Category Archives: Macroeconomics

What is Total Factor Productivity (TFP)?

In growth theory, changes in output (GDP) are explained through changes of production factors, i.e. changes in labour or capital. Economists consider the residual, i.e. the part of changes in output that one cannot explain with changes of production factors, as total factor productivity (TFP) or technological change. In contrast to labour productivity, that relates output only to labour, total factor productivity states how efficiently an economy uses all its production factors.  Continue reading What is Total Factor Productivity (TFP)?

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The Gini Coefficient

The Gini Coefficient is often used an indicator of inequality in a country. Additionally, one can also use the Gini Coefficient as an indicator of economic development. The Gini Coefficient is based on the Lorenz Curve and measures the degree of income or wealth inequality in an economy. The coefficient is bound between zero and one. This means that the coefficient can take on values between zero and one. A Gini Coefficient of one states complete inequality. That is, one single person receives all the income or holds all the wealth of the economy, while all others receive or own nothing. A Gini Coefficient of zero implies perfect equality. That is, all individuals obtain the same income. See the discussion of the Lorenz Curve for a clear illustration of the concept.  Continue reading The Gini Coefficient