Total Factor Productivity Gap Mitigation
RCTReview
Manufacturing firms in developing economies suffer from severe Total Factor Productivity deficits compared to international benchmarks, utilizing labor, machinery, and capital inefficiently.
Picture this
Imagine two identical bakeries that purchase the exact same flour, ovens, and electricity, paying equal wages to five workers each. One bakery produces 100 loaves of bread a day while the other produces only 40 because workers constantly drop dough or wait around for ovens to heat up. Improving workflow coordination enables the second bakery to make 100 loaves using the exact same flour, power, and staff.
What the evidence says
Adopting baseline management practices increased total factor productivity by 16.6% within one year and generated an estimated US$325,000 increase in annual profit per plant, narrowing the TFP gap between Indian and US firms.
- Who was studied
- N = 17 large textile manufacturing firms (28 factory sites) around Mumbai, India, averaging 270 human workers and US$13 million in assets.
- How
- Randomized Controlled Trial (RCT) evaluating total factor productivity shifts after deploying 38 standard management practices across treatment plants.
What to do
Reallocate managerial focus toward low-cost operational coordination practices to boost output yield from existing capital and labor inputs.
From the source
"Despite India's rapid growth in the past two decades, total factor productivity... in India is about 40 percent of that in the United States. This may be related to the poor management of many Indian firms..."
Increasing_Firm_Productivity_through_Management_Consulting_Services.pdf