 s
p
, y sp )] −1
= max θ p
n
s.t. ∑λ
i =1
i, p
s y sk ,i − θ p y sk , p ≥ 0 k = 1,..., z
47
n
x s
j, p
− ∑ λ is, p x sj ,i ≥ 0 j = 1,..., m
i =1
λ is, p ≥ 0 i = 1,..., n
[d ( x
t
o s
p
, y sp ) ] −1
= max θ p
n
s.t. ∑λ
i =1
i, p
t x tk ,i − θ p y sk , p ≥ 0 k = 1,..., z
n
48
x s
j, p
− ∑ λ xt ≥ 0 i, p
t
j ,i
j = 1,..., m
i =1
λ it , p ≥ 0 i = 1,..., n
30
[d ( x
s
o t
p
, y tp )] −1
= max θ p
n
s.t. ∑λi =1
i, p
s y sk ,i − θ p y tk , p ≥ 0 k = 1,..., z
49
n
x tj , p − ∑ λis, p x sj ,i ≥ 0 j = 1,..., m
i =1
λis, p ≥ 0 i = 1,..., n
The change in the technical efficiency can be further decomposed into two
efficiency. This decomposition can be done by using the variable returns to scale
(VRS) version of the above model. This version was introduced by Banker,
Charnes and Cooper (1984) and is denoted as the BCC model. This BCC model
∑λ
i =1
i = 1. 50
This constraint allows capturing the returns to scale characteristics. The BCC
model estimates the reciprocal of the pure technical efficiency, the overall
technical efficiency estimated by the CCR model, net of the scale efficiency. The
scale efficiency measures the capability of the DMU to fully exploit production
market demand and the likes. It can be obtained by calculating the ratio between
the overall technical efficiency and the pure technical efficiency. If the values of
the pure technical efficiency and the scale efficiency are less than one, then the
DMUs are inefficient, but if the values are equal to one, then the units are
efficient.
31
d ot ( x t , y t ) pure
The change in the pure efficiency is, therefore, whereas the
d os ( x s , y s ) pure
d ot ( xt , y t ) d o ( xt , yt ) pure
s
The use of BCC model requires calculating two additional distance functions by
[d ( x
t
o t
p
, y tp ) ]pure
−1
= max θ p
n
s.t. ∑λ i =1
i, p
t y tj ,i − θ p y tk , p ≥ 0 k = 1,..., z
n
x tj , p − ∑ λit , p x tj ,i ≥ 0 j = 1,..., m 51
i =1
n
∑λ
i =1
i, p
t =1
λit, p ≥ 0 i = 1,..., n
[d ( x
s
o s
p
, y sp ) pure
] −1
= max θ p
n
s.t. ∑λ
i =1
i, p
t y sk ,i −θ p y sk , p ≥ 0 k =1,..., z
n 52
x s
j, p
− ∑λis, p x sj ,i ≥ 0 j =1,..., m
i =1
n
∑λ
i =1
i, p
s =1
λis, p ≥ 0 i =1,..., n
32
DEA offers some benefits but also has certain limitations that have to be
kept in mind when using it. DEA is able to handle multiple inputs and outputs
cases and as mentioned earlier, it does not require a functional form that relates
inputs and outputs nor any specific behavioral assumptions of the firms/unit
maximization. It can also handle inputs and outputs without knowing their prices
or weights.
With regards to its limitation, DEA can only calculate the relative efficiency
quite difficult (Charnes, A., et al., 1994, Schmid, F. A., 1994, Anderson, T. 1996,
Hamburg, C., 2000). In DEA, it is also possible that some of the inefficient DMUs
are in fact better overall performers than certain efficient ones. This is because
of the unrestricted weight flexibility problem in DEA. Thus, a DMU can achieve a
Such DMUs heavily weigh few favorable measures and completely ignore other
inputs and outputs. These DMUs can be considered as niche members and are
the Stochastic Frontier Approach (SFA) has become a common approach. Like in
of the firm in the SFA also refers to its ability to transform inputs into outputs
33
relative to a sample of similar firm. A firm is deemed efficient if it can potentially
increase its output level without reducing its input level. This potential is
possible output levels for all input levels (Kumbhakar and Lovell, 2000 and Coelli
et al., 2005). As a result, SFA differs with the other productivity measurement
techniques but is similar with the Malmquist productivity index approach because
productivity: the efficiency change and the technical change. Unlike the DEA-
of the functional form for technology and the choice of distribution for the
Douglas (C-D) framework is generally adopted. The C-D functional form has
been used by many researchers because of its parsimony and simplicity. But this
simplicity comes with a cost due to strong restrictions imposed such as the
functional forms to C-D framework have been proposed in the literature, but the
most popular despite the observation that the dominance of one functional form
over the other depends on the data set (Kumbhabar and Lovell, 2000).
34
The many studies on efficiency measurement started from the seminal
papers of Aigner, Lovell and Schmidt (1977) and Meeusen and Van den Broeck.
Yi = X i b + vi − u i i = 1,............., N 53
where i = l,……N indicates the units being studied, Yi is the output, Xi are factors
composed error term, where vi and ui capture the statistical noise and technical
There are two models under the parametric SFA: the deterministic and
enveloping all observations and identifying the distance between the observed
production and the maximum production defined by the frontier and the available
estimate the deterministic frontier model. One can use the corrected ordinary
least square method where the parameters of the model, excluding the intercept
term, can be estimated consistently by using the ordinary least squares. This
1974). The consistent estimator for the intercept term can be obtained if the
35
y i = α + ∑ β j X ij + ε i where ε i ~ N (0, σ 2 )
j
Λ Λ
B jcols = B jols
Λ Λ Λ
α cols = α ols + max ε i 55
Λ Λ Λ
µ icols = ε i − max ε i
^
− µ iCOLS 56
TEi = e .
The stochastic frontier model differs from the deterministic model because
the former can capture the effects of exogenous shocks not under the control of
the units being investigated. In the stochastic model, other errors related to the
data measurement are also being taken into account. The error capturing the
in the literature are: the half-normal, truncated from below at zero and the
each other and of the input variables, and assuming a particular distribution, then
the likelihood function can be defined and the maximum likelihood estimates can
be determined.
