Economic Theory

, Volume 32, Issue 1, pp 179-221

First online:

Sources of TFP growth: occupational choice and financial deepening

  • Hyeok JeongAffiliated withDepartment of Economics, University of Southern California
  • , Robert M. TownsendAffiliated withDepartment of Economics, University of Chicago Email author 

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This paper explains and measures the sources of total factor productivity (TFP) by developing a method of growth accounting based on an integrated use of transitional growth models and micro data. We decompose TFP growth into the occupational-shift effect, financial-deepening effect, capital-heterogeneity effect, and sectoral-Solow-residuals. Applying this method to Thailand, which experienced rapid growth with enormous structural changes between 1976 and 1996, we find that 73% of TFP growth is explained by occupational shifts and financial deepening, without presuming exogenous technical progress. Expansion of credit is a major part. We also show the role of endogenous interaction between factor price dynamics and the wealth distribution for TFP.

JEL Classification Numbers

O47 O16 J24 D24


Total factor productivity Occupation choice Financial deepening