The Total Factor Productivity Analysis In Algeria

Total factor productivity (TFP) is one of the most important concepts in macroeconomics, also an important indicator in analysis the economic growth’s sources, In particular it’s an important basis for the Government to establish sustainable growth policies in long-term. Enhancing total productivity growth is essential to achieve high economic growth, substantial improvement in income distribution, relative price stability and poverty eradication..., in neoclassical economics growth theory the U.S. economist, Robert Merton Solow shows that the technological progress rate can be measured through estimating the TFP thus can measure the quality of the economic development in certain region or country. TFP has always been an important aspect of Algeria’s economic policy; this is evident in every stage of Algeria’s economic development plans which continue to focus on improving it.Through analysis the Algerian economic growth circumstance and its weaknesses’ reasons and using Solow residuals method to estimate Algeria TFP growth rate, we discovered that Algeria economic growth is so slow moreover the TFP is also so low; on one hand, these results much up with the economic development level in Algeria, this indicates that Technical progress has a vital role in promoting economic development in Algeria. In the other hand, after investigating which factors affect the TFP in Algeria, Regression results showed that government expenditures on education has the greatest impact on technological progress; then FDI role in promoting scientific and technological progress followed; Educated workforce also has an important role in promoting Algeria scientific and technological progress; and Oil revenues also has a significant role in promoting technological progress, But the inflation rate has a slight negative effect on technical progress. In summary, TFP and its influencing factors analysis proves that Algeria income sources, economic openness, human resources development, all these factors promote the TFP, but economic instability has a negative impact on TFP. Finally, the study focused on how to improve Algeria’s total factor productivity by given the appropriate policy recommendations.