36
From the estimation, one can obtain the fitted value for the composed
Materov and Shmidt (1982) separated the ramdomness or statistical noise from
the technical efficiency by developing an explicit formula for the expected value
Half-normal case:
σλ φ ( ei λ / σ ) ei λ
E [ u i ei ] = − 57
(1 + λ2 ) Φ( − ei λ / σ ) ς
where Ø(۰) is the density of the standard normal distribution and Ф(۰) the
Exponential case:
E [ u i ei ] = ( ei − θσ ) +
2 [
σ v φ ( ei − θσ v2 ) / σ v ] 58
v
[
Φ ( ei − θσ v2 ) / σ v ]
1
where θ = .
σu
Truncated case:
truncated model are obtained by replacing ei λ / σ in the expression for the half-
37
ei λ ui
u i∗ = + 59
σ σλ
expressed as
− E [ ui ei ]
TEi = e . 60
data and this approach captures the behavior of the producer as it evolves
across time. There are several benefits that can be derived from the use of
panel data: there will be more data variability, collinearity is less of a problem and
(Baltagi, 1995).
For the general panel data specification, the generic form of stochastic
frontier production function given by Eq. (53) can be extended by adding the
subscript t to the output, inputs and the error term. The stochastic frontier
where yit is the output of the ith unit (i = 1,2,. . . . . ,N) in period t (t =1,2,. . . .,T);
f(.) is the production technology; xit is a vector of j inputs; t is the time trend
time. This time-invariant efficiency assumption is only plausible with very short
38
panels, but highly unlikely if the time-dimension of the panel data spans over a
less likely to remain constant over an extended period of time. This issue on
technical efficiency (uit) has been addressed in the literature and several
specifications have been proposed to make the technical inefficiency term uit time
[ (
u it = u i / 1 + exp at + βt 2 )] 62.a
u it = u i × exp[ − η ( t − T ) ] 62.b
pattern of efficiency across time making the efficiency rankings of the firms
invariant through time. Cuesta (2000) has addressed this problem by proposing
u it = u i × exp[ − ξ i ( t − T ) ] 63
u it = z it δ + wit . 64
39
They pointed out that the random wit is defined by the truncation of the normal
distribution with zero mean and variance σ2, such that the point of truncation is
-zitδ, that is, wit ≥ -zitδ. As a result, uit is obtained by truncation at zero of the
normal distribution with mean zitδ and variance σ2. The normal assumption that
the uits and vits independently distributed for all i =1,2,……N and t = 1,2, . . .,T is
The measure for technical efficiency uit is the proportion by which the
actual output yit falls short of the maximum possible output which is considered
the frontier output f(x,t). Therefore technical efficiency (TE) can be defined by:
y it
TE it = = exp( − u it ). 65
f ( xit , t )
using the time trend variable appended in Eq. (61). It is specifically calculated by
taking the log derivative of the stochastic frontier production function with respect
to time (Kumbhakar, 2000). That is, technical change (TC) is defined as:
∂ ln f ( xit , t ) 66
TC it =
∂t
change is not only dependent on the technical change but also on the change in
technical efficiency (TEit). That is, given the input level, the productivity change is
given by
∂ ln y it 68
= TC it + TEC it
∂t
40
where
∂u it ∂ ln TE it 69
TEC it = = .
∂t ∂t
TCit is positive if the exogenous technical change shifts the production frontier
upward given inputs. TECit is negative if technical efficiency (TEit) declines over
• • •
TFP it = y it − ∑ J S jit x jit 70
where Sjit is the share of the jth input for ith firm at time t. Following Kumbhakar
technical efficiency change effect and scale efficiency change effect. This overall
technical efficiency can be measured by differentiating Eq. (61) totally and using
the definition of TFP change in Eq. (70). The TFP change can be expressed as
∂ ln y
where RST = ∑ j ≡ ∑ j ε j is the measurement of the returns to scale and
∂ ln x j
inefficiency effects u it are not functions of inputs). As shown by Eq. 71, TFP
change is composed of different components: the first term is the scale effect, the
41
second term is the pure technical change, the third term is the technical
efficiency change, and the last term is the input allocative effect.
change can be used to calculate the Malmquist index via Eqs. 38-40. Eq. (65)
expressed as
TE it
Efficiency change = . 72
TE is
This measure is the same with Eq. 39. On the other hand, the technical change
index between periods s and t for the ith firm can also be calculated using the
function. This index may vary for different input vectors due to the assumption of
geometric mean to measure the technical change index between two periods.
1
∂f ( xis , s, B ) ∂f ( xit , t , B ) 2
Techncial change = 1 + x 1 + 73
∂s ∂t
This measure is related to Eq. 40. To compute for the Malmquist productivity
index, the efficiency change and technical change indices can be derived using
Eqs. (72) and (73), respectively, have to be multiplied together. This Malmqvist
42
4. Review of Applications in the Philippines
This section presents the results obtained in selected studies that have
agriculture. This does not attempt to explain the robustness of the estimation
results from these studies, rather, it demonstrates that a number of studies have
using different data sets, timeframes and measurement techniques. This section
also presents the different data sets used to estimate productivity estimates for
Philippine agriculture.
according to the types of study conducted or the analysis used in the study. A
43
calculated at the national or aggregate level. Examples of these studies are
those of Fulginiti and Perrin (1993, 1998), Craig, et al., (1997), Mundlak, et al.
