MULTIFACTOR PRODUCTIVITY AND FINANCIAL DEVELOPMENT: EVIDENCE FROM D-5 COUNTRIES

Abstract

Multifactor productivity is a data set that has been published by Organization for Economic Co-operation and Development (OECD) and it harbors the variables such as management practices, brand names, organizational change, general knowledge, network effects, spillovers from production factors, adjustment costs, economies of scale, the effects of imperfect competition and measurement errors that affect the productivity of labor and capital. According to this, the part that cannot be explained in the growth with labor productivity and capital efficiency is belonging to the index of multifactor productivity. In other words, the part that cannot be explained in the growth has originated from the variables that may be called as institutional capacity such as management practices, brand names, organizational change, general knowledge, network effects, spillovers from production factors, adjustment costs, economies of scale, the effects of imperfect competition and measurement errors. Since the institutional capacity will influence the financial decisions of people, it has been estimated that there is a close tie between multifactor productivity and financial development. In this regard, in the study, the relationship between multifactor productivity and financial development has been established in 5 developed countries (Germany, USA, France, Japan, and Canada) for the period of 1990-2018. For the period of 1990-2019, whether the aforementioned countries has been affected from multifactor productivity and the way of causality between financial development and multifactor productivity have been researched with panel VAR analysis. As a result of the study, the existence of a relationship from multifactor productivity to financial development and a long-termed relationship between multifactor productivity and financial development in the aforementioned countries were detected.