Dear all,
TFP is calculated by dividing output by the weighted average of labour and capital input, with the standard weighting of 0.7 for labour and 0.3 for capital.
,
As per the data available, The output variable considered in the study is Sales.
The inputs proxies are
1. Gross fixed asset (for capital),
2. employee salaries (for Labour),
3. power and electricity expenditures and
4. raw material expenditures.
one simple way to calculate TFP is
=sale/
(Gross fixed asset + employee salaries + power and electricity expenditures + raw material expenditures)
Another is
=sale/
(Wgt Avg. x Gross fixed asset + Wgt Avg. x employee salaries + Wgt Avg. x power and electricity expenditures + Wgt Avg. x raw material expenditures)
Wgt Avg.= Weighted average
If the inputs are labour and capital only then I will take the standard weighting of 0.7 for labour and 0.3 for capital. but If I have four input used (as mentioned above) then
Q1. What will be the average weights of these four variables? Whether these weights are standardized and mentioned anywhere or I need to calculate it.
Q2. If these (weights) are to calculate then kindly let me know how to do that.
Thanks in advance
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