(2004), Arnade (1998), Suharriyanto and Thirtle (2001), Trueblood and Coggins
(1997), and Coelli and Rao (2003). The second type intends to estimate country-
analysis and these can be either national or regional estimates (see Evenson
and Sardido, 1986, Cororaton and Cuenca, 2001 and Teruel and Kuroda, 2004,
2005).
studies conducted since the 1980s onwards. Table 1 summarizes the different
quality adjustment (Evenson and Kislev, 1975; Antle, 1983; Nguyen, 1979;
44
Mundlaak and Hellinghausen, 1982; Kawagoe, Hayami and Ruttan, 1985; Lau
and Yotopolous, 1989; Craig, Pardey, and Roseboom, 1997). What follows are
Philippine agriculture.
specifically studied the effects of price discrimination and other related policies
productivity with an elasticity estimate of 1.3 per cent. They pointed out that
those countries with higher taxation show more regression than those with little
could have been increased by 1.3 per cent through the elimination of direct
government intervention (commodity price intervention) and 4.1 per cent through
the removal of indirect intervention (real exchange rate distortion and protection
countries. In this study, they covered the same time period and used four
index approach, the average annual productivity growth rate was -0.30 per cent
45
from 1961-85. On the other hand, using the traditional growth accounting
approach, the average rate of growth was –2.50 per cent for the same period.
estimations resulted in positive estimates of 0.1 and 1.80 per cent, respectively.
This study computed the productivity growth rates of 115 developed and
developing countries. For the years covered 1961-1991, this study shows that
most countries had modest agricultural productivity growth rates. The developed
countries had an overall weighted average growth rate of 1.6 per cent for the
countries. The widening productivity gap was particularly evident during the
decades of the 1960s and the 1970s, though there was a reversion in this trend
in the 1980s. When viewing the period as a whole, Trueblood and Coggins
(1997) approximated a 1.19 per cent annual average productivity growth rate for
Philippine agriculture.
different countries. Like Thirtle, et al. (1995) and Fulginiti and Perrin (1997,
year t+1 is compared with that of the previous year, t, while ignoring past history.
46
growth rate of 0.40 per cent indicating a deceleration of productivity growth for
the years 1961-93. This also indicates that productivity has not been the source
section is small relative to the total number of inputs and outputs. This problem
addressed this by measuring the agricultural total factor productivity using the
Malmquist index calculated with respect to the sequential frontier. Based on the
empirical evidence, more than 50 per cent of the 18 Asian countries were found
to have lost their productivity from 1965 to 1996. This is a corroboration of the
empirical results on productivity loss obtained by Fulginiti and Perrin (1998) and
For the period 1962-1992, Martin and Mitra (1999) estimated the total
assumption of constant returns to scale, they used primal functions such as the
translog and the Cobb Douglas production functions. They also computed for
productivity growth rates using the growth accounting approach that is based on
the actual factor shares. For the Philippines, agricultural productivity grew at an
average annual rate of 1.64 per cent using the translog production function and
47
at 1.57 per cent based on the Cobb Douglas production function. A relatively
higher annual growth rate of productivity of 2.07 per cent was calculated using
Using the Malmquist index approach, Coelli and Rao (2003) examined the
account for 97 per cent of the world’s agricultural output and 98 per cent of the
world’s population. Using the Malmquist index approach on recent data from the
annual average rate of growth in productivity of 2.1 per cent from year 1980 to
agriculture, they computed 0.80 per cent annual rate of productivity growth for
the same period. They, however, got a higher productivity growth rate of 1.3 per
from the use of a traditional production function that assumes that technology is
homogenous. They argued that the level of output was dependent on the
implemented technology and the inputs used. Thus, the aggregate output is the
sum of outputs produced using more than one technique, making the technology
2004) adopted an optimization problem at the firm level expressed as the choice
48
as state variables. The state variables in this study were referred to as the
capital and incentives. For the empirical estimation, the aggregate production
function, but the coefficients are functions of the state variables and possibly of
the inputs. Basing on the empirical evidence, the state variables accounted for
productivity was noted among the three countries, with the steepest decline
observed in Philippine agriculture, from 0.98 per cent in 1961-80 to 0.13 per cent
in 1980-98. On the average, the productivity growth rate was 0.25 for the entire
period.
productivity growth rate of 1.90 per cent for Philippine agriculture over the years
1955-1984.
growth rate for the entire Philippines and for the different sectors including
agriculture. They also applied the growth accounting approach using national
and sectoral databases covering years 1980-1998. The sectoral database was
49
constructed from the national level data using some distributional shares. In their
capital and labor. For the entire period, agricultural productivity growth rate was
negative 0.56 per cent. This indicates that the growth in output for the period
data set covering 12 regions and covering the years 1974-2000, Teruel and
quasi-fixed input), a translog cost function (with price of land calculated as the
residual of total revenue, net of measured costs for agricultural labor, fertilizer,
seeds, and machinery and animal services), the growth accounting approach
(the factor shares were based on a Cobb Douglas production function estimation)
of the Divisia index. It is worth emphasizing, that Teruel and Kuroda (2005)
applied these different approaches to the same dataset with the same timeframe.
For the entire 27-year period, Teruel and Kuroda (2004, 2005) obtained a
conservative estimate of the average annual productivity growth rate of 0.51 per
cent based on the econometric approach using a translog variable cost function.
modest, giving an annual average productivity growth rate of 0.99 per cent for
Philippine agriculture. For the translog cost function and index number
50
techniques, they, however, obtained higher estimates of 1.42 and 1.62 per cent,
respectively.
Evenson and Sardido (1986) and Teruel and Kuroda (2004, 2005)
studies were conducted to assess productivity growth and trends across time.
These estimates are presented in Table 2. Evenson and Sardido (1986) reported
and Cuenca (2001) maintained 9-year subperiods. Teruel and Kuroda (2004,
2005), on the other hand, computed productivity growth rates by considering the
(2004) for their study maintained longer episodes such as 1961-1980 and 1980-
1998.
1984, Evenson and Sardido (1986) obtained positive estimates for the different
5-year subperiods except for 1980-1984. The agricultural sector performed better
than 2 per cent, followed by a decline in the 1960s and a recovery in the 1970s.
