Capacity Realization and Productivity Growth in a Developing Country: Has Economic Reform Had Impact?

Introducing the new concept of "capacity realization" in production economics, this book develops a methodology for measuring it using the random coefficient regression model. It also develops another methodology for measuring total factor productivity (TFP) growth as component measures, such as technical progress and changes in capacity realization. The benefit of this method is that allowing for the inefficiency of firms, productivity growth is estimated rather than taken as a residual as is usually measured in the traditional Solow-type growth accounting approach. Both methodologies were applied to firm level data in Bangladeshi manufacturing. The way that these methodologies were constructed means that they can be applied to analyze the impact of reforms on various production units, such as manufacturing firms. The significant feature of this TFP growth approach is that it explicity considers productive capacity realization in measuring productivity growth, which is consistent with economic theory. It is a useful approach to measure the impact of reforms on production units.