The productivity growth rate particularly was at its peak during the period of
1975-1979 with a growth rate of 5.3 per cent. This subperiod, however,
considered as the post Green Revolution period by Evenson and Sardido (1986),
51
growth rate of 1.10 per cent during the subperiod 1980-1984. This poor
performance of the agricultural sector in the early 1980s seems to find support
from the study carried out by Cororaton and Cuenca (2001). They computed an
annual productivity growth rate of -5.36 per cent for years 1980-1989 followed by
function, found that the highest productivity level of 0.77 per cent in Philippine
From this subperiod, the productivity growth declined in the 1980s and even
further in the 1990s as evidenced by the computed annual average rate of 0.50
and 0.35 per cent, respectively. This further indicates that productivity level
during the Green Revolution era has not been sustained or paralleled, despite
substantial policy changes put in place since 1986 to invigorate agriculture in the
estimates derived from the translog cost function as shown by growth rates 2.01,
1.16 and 0.84 per cent for the subperiods 1974-1980, 1981-1990 and 1990-2000,
respectively.
growth accounting and the Törnqvist index approaches. For the growth
of 2.19 per cent in the late 1970s and then followed by a deceleration and
recovery in the 1980s and 1990s as explicitly shown by annual growth rates of
52
-0.53 and 1.44 per cent, respectively. Similarly, for the Törnqvist index
approach, the calculated productivity growth rates are 2.50, 0.50 and 2.60 per
growth during years the 1961-1980 (0.98%) and slower growth during the years
1980-1998 (0.13%).
Sardido (1986) reported estimates for productivity growth rates for 9 regions
using the growth accounting approach. For the entire 1950-1984, the rapid
followed by two regions in Luzon, namely: Southern Tagalog (2.39%) and the
productivity growth rates within the range of 1.09 to 1.46 per cent. Other regions
showed modest growth with a rate of less than 1 per cent except for Central
Teruel and Kuroda (2005) also computed for the productivity estimates of
the different regions using the translog variable cost function and the index
estimates based on the translog variable cost function show a marked difference
53
in terms of the productivity performance of the different regions over the period
1974-2000. The highest annual average productivity growth of 1.56 per cent was
posted by the Ilocos region, followed by Central Luzon with productivity growing
at a rate of 1.45 per cent. On the other hand, negative productivity estimates
were noted in three of the twelve regions, namely: Bicol, Western Visayas and
Western Mindanao.
Using the index number approach, among the regional production areas,
Central Luzon had the highest annual productivity rate of growth of 3.28 per cent.
This region was followed by Ilocos, Southern Tagalog and Northern Mindanao
having an annual productivity growth rate of 2.16 per cent. Other regions with
productivity growth rates above 2 per cent per annum were Cagayan Valley and
On the contrary, between the years 1975 to 2000, only Bicol region posted an
production areas, eight has productivity levels explaining more than 50 per cent
of output growth and these included all the regions in Luzon and two regions
each from the Visayas and Mindanao. This illustrates that agricultural production
in the Philippines during this period was driven by productivity and the regions in
Luzon were relatively more productive than those in the Visayas and Mindanao.
54
On the average, productivity contributed 59 per cent to output growth with the
sets, the average productivity growth rate based on this approach fell within the
For the index number approach, two studies attempted to compute for the
The mean growth rate was relatively higher at 1.46 per cent annually.
There are five studies identified to have used the econometric approach
using both the primal and the dual functions. These studies adopted one or a
Douglas or the Translog functional forms. On the other hand, two studies
employed a dual cost function using a translog functional form. Ignoring the
differences in the methodologies, the time periods, the functional forms and the
data used in the estimation, the productivity growth rate based on the
econometric approach averaged 1.14 per cent; lower than the average estimate
55
Moreover, a number of productivity studies conducted more recently
Malmquist approach. With this approach, the productivity estimates fell within
the range of -0.30 to 1.19 per cent and averaged 0.32 per cent. This indicates
The concept of TFP, as residual share of output growth after accounting for the
(1942) and Solow (1957). Abromovitz (1956) called this residual part of the
output growth as “measure of our ignorance”, since it does not only contain
comparison. There are two types of measurement errors: in factor utilization and
in the quality changes of the production factors. Thus, given the importance of
TFP in understanding the growth process, one of the recent directions taken by
56
factors of production, including corrections for quality of factors (Jorgenson and
Some of these non-conventional inputs have been used to account for input
educational level of the agricultural labor are not available especially in most
are usually used in empirical studies: literacy and life expectancy (Craig, Pardey
and Roseboom, 1997), historic calorie availability (Frisvold and Ingram, 1995)
and the number of agricultural college graduates as a proxy for the level of
are actually due to changes in land quality to other inputs. Some tried to control
estimation. Developed by Peterson (1987), in this land quality index, land quality
57
is characterized as a function of historic precipitation and the share of a
country's land area devoted to pasture and crops. Other researchers have made
adjustments for the impact of land quality on productivity by using proxy variables
such as the mean rainfall and the percentage of land area that is arable and
irrigated.
capacity of the agricultural sector given resource constraints and to minimize the
to 60 per cent (Ruttan, 1980, 1982; Echeverria, 1990; Huffman and Evenson,
1993; and Fuglie et al., 1996). For productivity analysis, public agricultural
account for the time required for research to reach fruition. This is done
completion and the farmer’s learning curve for the new innovation may also take
does not account for the spillover effects of research to other countries or
58
has been shown in the productivity literature that public investment in research
than research and this problem is data-related since reports on public extension
productivity have also been revealed by a number of studies (Fulginiti and Perrin,
1993; Hu and Antle, 1993; Block, 1995; Fulginiti and Perrin, 1997; Frisvold and
Ingram, 1995). It has been indicated that the prices of agricultural outputs and
inputs affect the technology chosen by the farmers and thus the productivity
the real exchange rate, past export growth rate and export instability are used as
proxies for government policy and policy reforms. Relatively, little research has
59
attempted to investigate the impact of government programs on productivity in
agriculture, but some have shown evidence of positive relationship (Huffman and
can also increase agricultural productivity by lowering the cost of inputs at the
variables are also used such as the paved road density adopted by Craig,
Pardey and Roseboom (1997) and the gross domestic product of each country's
Other proxy variables include water and sewer systems, schools, hospitals,
aggregate production function, Aschauer (1989) was the first to empirically show
the strong positive impact of the ratio of the public to the private capital stock to
productivity in the United States. Specifically, he found out that a 1 per cent
increase in the public capital stock would result in an increase in total factor
productivity (TFP) by almost 0.40 per cent. Thus, he attributed the decline in US
conventional inputs to account for the changes in the quality of production inputs
One empirical study was conducted by Evenson and Quizon (1991) and
60
technology and policy or program variables and used pooled dataset covering
the years 1948-1984 and 9 regions.6 Infrastructure variables include roads, rural
transfers under the agrarian reform program. On the other hand, they also
and national research stock variables and extension. Evenson and Quizon
policy via the output supply and input demand equations using elasticities, but
not in the sense of productivity decomposition analysis. The major findings can
be summarized as follows:
cent;
iii. The net impact of extension was positive but small, indicating a
and
6
Evenson and Quizon (1991) used the data set constructed by Evenson and Sardido.
61
vi. Land reform had a small but significant output and net productivity
effect.
of the profit function, they used a translog cost function framework augmented
with public infrastructure such as irrigation, roads and rural electrification7. They
used more a recent data set covering 12 regions and period 1974-2000.
From their study, a higher TFP estimate was noted during the late 1970s,
but this was followed by a discernible decline in the 1980s and 1990s. The higher
this decade, it was technological change that spurred the growth of productivity,
although its contribution was not sufficient to sustain the higher productivity level
of the late 1970s. On the other hand, in the last decade, there was a recovery of
contribution of public infrastructure to productivity, though this did not reverse the
overall trend in TFP growth. For the entire period, TFP grew with an annual
average growth rate of 1.42 per cent. The contributions of technological change
and public infrastructure to TFP were comparable (1.81 and 1.99 per cent
role. This is in line with the findings of Evenson and Quizon (1991) emphasizing
changes in input demand, output supply as well as in profit. Overall, in this study,
7
Teruel and Kuroda (2005) also estimated a profit function. However, we did not further pursue
this line of inquiry since there were negative profits in some regions for some years.
62
Teruel and Kuroda (2005) provided empirical evidence showing that the decline
agricultural output and input. In the case of the cross-country or even the
country-specific study using time and cross sectional data, comparable and
consistent data are necessary to make comparisons over time and space. This
subsection deals with the measurement of inputs and outputs that may influence
the quantity of output and proceeds with a discussion of the measurement of the
include that of Mundlak, et al. (2002) in their study involving three ASEAN
countries, and those employed for country-specific analysis such as the works of
Evenson and Sardido (1986) and Teruel and Kuroda (2004, 2005).
For the past decade, the number of cross-country studies examining the
differences in agricultural productivity levels and their growth rates has increased
63
panel data sets, 2) the development of new empirical techniques to analyze this
type of data, and 3) the desire to assess the impact of Green Revolution and
Rao, 2003).
Most of the cross-country studies reviewed in this paper used the Food
and Agriculture Organization of the United Nations (FAO) panel data, spanning
for several decades from the 1960s to 1990s8. Most of these data are typically
The shortcomings of the FAO data have been cited in the literature (Thirtle, et al.,
1995; Fulginiti and Perrin, 1997, 1998; Arnade, 1998). This data set does not
account for the differences in input quality especially land, the chemical inputs
considered only fertilizers and excluded other chemicals for crop protection like
pesticides, and the machinery did not include animal draft power, equipment and
other machinery.
output in a manner that minimizes exchange rate distortions and facilitates inter-
measure involves the calculation of weighted world prices for each commodity,
prices. Aside from the international dollar measure, there are other ways to
aggregate agricultural output and these include the wheat unit approach and the
8
Other researchers used the data set from Hayami and Ruttan series of studies.
64
use of official exchange rates. The former was developed by Hayami and Ruttan
(1985) and this involved the calculation of the ratio of each individual commodity
price to the price of wheat in India, the United States and Japan, while the latter
and permanent cropland. Some studies exercised control over the differences in
land quality by using the international land quality index of Peterson (1987).
researchers have attempted to correct for the quality of the agricultural labor
animals (Cattle, sheep, goats, pigs, mules, horses, asses, buffaloes, camels,
65
ducks, chicken, and turkeys) using different weights usually taken from Hayami
For Mundlak, et al. (2002), the data set included time series data on the
quantity of output and inputs such as agricultural land, fertilizers, capital stock in
labor. The data were taken from the different sources: National Statistical
Coordination Board (NSCB), FAO, Fertilizer and Pesticide Authority (FPA) and
Mundlak, et al. study (2002), the data series construction will be discussed in
turn.
Fishery. National accounts were obtained in constant and current market prices
(pesos) from the Economic and Social Statistics Office of the National Statistical
Data on the area in hectares of agricultural land were taken from the
statistical databases found in FAO's website. This data series included the arable
and permanent cropland, along with permanent pastures. Data on the area in
hectares of irrigated land were also downloaded from the statistical databases of
66
the FAO website. Data on the consumption of fertilizers in metric tons were
as well as in livestock and orchard were estimated using the method of Larson,
Butzer, Mundlak, and Crego (2000). Data on gross domestic capital formation in
agricultural machinery and tractors in current pesos were taken from the
Philippine Statistical Yearbook. These were used to calculate capital stock. The
investment data were then converted to constant values using the agricultural,
fishery, and forestry GDP deflator before aggregating these to the capital stock
series. On the other hand, the data on gross domestic capital formation in
breeding stock and orchard development were in constant and current market
prices (pesos) taken from NSCB. These were also used in calculating capital
stock.
Labor force data were obtained from the Philippine Statistical Yearbook
and the Bureau of the Census and Statistics' (BCS) Survey of Households, now
known as the National Statistics Office (NSO). When available, data on total
Philippine agriculture for the analysis of production structure and for productivity
estimation. Evenson and Sardido (1986) constructed a data set for years 1948-
1974 for 9 regions. They also assembled agricultural data series for the years
67
1974-1984 using a 12-region classification. The most recent data set can be
attributed to Teruel and Kuroda (2004, 2005). This cross-sectional and time-
period. This period spans the post-Green Revolution era and the period
Teruel and Kuroda’s (2004, 2005) data set was constructed using assumptions
Evenson and Sardido (1986) define agricultural output as the gross value
of production of agricultural crops and livestock. Most of the data for this series
were taken from the Raw Materials Resources Survey for Agriculture (RMRSA)
of the Department of Agriculture and Natural Resources (DANR) and from the
year basis.
sugarcane, fruits, and other crop production such as root crops, onions, potatoes,
beans and peas, vegetables, coffee, cacao, peanuts, abaca, tobacco, cotton,
kapok, ramie, rubber, maguey, and other commercial and food crops. Annual
crop prices were computed by dividing the crop value by the quantity of
production.
68
For the regional livestock and poultry production, Evenson and Sardido
(1986) included meat, milk and egg production of farm households as well as
changes in the livestock and the poultry inventories. Annual changes in the
inventories from 1948 to 1984 were computed using the annual regional
ducks, geese, and turkeys from the RMRSA and the CLS. Dressed weights of
the slaughtered livestock and poultry in each region were also obtained from the
RMRSA and the CLS. Missing years were filled in by using the ratios of dressed
crop prices. Meat prices were computed as the price of a particular animal
and permanent crops or cultivated land, and (b) all other agricultural land (land
under temporary and permanent pastures, land temporarily idle/fallow, etc.). Area
measures of other agricultural land were not available from the RMRSA and the
CLS. This series was constructed by initially using the regional estimates of all
other agricultural land from the 1948, 1960, 1971 and 1980 Censuses of
years.
69
2. Cultivated land is reported as crop area capturing the effects of multiple
cropping. Evenson and Sardido (1986) converted this crop area into physical
land area by first computing the multiple cropping indices as the ratio of crop
area to physical area in each region. Then, these multiple cropping indices were
completed for the missing years by interpolation and extrapolation using the
1948, 1960, 1971 and 1981 BCS Censuses of Agriculture. Finally, to purge the
land data series of the effects of multiple cropping, crop areas were subsequently
divided by their respective multiple cropping indices. For each type of land, they
constructed a rental series for the 1948-74 data and assumed constant shares
production. The labor data series was based on annual data from the Philippine
and fishing, as a group. Evenson and Sardido (1986) assumed that labor
employment for this group of economic activities. This assumption was adopted
years. This was done especially for the years prior to 1967.
70
In computing for the equivalent man-days (LMDt), the regional
employment in agriculture had to be broken down by age and sex. For age
distribution of agricultural employment by age for each year and applied this
the equation:
mt f C
LMDt = 23 Mat + 15 t ( 0.75) Fat + t ( 0.50 )( Mct + Fct ) 74
8 8 8
t = time
This equation implies that females and children have working capacities
equal to 75 and 50 per cent, respectively, of the working adult males. The
equation further assumes that the adult male workers work 23 weeks a year
while female adults and children work only 15 weeks a year. This assumption
71
was adopted from Oppenfeld, et al. (1957). Regional agricultural wages were
The farm machinery data series was based heavily on the annual national
stock data for four-wheel tractors, hand tractors, plows, harrows, and other
Kt = (1-d) Kt = 1 + I t 75
construct this input series, Evenson and Sardido (1986) gathered the data on the
stock of farm equipment from the 1948 Census of Agriculture and the data on
gross domestic capital formation from the 1956 Capital Formation Study of
BaEcon and from the annual estimates of gross domestic capital formation in
Sardido (1986) computed the annual depreciation rate using the 1948 and the
1956 benchmarks and the annual gross domestic capital formation data. In a
similar manner with the labor input, adjustments or estimations were done to fill
was assumed to be 16.2 percent of the total value of each region's agricultural
capital stock. This was based on the interest rate assumed to be 10 per cent and
the depreciation rate of 6.2 per cent. Implicit price indices for farm equipment
72
were computed from the National Income Accounts. They were assumed to be
The fertilizer input series was constructed using data from the different
sources. For the years 1956-1975, the total supply of fertilizer in nutrient
equivalents (the sum of domestic production and imports unadjusted for year-end
stocks) was taken from Anden (1976). This series was extended backwards to
available for the years 1948 to 1955 into their nutrient equivalents using the
constant conversion factor computed as the average ratio of total nutrient supply
For the years 1974-1984, fertilizer consumption was based on the fertilizer
sales of the distributors obtained from the Fertilizer and Pesticide Authority.
Regional series construction was done by distributing the total sales to the
regional fertilizer sales by nutrient were then computed based on the proportion
of N, P, and K to the total nutrient demand and then multiplied by the total sales.
The series on work animal was based on the 1948, 1960, 1971 and 1980
Censuses of Agriculture. Working carabaos and cattle stocks were estimated for
73
A regional data set on agricultural products and inputs was assembled for
the years 1974-2000. Like Evenson and Sardido (1986), the data were reported
on a calendar year basis using the 12-region classification for the Philippines9.
The data set accounted for 88 per cent of the total volume of crop production and
almost 100 per cent of the total poultry and livestock production.
The data on the quantities and prices of the different agricultural products,
inputs, and areas planted were sourced from the several occasional publications
rootcrops (camote, cassava, gabi, pao galiang, tugui, and ubi or yam), fruits
radish and tomato). Livestock and poultry products, on the other hand, included
meat of cattle, carabao, hogs, goat, chicken, and ducks, as well as chicken and
duck eggs. The prices reported in the data set were farmgate prices. Gaps in the
The data on land variable is the sum of the areas for all the crops (i.e. rice,
9
The twelve regions are as follows: Ilocos, Cagayan Valley, Central Luzon, Southern Tagalog,
Bicol, Western Visayas, Central Visayas, Eastern Visayas, Western Mindanao, Northern
Mindanao, Southern Mindanao and Central Mindanao.
74
Labor was reported in terms of equivalent man-days (MD) spent in
number of male and female workers aged 15 years old and over who were
MD = 160∗ M + 105∗0.75∗ F 76
where M refers to the number of male workers and F refers to the number of
female workers, following Quizon (1980) and Evenson and Sardido (1986).10 The
equivalent mandays equation reflected the assumption that a female worker had
75% of the working capacity of a male worker, and that an adult male agricultural
worker worked 160 days in a year while an adult female worked 105 days in a
year.11 Regional agricultural wages referred to the average daily wage (without
work carabaos and work cattle by assuming that these animals worked an
average of 220 and 150 days a year, respectively. 13 The cost of services of work
animals per work day was assumed to be one-half of the daily wage rate of
agricultural labor.14
10
These authors included the number of male and female children who were employed in
agriculture in their computation of equivalent mandays. This was not done in this study however
due to the unavailability of such data for most of the years covered by the data series.
11
The latter assumption on the number of workdays of males and females was based on a study
by Oppenfeld, et. al.(1957).
12
This is a weighted average of the wages received by farm workers in rice, corn, coconut and
sugarcane farms.
13
The assumptions on the number of workdays were adopted from Quizon (1980).
14
This was the assumption used in the Evenson data set.
75
Fertilizer quantities were reported in metric tons of nutrients, i.e. nitrogen,
phosphorus and potassium. Raw quantity data were taken from the Fertilizer
reported by fertilizer grade (e.g. 46-0-0, 14-14-14, etc.). The data on the volume
equivalents. The fertilizer grade indicates the nutrient content of the fertilizer.
For example, let x-y-z be a fertilizer grade. Then the nitrogen content of this
was computed by getting the nutrient content of all the fertilizer grades consumed
in the region, and summing these by type of nutrient (i.e. nitrogen, phosphorus
Fertilizer prices were reported in the data set in pesos per kilogram of
nutrient. For a given region, the price per kilogram of nutrient in a particular
Let x-y-z be a fertilizer grade, and let Px-y-z be its retail price per kilogram in
region i. Then the price per kilogram of nitrogen in x-y-z is P x-y-z/x%; of
phosphorus is Px-y-z/y%; and of potassium is Px-y-z/z%.
These prices were computed for all the fertilizer grades consumed in the
region. Thus, for a given region, there were as many prices per kilogram of
15
FPA defines consumption/sales as withdrawals from importers’ and manufactures’ warehouses.
No data on actual consumption were available.
16
For example, for the year 1974, there were five fertilizer grades containing nitrogen (46-0-0, 21-
0-0, 16-20-0 and 14-14-0, 14-14-14), two fertilizer grades containing phosphorus (16-20-0 and
14-14-14), and two fertilizer grades containing potassium (0-0-60 and 14-14-14). Thus there
were four computed prices of nitrogen, one for each grade, and two prices each of phosphorus
and potassium.
76
derive the final price estimates for a given region, the prices per kilogram of a
particular nutrient, say nitrogen, computed for the various fertilizer grades were
weighted by the ratio of the nitrogen content of a particular grade to the total
nitrogen content of all the grades consumed in the region. For example, the
computation of the price per kilogram of nitrogen for region i in 1974, denoted by
PN,i is as follows:
Ng
PN , i = ∑ PN , g ∗ 77
g total N
where PN,g is the region’s price per kilogram of nitrogen in fertilizer grade g, g=
The data on seeds, which included rice and corn seeds, were taken from
the Supply-Use data of BAS. The price of seeds was based on the farmgate
The sources of the data they used to construct the data series on
agricultural machinery were: (i) the 1978 BAEcon Capital formation Study and (ii)
the annual national estimates of gross domestic capital formation17 from the
Coordination Board.
17
Based on the Manual on the Philippine System of National Account, gross domestic capital
formation consists of two major components; the gross fixed capital formation and the change in
stocks. The gross fixed capital formation refers to the outlays on construction, durable equipment
and breeding stocks, orchard development and afforestation. Change in stocks, on the other
hand, refers to the difference between ending and beginning inventories such as finished goods,
work-in-progress, and raw materials, which have been produced or purchased but not yet sold or
consumed as intermediate inputs during the accounting period.
77
To estimate the national stock values of agricultural machinery for 1974-
K t = (1 − d ) K t −1 + I t 78
agricultural machinery, d to the depreciation rate, and t to the time subscript. The
benchmark figure used for k was the 1973 value of agricultural machinery
(=185.6 million pesos, in current prices) reported in the 1978 BAEcon Capital
Formation Study, and the depreciation rate was assumed to be 10%. The
investment data used were the data on gross domestic capital formation in
agricultural machinery and tractors (in current prices) taken from Economic and
prices were deflated using implicit price indices computed from the ESSO data.
depended on the (deflated) value of the capital stock, the interest rate and the
K st = ( d + r ) K t 79
where Kst is the value of capital service in year t, Kt is the deflated value of capital
stock in year t, d is the annual depreciation rate which they have assumed to be
10% and r is the annual interest rate, also assumed to be 10%. Implicit price
indices were computed from the ESSO data as the ratio of the current price to
18
The ESSO reported data on gross domestic capital formation separately for agricultural
machinery and for tractors other than steam. We define agricultural machinery to be inclusive of
tractors, so the sum of the gross domestic capital formation data for these two categories of
durable equipment were used in the estimation.
78
the constant price estimates of gross domestic capital formation in agricultural
machinery and tractors. The computed indices had 1985 as base year; these
6. Literature Gaps
methodologies used or probably due to the use of different data sets assembled
using different assumptions and time periods. Although this paper highlights the
79
The performance during the 1950s was generally good. This was followed
by a decline in the decade of the 1960s and a recovery between 1970s and
decline, however, followed through until 2000. These empirical results seem to
and Perrin, 1997, 1998, 1999; Kawagoe et al., 1985; Lau and Yotopoulos, 1989
and Kawagoe and Hayami, 1985). At the regional level, the regions in Luzon are
generally more productive than in the Visayas and Mindanao especially in recent
years. The regions of Ilocos and Central Luzon are identified as the relatively
more productive regions. Bicol region, on the other hand, is consistently the
least productive of the regions and in some years experienced negative growth
rates.
6.2 Estimation
studies are the growth accounting approach and the econometric approach. The
translog production function and the dual translog cost function. All dual
estimations dealt with a single output case, indicating that multiple output dual
80
models have not been fully exploited in studying agricultural productivity in
Philippine agriculture. The index number procedure is also seldom used, while
the DEA-based Malmquist index procedure has not been applied so far to
handling inputs and outputs without requiring information on prices and weights,
which are often problematic under the Philippine context. A number of these
studies. Just like the DEA-based Malmquist index approach, the stochastic
frontier approach has not also been used to empirically estimate productivity
6.3 Data
Regardless of the source of data, there are several data issues that are
81
specialized nature of modern agriculture, it will be interesting to have
1.4 The most recent data set maintained a 12-region classification. There
1.5 The use of the following assumptions in constructing the data set need
to be validated:
82
iii. The assumption used in the calculation of the equivalent
animal work day that the carabao and the cattle work an
iv. The cost of services of the work animals per workday was
labor.
83
tractors. These techniques are commonly used and these might have
In spite of the fact that all studies reviewed in this paper used different
data sets, time frames and theoretical constructs, most of these studies revealed
positive growth rates for Philippine agriculture. A review of the existing literature,
offered by the studies due to the reported problems such as the data gaps or
difficulties in constructing relevant data series especially at the regional level and
also in terms of the use of restrictive assumptions to fill in the missing years, the
84
On the issue of methodology, there is a need to highlight the use of
models with functional forms that are flexible enough to take into account the
complexity of relations between output and input and between various inputs to
and the SFA. Aside from productivity estimates, these approaches can provide
agriculture not readily available when using for example the index number
procedure. For Philippine agriculture, one can also use the DEA-based
There is also a need to identify the data requirements for chosen methods
and conduct a detailed quality assessment of all readily available data series and
consider alternatives for correcting the common data problems. The econometric
index approach. The former requires both data on quantity and prices of output
and input, while the latter provides options to use either the data on output or
have been shown to cause biases in the parameter estimates that are used in
productivity estimation.
85
In preparing for the data series, there is also a need to develop options for
obtaining the missing data of interest and to assess the feasibility of obtaining the
required data. The missing data problem is more common in all inputs than in
output data and more conspicuous in pooled time-series and cross-sectional data
set.
agenda for the longest time due to its welfare implication. Because of its
characteristic stands out, that is, most publications measure sectoral productivity
research studies addressing this empirical issue such as those of Lence and
Miller 1998; Paris and Howitt, 1998 and Just, Zilberman and Hochman, 1983).
relative to the extensiveness of a broad body of international work that has been
published with regard to productivity since the 1980s. The attempt to investigate
key issues related to data and estimation will not only bring research on
86
Table 1: Productivity Studies on Philippine Agriculture: 1986-2005
87
Fulginiti and 1998 1961-1985 -0.0030 Malmqvist Index
Perrin
Coelli and Rao 2003 1980-2000 0.0080 Malmqvist Index
Coelli and Rao 2003 1980-2000 0.0130 Index Number Approach
(Törnqvist Index Procedure)
Mundlak, Larson 2004 1961-1998 0.0025 Production function
and Butzer
Country-specific
Studies
Evenson and 1986 1950-1984 0.0190 Growth Accounting Method
Sardido
Cororaton and 2001 1980-1998 -0.0056 Growth Accounting Method
Cuenca
Teruel and 2004 1974-2000 0.0051 Translog Variable Cost
Kuroda Function
Teruel and 2005 1974-2000 0.0162 Index Number Approach
Kuroda (Törnqvist Index Procedure)
Teruel and 2005 1974-2000 0.0091 Cobb-Douglas Production
Kuroda Function
Teruel and 2005 1974-2000 0.0142 Translog Cost Function
Kuroda
Table 2: Productivity Estimates Across Subperiods in Philippine Agriculture
Authors Year Years Productivit
Covered y Estimates Methodology
Evenson and 1986 1950-1954 0.021
Sardido 1955-1959 0.024
(5-year subperiod) 1960-1964 0.018 Growth Accounting Method
1965-1969 0.008 (Land Rents Based)
1970-1974 0.014
1975-1979 0.053
1980-1984 -0.011
Evenson and 1986 1950-1954 0.027
Sardido 1955-1959 0.025
(5-year subperiod) 1960-1964 0.019 Growth Accounting Method
1965-1969 0.010 (Fixed Share = 0.3)
1970-1974 0.021
1975-1979 0.053
1980-1984 -0.011
Evenson and 1986 1955-1964 0.021
Sardido 1965-1974 0.013 Growth Accounting Method
(10-year subperiod) 1975-1984 0.021 (Land Rents-based)
Evenson and 1986 1955-1964 0.022
Sardido 1965-1974 0.016 Growth Accounting Method
(10-year subperiod) 1975-1984 0.021 (Fixed Share = 0.3)
Corroraton and 2001 1981-1989 -0.054 Growth Accounting Method
88
Cuenca 1990-1998 0.042
Mundlak, Larson 2004 1961-1980 0.0098 Production Function
and Butzer 1980-1998 0.0013 (With State Variables)
Teruel and Kuroda 2004 1974-1980 0.0077
1981-1990 0.0050 Translog Variable Cost
1991-2000 0.0035 Function
Teruel and Kuroda 2005 1974-1980 0.0219
1981-1990 -0.0053 Cobb-Douglas Production
1991-2000 0.0144 Function
Teruel and Kuroda 2005 1974-1980 0.0250 Index Number Approach
1981-1990 0.0050 (Törnqvist Index Procedure)
1991-2000 0.0260
Teruel and Kuroda 2005 1974-1980 0.0201
1981-1990 0.0116 Translog Cost Function
1991-2000 0.0084
89
Central Visayas - 0.0059 0.0107
Northern-Eastern 0.0254 - -
Mindanao
Western-Southern 0.0109 - -
Mindanao
Western Mindanao - -0.0028 0.0017
Growth Accounting
Approach
Evenson and Sardido 1986 1950-1984 0.0190 Growth Accounting Method
90
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